IGST – Integrated Goods and Service Tax
1. Basic understanding about IGST Act and knowing what is IGST full form
The IGST full form under GST law is Integrated Goods and Service Tax. It is called as IGST Act 2017.
The scope of IGST Model gives meaning to the GST Act of which IGST is one of the component. The IGST Act clarifies that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.
The seller making supply outside the state will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. And the exporting State will transfer to the Centre the credit of SGST used in payment of IGST.
On the other hand, the Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will then transfer to the importing State the credit of IGST used in payment of SGST.
The relevant information will also be submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.
2. What is IGST?
"Integrated Goods and Services Tax” (IGST) means tax levied under this Act on the supply of any goods and/or services in the course of inter-State trade or commerce and for this purpose,
|Finer point 1||A supply of goods and/or services in the course of import into the territory of India shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.|
|Finer point 2||An export of goods and/or services shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.|
Integrated goods and services tax (IGST) would mean the tax levied under IGST Act on the supply of any goods and / or services in the course of inter-state trade or commerce.
Integrated GST shall also apply to import of goods and services into India. The basic ideology stipulates that any supply of goods or services in the course of import of goods or services into Indian territory shall be deemed to be supply involving inter-state trade or commerce and hence liable to IGST.
For transactions that are look alike of import transactions and export of goods and services, shall be deemed to be supply in course of inter-state trade or commence.
Interstate trade or commence will, therefore include :
- Supplies made in the course of – Inter-state trade or commence
- Import into Indian territory (deemed to be inter-state)
- Export (deemed to be inter-state)
Thus, Integrated GST shall apply to inter-state transactions and import as well as export transactions (deemed to be inter-state transactions) relating to supply of goods and / or services.
3. Origin and commencement of IGST Act
The Act is called the Integrated Goods and Services Tax Act, 2017 (in short IGST), an Act enacted to levy, collect and administer IGST in India.
This Act shall be applicable to whole of India, i.e., including the State of Jammu & Kashmir. And shall come into force from a date which will be notified by the Central Government by way of a notification.
4. Salient features of IGST Act 2017
- Continuance of uninterrupted ITC chain on inter-State transactions.
- No requirement to pay tax upfront or substantial blockage of funds for the inter-State seller or buyer.
- No claim of refund of taxes paid in exporting State, as ITC is used up while paying the tax.
- Self monitoring model.
- Activity of streamlining is limited to inter-State dealers and Central and State Governments
- As Dealers making inter- state supplies will be e registered and correspondence with them will be by e mail, the compliance level will improve substantially.
- The IGST Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.
5. Taxonomy of IGST law
The IGST Act comprises of the following 11 Chapters, 33 Sections and 8 Definitions.
6. IGST Example
Mr. X, a trader registered in Bangalore, sold goods to Mr. Y, a registered trader in Chennai, for Rs. 10 Lakhs and further Mr. Y sold these goods to Mr. Z, a registered retailer from Jaipur, for Rs. 11 Lakhs.
|For First transaction between Mr. X and Mr. Y||
|For Second transaction between Mr. Y and Mr. Z||
|Who pockets the taxes here? [Note : Key point to remember : GST is a consumption based tax.]||
What conclusion could be derived from this IGST example ? Inter-State trade will definitely benefit as the interstate transactions do not have to be taxed twice.
This is in contrast to erstwhile tax laws where if you purchased goods from Chennai, you pay tax there and then again in your state in which you ultimately sell it. This helps the traders to increase their Inter-State trade by lowering tax burden.