IGST Act in India

4
417
IGST Act in India
IGST Act in India

Under the GST regime, a “dual GST” model has been introduced keeping in mind the federal structure of India. Instead of levying different type of taxes by both the center and the state, GST will be levied on every supply of goods and services which take place within the boundary of the state.

GST has two components:

  1. Central tax (CGST) which is levied and collected under the authority of CGST Act, 2017 as per the law passed by the Parliament.
  2. State tax (SGST) which is levied and collected under the authority of SGST Act, 2017 passed by respective states.

Breaking Down IGST

IGST means Integrated Goods and Services Tax which is the tax levied on the supply of any goods or services in the course of inter-state trade and commerce. To be very short and precise, under the new GST regime, intra-state movement of goods and services attract (CGST+SGCT) and inter-state movement of goods and services attracts IGST.

Advantages of IGST Model

Some of the main advantages of IGST model are as follows;

  • The new IGST model ensures tax neutrality while keeping the taxation system simple and uninformed.
  • The new IGST model is based on the concept of self-monitoring.
  • IGST ensures that accounting is simple and no additional burden of compliance lies on the taxpayer.
  • An unbreakable ITC chain or inter-state transactions are maintained through IGST system.
  • In IGST Model one does not have to make an upfront payment of taxes or a substantial blockage of funds for the interstate seller or buyer.

Payment Procedure for IGST

The IGST payment can be done by utilizing ITC or by Cash. The use of ITC for the payment of IGST will be done in the following manner;

  • Priority will be given to ITC of IGST for the payment of IGST.
  • If ITC of IGST is exhausted then ITC of CGST should be used for the payment of IGST.
  • In case, ITC’s of both IGST and CGST are spent-out then the dealer alone will be authorized to utilize ITC of SGST for the payment of IGST.
  • Even after the following step if there is any remaining IGST liability then it should be cleared through payment by cash.

The taxpayer must not worry about this multi-step process. GST system will ensure the maintenance of this hierarchy for payment of IGST using the credit.  

Adjustment of Input Tax Credit between the State and the Center

Let us take a situation to understand this concept

Suppose that, goods worth Rs. 20 thousand are sold by a manufacturer ‘X’ in Gujarat to the dealer ‘Y’ in Gujarat itself. ‘Y’ resells them to a trader ‘Z’ in Madhya Pradesh for Rs. 25 Thousand. Trader ‘Z’ finally sells the end user ‘P’ in Madhya Pradesh for Rs. 30 thousand.

Now, in this situation,

  • SGST = 9% and CGST = 9% which makes the IGST = 9%+9% = 18%.
  • X selling to Y is an intra-state sale hence both CGST at 9% and SGST at 9% will apply.
  • Y (from Gujarat) is selling to Z (Madhya Pradesh) and this is inter-state sales hence IGST@18% will apply.
  • Z is selling to the end user P and this is an intra-state trade, hence SGST at 9% and CGST at 9% will apply.
  • GST is a consumption based tax, which means the state where the goods were consumed will collect GST. By that logic, Gujarat (where goods were sold) should not get any taxes. Madhya Pradesh and Central both should have to pay (30,000 x 9%) = 2,700 each.
  • Gujarat (exporting state) will transfer the credit of SGST (Rs. 1,800) to the center for the payment of IGST.
  • The Centre will transfer the tax amount to Madhya Pradesh (importing state), which means Rs. 450 for IGST.

From the above example, it is clear that there is a breakup of three taxes but together they serve the purpose of GST only.

SHARE
Previous articleGST Refund Policy in India
Next articleHow the Implementation of GST has Impacted Start-ups in India
All India ITR
All India ITR, one of India’s leading tax prep websites offering personal tax solutions focussing on income tax return filing through tech platforms, be it the web, Android or iOS, is dedicated to making tax returns as easy and convenient and yet as complete as possible. With value added services to help maximise tax savings and minimise tax outgo and tax investment advice the comparative advantage of specialization allows us to uniquely serve our clients. All India ITR is certified to conduct E-return intermediary services by the Income Tax Department of India.

4 COMMENTS

  1. Great work by ITR team it really nice to explaing everything about taxes.
    Thnx for this this really help me alot.This blog is really helpfull for us to know more about IGST taxe in India. This tell us everything that we should know about IGST taxe in India. This is like a algorithm to fill taxes becaute it tell us step by step how we should fill taxes and yes it is also easy to understand. It tell breifly and accurately about taxes. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.Great keep it up.

  2. excellent piece of work.Its great to explain everything with the help of simple examples or instances especially those calculations .It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.
    Thanks , this really help me alot.

  3. Thanks this blog has really helped me alot. This really helps and tells a process that is required to fill up an Income tax return. This blog tell us step by step how we should fill taxes and yes it is also easy to understand. Each and every details have been mentioned in simple and clear language.
    i would prefer anyone to have a eye on it to clear all their doubts. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.It tell breifly and accurately about taxes. The blog is very detailed and the way it explains the things is very easy to understand and to retain it really helps a person on how to fill up the ITR and how to enquire about it. Great work from ALL INDIA ITR since it is a very well written and a very useful blog.

  4. I know about IGST before but this really helps me to understand various things that I aware of this it clear all my doubt about how it will be process and at what rate at the vaious places it will occur and most important the advantages and the disadvantages of its it expaling in very nice way that every one can easily understood, IGST means Integrated Goods and Services Tax which is the tax levied on the supply of any goods or services in the course of inter-state trade and commerce. To be very short and precise, under the new GST regime, intra-state movement of goods and services attract (CGST+SGCT) and inter-state movement of goods and services attracts IGST.also how its break down.

LEAVE A REPLY

Please enter your comment!
Please enter your name here