WHAT IS IGST
IGST means Integrated Goods and Service Tax, one of the three categories under Goods and Service Tax (CGST, IGST and SGST) with a concept of one tax one nation. IGST falls under Integrated Goods and Service Tax Act 2016.
IGST is charged when movement of goods and services from one state to another. For example, if goods are moved from Tamil Nadu to Kerala, IGST is levied on such goods. The revenue out of IGST is shared by state government and central government as per the rates fixed by the authorities.
AS PER GST LAW
Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of interState trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
FEATURES OF IGST
- IGST equals to CGST+SGST. IGST model envisages that the centre will levy tax at a rate approximately equal to CGST+SGST on Inter-State supply of goods & services.
- It is a destination based tax and will accrue to importing state.
- It will lower tax burden by taxing Inter-State transaction only once.
- B2B transactions – tax will flow to the State where Purchaser claims Input Tax Credit.
- B2C transactions – tax will flow to the State of Consumer, otherwise tax will remain in the State of Seller.
EXAMPLE OF IGST
1. Tax rate of CGST and SGST are 15% and 12% respectively.
Anil, a Chennai registered trader, sold goods to Dev, a Mumbai registered trader, for Rs. 10 Lakhs and further Dev sold the goods to Bharat, a Delhi registered retailer, for Rs. 11 Lakhs.
Firstly, Anil sold the goods to Dev
- Anil willl collect IGST at the CGST+SGST rate on Rs. 10 Lakhs.
- Dev will get the credit which he can use for further payment of his GST. This credit will be given after the payment of IGST to Anil onRs. 10 Lakhs.
Secondly, Dev sold the goods to Bharat
- Dev will collect IGST at the CGST+SGST rate on Rs. 11 Lakhs.
- Bharat will get the credit which he can use for further payment of his GST. This credit will be given after the payment of the IGST to Dev onRs. 11 Lakhs.
So Finally, Maharashtra will get the SGST on Rs. 10 Lakhs from Chennai on the first transaction between Anil and Dev. Maharashtra will also be collecting tax on the second transaction between Dev and Bharat on the amount of Rs. 11 Lakhs which it will further transfer to the Central Government (CGST) and to the Delhi government (SGST).
Delhi will get the SGST on the amount of Rs. 11 Lakhs from the transaction between Dev and Bharat.
Hence, Inter-State trade will benefit as the interstate transactions do not have to be taxed twice. This is in contrast to present taxation regime where if you purchased goods from Mumbai you pay tax there and then again in your state in which you ultimately sell it. These will help the traders to increase their Inter-State trade by lowering tax burden.
ADVANTAGES OF IGST MODEL
- A simple, transparent and self-monitoring model.
- Maintenance of tax neutrality in the country.
- The overall tax paying process will be quick with no additional burdens on the taxpayer.
- No requirement for the physical verification of documents and claims as all the relevant data will be available on the GSTN server.
- As payment of tax will be on an online platform, the process will be easy and invulnerable to disputes and manipulations.
- Ensuring that the Input Tax Credit chain for the Interstate transactions is continuous.
- There will be no significant blockage of funds or an upfront payment of tax for the Interstate sellers and buyers.
- There will be no requirement of claiming refunds in the exporting State, as Input Tax Credit will be used up while paying the tax.
- Efficient management of ‘Business to Business’ (B2B) as well as ‘Business to Consumer’ (B2C) transactions.
- The uniformity in tax rates and simplified procedures in the country will also help in minimizing the cost of compliance.
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