Know all about IGST Full Form, Features, Work

India’s indirect tax system was intended to be made simpler and more uniform with the implementation of the Goods and Services Tax (GST) on July 1, 2017. The GST consolidated several taxes that the federal and state governments had previously imposed.

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What is IGST Full Form?

IGST means an Integrated Goods and Services Tax which will be levied on interstate supply. IGST is indirect tax, which will always charge when invoice made between a seller and a buyer who belongs from two different states & they have GSTIN of their states.

IGST is one of the types of GST Tax in India. When goods and services are carried from one state to another, an Integrated Goods and Services Tax (IGST) is applied or when seller and purchaser have different states GSTIN and transaction of sale & purchase effect due to billing from one state to another state. Since India is a federal nation, both the federal and state governments impose taxes, namely the CGST and SGST.

In addition to addressing potential problems resulting from various taxes being imposed under CGST and SGST on a single item without simplifying the transaction, IGST was notified in relation to interstate transactions.
Since IGST is the sum of CGST and SGST, interstate transactions are subjected to uniform tax rates. Also, however, the Central Government is administering this IGST and then distributing its revenue to the appropriate states.

Condition of IGST Charged

IGST means an integrated goods and services tax, which is levied on interstate supplies. IGST is an indirect tax, which is always levied when a seller and a buyer are registered under the GSTIN of two different states and an invoice is raised between them and goods or services transfer between 2 different states. IGST collect by the seller or provider of services on behalf of the Central Government.

Components of GST : What is CGST, SGST and IGST?

GST is a multi-tiered tax system comprising three main components or 3 types of GST taxes:

CGST (Central Goods and Services Tax) – The federal government’s collection of intra-state transactions.
SGST (State Goods and Services Tax) – Collected by the state government on intra-state transactions.
IGST (Integrated Goods and Services Tax) – Levied on inter-state transactions, i.e., when goods and services are transferred between two different states.

How Does IGST Work?

To better understand IGST Full Form it’s important to know that it applies primarily to transactions where the buyer and seller are in different states. The tax collected under IGST is later split between the central and state governments.

When Goods Move Inter-State: When goods are transferred from one state to another, IGST is charged at the rate applicable to the specific goods or services involved.
Cross-Border Transactions: In the case of export or import of goods, IGST is also levied. However, the exported goods are exempt from IGST Tax, and exporters can claim a refund for the IGST paid.
Input Tax Credit: Businesses involved in inter-state transactions can claim input tax credit (ITC) for the IGST paid, which can be offset against their future tax liabilities.

Features of IGST

Tax Based on Destination: IGST is defined as a destination-based tax, which means that the goods should be consumed within the state, and this is where the tax will be paid. Hence, the burden will finally be on the end consumer rather than the seller or manufacturer.
Hassle-Free Tax Pay: The tax defined is laid down and operational by the center that it should be distributed between state and central governments. This will ensure a smooth flow of taxation revenue between states.
Avoidance of Double Taxation: Thus, all would treat importing as sales, and no one could question the non-imposition of more than one tax on a transaction through the merger of CGST and SGST under one IGST. Works more efficiently and with less taxation.

IGST Example: A Step-by-Step Breakdown

Let’s understand how IGST will calculate with an example involving traders in different states:

Step 1: Mukesh (Ahmedabad) to Ajay (Mumbai)

Sale Amount: ₹20 Lakh
IGST Rate: 5%
An IGST of 5% on ₹20 lakh, or ₹1 lakh, will be charged by Mukesh when he sells Ajay products. Thus, Ajay would give Mukesh ₹21 lakh (₹20 lakh + ₹1 lakh), which includes IGST.

Step 2: Ajay (Mumbai) to Anita (Lucknow)

Sale Amount: ₹25 Lakh
IGST Rate: 5%
Next, Ajay sells the goods to Anita in Lucknow for ₹25 lakh, charging 5% IGST, which amounts to ₹1.25 lakh. The total amount payable by Anita to Ajay is ₹26.25 lakh (₹25 lakh + ₹1.25 lakh).
Ajay can claim a credit of ₹1 lakh for the IGST he paid to Mukesh and only needs to remit ₹25,000 to the government (the difference between ₹1.25 lakh and ₹1 lakh).
In this way, the tax burden is shared between the buyer and seller at every stage, and the central government facilitates the distribution of tax revenue to the respective state governments.
Ajay will deposit the balance above IGST amount to GST department with his monthly or quarterly GST return filing online through GST portal.

Revenue Sharing Under IGST

There are cases of inter-state transactions in which tax revenue is collected by the central government and distributed later to the destination state. To illustrate:

When Mukesh (living in Ahmedabad) sells goods to Ajay (from Mumbai), thus IGST revenue goes to the Maharashtra state government.
If Ajay sells that commodity further to Anita (in Lucknow), then he will transfer the IGST revenue to the Uttar Pradesh state government. This results in collecting taxes in the state where they actually consume & use the goods, unlike the one for which they are produced.

IGST and Export of Goods

In the case of exports, IGST Full Form is not charged on goods or services that leave India. However, exporters are entitled to a refund of any IGST they paid on inputs used to manufacture the exported goods.

IGST Refund

In several situations, businesses may be eligible for a refund of the IGST they paid, including:

Exports: IGST paid on exports can be refunded.
Payment to Incorrect Tax Head: If a business mistakenly pays IGST instead of CGST and SGST, it can claim a refund for the excess payment.

The refund process is managed by the central government, ensuring that businesses are not unduly burdened by the taxes they have already paid.

FAQs on IGST full form

What do you understand about IGST Full Form?
Full form of IGST is Integrated Goods and Services Tax. The IGST is a tax, charged on interstate supply of goods and services that integrates CGST and SGST in the final distribution of revenues between the central and state governments.
When does IGST come into effect?
When there is supply of goods and services from one state to another state within India, then IGST applies.
How do you calculate the IGST?
IGST is the rate applicable on the goods transferred or on services provided; the seller collects it and pays it to the central government.
Can IGST be adjusted with SGST?
No, IGST stands alone and does not adjust against SGST. Businesses can avail input tax credit (ITC) for any IGST paid to utilize it in respect of the future tax obligations.
Who collects the IGST?
The IGST is collected on behalf of the central government by the seller and is remitted directly to the central government for distribution among the state governments.
When seller can charge IGST on Invoice?
IGST can be charged on interstate transaction only when a seller have a valid GST number or GSTIN certificate and same should be active also. Here Seller will collect IGST from buyer and liable to remit the same to the central government after taking benefit of eligible ITC (if any).

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