IGST – Integrated Tax under GST

India’s GST is levied in three forms, namely Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST). While CGST and SGST are levied on the intra-state supply of goods and/or services, the latter is levied on the inter-state supply of goods and/or services. In addition to it, IGST is levied on the import and export of goods and/or services. Akin to CGST and unlike SGST, this form of tax is entirely collected by the Central Government. The article explores the provisions pertaining to integrated tax under GST.

CST and IGST – a Comparison

Under the previous tax regime, inter-state trade or commerce was regulated by the Central Sales Tax Act, 1956 wherein the taxes were collected and retained from the state of dispatch of goods and/or service, or in other words, the state of manufacture of goods. This was against the norm of indirect tax, wherein taxes are levied on the consumer. Factors such as the cascading of taxes in the absence of Input Tax Credit (ITC), increasing compliance costs due to the filing of various accounting forms, etc., complicated the tax system of those days.

Here’s how IGST has changed it:

• IGST, in contrast to CST, is a destination-based tax. As a result, the SGST component accrues to the State of the consumer.
• The tax system maintains the integrity of ITC chains in inter-state supplies.

Inter-State Supply

A supply of goods and/or services is classified as inter-state if the location of the supplier and the place of supply are in two different states; two different union territories; or in case of a transaction between a state and a union territory. Moreover, the import of goods into the country is also treated as inter-state trade or commerce.

Export of Services

A supply is considered as an export if:

• The supplier of service is located in India.
• The recipient of service is located outside India.
• The place of supply of service is located outside India.
• The payment of such services has been received by the Indian supplier in convertible foreign exchange.
• The supplier of services and the recipient of services are not mere establishments of a distinct person.

Import of Services

A supply is classified as an import if:

• The supplier of the service is located outside India.
• The recipient of the service is located in India.
• The place of supply of service is in India.

Wonder how to calculate IGST on imports? Here’s your guide.

Location

For tax purposes, the location of a supplier could be a registered place of business or a fixed establishment of the supplier. To qualify as a location, a premise has to be either a regular place of business or a fixed establishment and must hold an essential degree of performance and suitable structure in terms of human and technical resources.

Place of Supply

The concept of place of supply stakes a vital claim in the realms of GST. Its provisions have been framed in accordance with the principle of destination or consumption. The provisions related to the place of supply of goods and services has been explained below:

Place of Supply of Goods – Domestic Supplies

Place of Supply of Goods – Imports and Exports

Place of Supply of Services – Domestic Supplies

For the awareness of the taxpayers, the place of supply of the below-listed services is determined with reference to a proxy, while the likes of the remaining are governed by a default provision.

The Default Provision for Domestic Services

The following services qualify for a default provision.

Place of Supply – Cross-Border Supplies

Here again, the place of supply for the below-listed services is determined with reference to proxy, while the rest are governed by a default provision.

 Default Provision for Other Services

Supplies in Territorial Waters

Cross-Utilization of Credits

Cross-utilization is a mechanism wherein the credits of a tax component is utilized against the other. With respect to GST, the sum of ITC on account of IGST could be utilized for the remittance of IGST, CGST and SGST respectively. Likewise, the sum of ITC on account of CGST could be utilized for the remittance of CGST (but not SGST) and IGST respectively. Also, the sum of ITC on account of SGST could be utilized for the remittance of SGST (but not CGST) and IGST respectively.

Zero Rated Supply

Zero-rated supplies refer to the exports and supplies to Special Economic Zones (SEZ’s), the likes of which are tax exempt. However, the provision of ITC is allowed, provided that the prescribed conditions, safeguards and procedures are followed. Refunds on such supplies are claimable through any of the following options:

• By making supplies without the payment of IGST under bond and claiming the refund of unbilled ITC.
• By making supplies on the payment of IGST and claiming a refund of the same.

Refund of IGST on Supplies Made to Foreign Tourists

The integrated tax for foreign tourists follows a similar pattern to that of exports, given that an international tourist is considered as a non-resident of India who makes a visit to the country for a period not exceeding six months. The Indian tax laws facilitate the refund of IGST paid to an international tourist leaving India on goods being taken outside the country, subject to the prescribed conditions and safeguards. Know more.

Refund on Mistaken Payment

Taxpayers who have remitted payments to another tax head, i.e., SGST or CGST instead of IGST and vice versa, would be refunded. Such taxpayers must make a re-deposit of the sum in the respective tax head. Know more.