GST is an indirect tax levied by the Central and State Government. Since there is equal responsibility of both the Governments to raise resources, GST has ensured to keep the Constitutional requirement of fiscal federalism intact. Hence under GST, there are three types of tax under GST ACT – CGST governed by the Central government, SGST governed by the State government and IGST governed by the Central government.
IGST Full Form
The full form of IGST is Integrated Goods & Services Tax.
What is IGST?
IGST will be collected by the Central government. IGST is an indirect tax which will be levied on the inter-state movement of goods and services. This tax will also be applied on the import of goods and services. This tax will subsume the other indirect taxes such as VAT, Sales tax, additional duties of customs, the special additional duty of customs and service tax. This tax is governed under the Integrated Goods and Service Tax Act 2016. It is levied on the movement of those goods and services which moved between two states. For example, if there is a sale of goods between Kerala and Karnataka IGST will be applied.
As per the Act, the revenue from such transaction will be collected by the Central Government. This will be then shared between the Central and State governments depending on the rates applicable as per the Act.
Let’s take an example to understand IGST further:
Let’s say Mr. R from Maharashtra sells goods worth Rs 10,000 to Mr. S in Gujarat. The rate of GST is 12%. So the tax paid by Mr. S equals Rs 1,200. Since this is interstate the entire amount of Rs 1,200 will go to the state government. Now let’s take a step forward. Mr. S sells the same goods for Rs 15,000 to Mr. T in Gujarat itself. This now becomes an intrastate transaction and hence the portion of Rs 1,800 GST tax will be split between CGST and SGST equally ie Rs 900.
Now, what if Mr. S wants to set off his IGST input tax credit against then it can utilize it first to CGST liability of Rs 900 and balance to SGST. He, thus, pays SGST of Rs 600 (900- 300 )(Total input tax credit Rs 900 -Rs 1200).
So from the above example, it can be understood that the input tax credit on IGST can be utilized against the liability of CGST and SGST in that order. The input tax credit of CGST and SGST can be utilized against the liability of IGST.
Post collecting the tax by the Central government, it will be distributed to the State where the product is finally consumed as GST is based on consumption.
The burden of adjustments is lifted from the taxpayers and they need not worry about the same.