IGST Full Form, Meaning, Calculation, Refund, Set Off Rules

Tax is an amount that individuals and companies pay to the government for the working of governmental activities like the development of roads, infrastructure and other public welfare activities. There are mainly 2 types of taxes: Direct and Indirect taxes. Direct taxes are the taxes we pay on income and profits, on the other hand, Indirect taxes are the taxes that are paid on the goods and services purchased. 

In this article, we will discuss in-depth the IGST meaning, full form of IGST, how it works and how it is calculated.

Understand GST (Goods and Services Tax)

GST (Goods and Services Tax), is termed under the indirect tax in India. It is imposed on the supply of Goods and Services. It was first introduced in India in the year 2000 by Atal Bihari Vajpayee the then Prime Minister of India. Later, it came into effect on 1st July 2017. This tax method was introduced to replace the other indirect taxes like excise tax, VAT, service tax and more. There are 4 types of GST in India:

1. Central Goods and Services Tax

2. State Goods and Services Tax

3. Integrated Goods and Services Tax

4. Union Territory Goods and Services Tax

What is IGST?

IGST full form is Integrated Goods and Services Tax, which is a tax under India's Goods and Services Tax regime. It is levied on the inter-state supplies of goods and services. It is a single tax which is collected by the central government which is then divided by the centre and the involved states as per the sharing rules defined by the GST Council.

Features of IGST

1. Levied on Inter-State Transactions:

IGST levies taxes on all supplies of goods and services that take place between different states of the country. It is also applicable to exports and imports.

2. Single Tax Mechanism:

IGST incorporates central and state taxes into a single tax rate for interstate transactions, replacing the old tax system like VAT. Here, instead of paying separately for centre and state governments we can sum it up and pay one tax as IGST.

3. Applicability to Imports and Exports:

IGST applies to imports into India to make sure that the goods are taxed at the said rate. On the other hand, Exports are zero-rated under IGST which means no tax is payable on export sales.

4. Uniform Tax Rate:

The IGST rate will remain uniform across all the states in the country for a particular type of good or service. Thus, if you purchase a toothbrush from Tamil Nadu or Assam the IGST payable would be the same.

5. Destination Rule:

Under IGST, the tax revenue generated from the interstate export will be paid to the state in which the goods are ultimately delivered for consumption.

When is IGST Applicable

1. Interstate transaction of Goods and Services:

IGST is taxable on all transactions which take place between different states or union territories in the country. For instance, if a transaction of goods and services occurs between Kerala and Karnataka then IGST is applied and the taxed revenue is split between the central government and the recipient state.

2. Imports and Exports:

IGST applies to the goods and services imported to India and also to exports from India. But in the case of exports, the IGST is zero-rated, which means there is zero charge on the exports of goods.

3. Supplies to Special Economic Zones (SEZs):

The transactions that take place on goods or services from Special Economic Zones are considered as interstate transfers hence it is liable to pay the applicable IGST. On the other hand goods and services that are transferred to SEZs are considered for zero-rated tax.

IGST Rates 

The rates are applicable based on the GST rate slabs for the goods and services that fall into each category. The IGST percentage rates are:

How is IGST Calculated

As we have discussed earlier, IGST is a type of indirect tax that is applied to the interstate supply of goods and services in India. IGST is collected by the centre and then split between the central and the state governments.

To explain how the IGST is calculated let’s look into an IGST example,

Imagine a company that manufactures premium soaps is located in the state of Karnataka. They receive an order from a retailer in Delhi for soaps worth Rs. 10,000. Since the transaction is taking place between 2 different states of the country the IGST rates would apply to the sales proceeds.

The IGST rate for soaps is 18%.

So, as per our calculations, The buyer from Delhi will have to pay the supplier in Karnataka a total sum of Rs. 11,800 (10,000+1800) which includes the GST amount. 

IGST Set Off Rules

The Input Tax Credit is a method through which business can reduce their tax liability by setting off their credit amount which is already paid for sourcing the inputs for the production and supply of a product or service. The set-off rules direct how this credit can be utilised against output tax liabilities.

Here is the table that shows the latest ITC rule for setting off the Input Tax Credit.

The order of utilisation of input tax credit as per the 88A: 

ITC (Input Tax Credit) in the account of IGST will be first used to set off the payments of IGST itself, and the remaining amount, if any, can be utilised for the payments of CGST and SGST or UTGST in any order. 

The ITC on account of Central tax, State Tax or Union Tac will be used for the payments of IGST, CGST, SGST or UTGST but only after the input tax credit available in the IGST account is fully utilised.

Refund of IGST

In some situations where the input tax credit exceeds the output tax liability, the refunds of GST would come up. To apply for a refund, one has to file the application and submit the necessary documents to the respective tax authorities. 

1. Sellers can claim a refund of the unutilized Input Tax Credit (ITC) if the GST paid on raw materials or inputs exceeds the GST collected on the sale of the final product, particularly in cases where the final product is taxed at a lower rate or is exported

2. The ones involved in exporting goods and services globally can claim a refund on the IGST paid on inputs used for exporting the goods or services.

3. IGST provides a refund of the IGST paid to an international tourist who is leaving India as they are known to be non-resident of India which means they are visiting India for a period not more than 6 months. The Indian tax law has allowed the refund of IGST paid to international tourists on goods that are taken outside the country.

Furthermore, you can also choose to carry forward the unutilized Input Tax Credit at the end of the tax period rather than choosing to go for a refund.  This carried-forward ITC can then be used to offset future GST liabilities on your sales or other output supplies.

Read our latest blogs to learn more about tax "How to Save Tax in India" and "New Income Tax Slab"!

Conclusion

Integrated Goods and Services Tax (IGST) streamlines inter-state trade by combining central and state taxes into a single, uniform tax. It simplifies taxation, eliminates cascading effects, and ensures consistent rates across India. With zero-rating for exports and a clear refund mechanism, IGST boosts the competitiveness of Indian goods globally, contributing to a more efficient and transparent tax system.

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