A new model is developed under proposed GST to monitor the interstate trade of Goods and Services and this is called IGST i.e. “Integrated Goods and Service Tax”. Let me clear first thing it will not replace the existing CST and there will be long awaited goodbye to Central Sales Tax in the GST regime.
Now it should also be noted that IGST will not be a Tax in addition to the SGST and CGST so one should not presume that besides SGST and CGST the IGST- The Integrated Goods and Service Tax is a third tax in the coming GST regime. It is only an IT based centrally managed automated mechanism to monitor the “Interstate sale and Supply of Goods and services” and further it ensures that the ultimate SGST is gone to the consumer state since the GST is a destination based tax. It is called “integrated Goods and Service Tax”.
IGST MECHANISM STEP BY STEP
| S.NO. | DESCRIPTION |
| 1. | Dealer of the selling state will collect IGST from the purchaser on Interstate Transaction and the rate of IGST will be the combined rate of SGST and CGST, Say if the rate of SGST is 8% and CGST is 10% then the rate of IGST will be 18%. |
| 2. | While depositing the IGST the seller will take credit of SGST and CGST paid by him on purchase of such Goods or services within the state. |
| 3. | The selling state will transfer the amount of input credit of SGST taken by the selling dealer against the liability of IGST to the centre. This will ensure that selling state will not get any revenue out of this transaction. |
| 4. | The interstate buyer shall take credit of IGST against his liability of IGST / CGST/ SGST in this order. |
| 5. | The centre will transfer the amount of input credit of IGST used by selling dealer of consumer state while paying his liability of SGST. |
This whole mechanism will be known as a system of monitoring the interstate trade of Goods and services and will be called IGST. It is integrated Goods and service tax .
Since the concept of Taxation is changed from the sales to Supply of Goods and Services under the GST hence “Branch and stock transfer” will also be governed with the model.
The IGST will not increase the taxation cost since it is only a Mechanism to monitor the Interstate movement of Goods but certainly it will increase the compliance cost of the dealers. Further the tax is required to be deposited at the time of transfer of Goods in the form of stock and Branch transfer it will certainly increased the capital cost of the amount of tax.
BASIC ILLUSTRATION OF IGST
Though practically how IGST will actually work can only be understood properly when it is implemented but whatever information is available at present from the basics which has been mentioned in the Draft law we can understand the IGST with the help of this very simple example:-
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TRANSACTIONS OF SALES X of Mumbai sold Goods worth Rs. 10.00 Lakhs to Y of Mumbai and Y of Mumbai sold the same goods to Z of Rajasthan at Rs. 10.50 Lakhs. Now at second stage Z of Rajasthan sold the same goods to a consumer in Rajasthan at Rs.11.00 Lakhs. Suppose the rate of SGST is 8% and rate of CGST is 10%. Now this is the transaction of sale of Goods from one state to other state and now we are trying to analyze how IGST will work here. |
Please note that in the example given above we have not followed the exact situation which has been mentioned in the draft of “Integrated Goods and Service Act” with respect of transfer of fund to and from the IGST to CGST and SGST because it seems to be very complicated and need some simplification of narration but what is given in this study will give you the insight of proposed working of the IGST.
RATE OF TAXES PRESUMED
| S.NO. | DESCRIPTION | RATE OF TAX |
| 1. | SGST | 8% |
| 2. | CGST | 10% |
| 3. | IGST (SGST+CGST) | 18% |
TAX LIABILITY OF VARIOUS DEALERS
| S.NO. | DESCRIPTION |
SGST (8%) |
CGST (10%) |
IGST (18%) |
REMARK |
| 1. | X of Mumbai sold Goods worth Rs. 10.00 Lakhs to Y of Mumbai. | 80000.00 | 100000.00 | NA | It is an Intra-state Sales hence SGST and CGST are Payable. |
| Less:- Input Credit | NIL | NIL | NA | ||
| Tax Deposited by X | 80000.00 | 100000.00 | NA | ||
| 2. | Y of Mumbai sold the same goods to Z of Rajasthan at Rs. 10.50 Lakhs | NA | NA | 189000.00 | It is Inter-state sale hence IGST is Payable. |
| Less:- Input Credit | NA | NA |
180000.00 (SGST 80000.00 + CGST 100000.00) |
In IGST the input credit of SGST and CGST paid on the goods which is sold in interstate sale is available. | |
| Tax Deposited by Y | NA | NA | 9000.00 | ||
| 3. | Z of Rajasthan sold the same goods to a consumer in Rajasthan at Rs.11.00 Lakhs. | 88000.00 | 110000.00 | NA | It is intra-state sale in the state of Rajasthan hence SGST and CGST is applicable. |
| Less:- Input Credit | 79000.00 | 110000.00 | NA | The total Input credit of IGST is Rs.189000.00 and it can be set of against IGST, CGST and SGST in that order of priority. | |
| Tax Deposited by Z | 9000.00 | NIL | NA |
TRANSFER OF REVENUE FROM STATE TO CENTRE AND VICE VERSA
| S.NO. | DESCRIPTION | AMOUNT |
| 1. | The selling state will transfer the amount of SGST to the centre which has been taken as input credit while discharging the liability of IGST. | 80000.00 |
| 2. | The centre will transfer the amount of IGST to the Consumer state which has been taken as input credit while discharging the liability of SGST. | 79000.00 |
EFFECT OF IGST ON REVENUE OF VERIOUS CONSTITUENTS
| S.NO. | DESCRIPTION OF CONSTITUENTS OF IGST |
| 1. | The selling State |
| 2. | The Purchasing State |
| 3. | The Centre |
THE SELLING STATE
| S.NO. | DESCRIPTION | SGST | REMARK |
| 1. | The amount of SGST deposited by the First seller | 80000.00 | CGST and IGST are not part of state revenue hence not considered here. |
| 2. | Less:- The selling state will transfer the amount of SGST to the centre which has been taken as input credit while discharging the liability of IGST. | 80000.00 | NA |
| 3. | Revenue of the Selling State | NIL | NA |
Note-The GST is destination based tax hence the selling state will get NIL tax on inter-state transaction where goods are consumed in other state. The above calculation is supporting the same concept.
THE CONSUMER STATE
| S.NO. | DESCRIPTION | SGST | REMARK |
| 1. | The amount of SGST deposited by the seller in the Consumer state. | 9000.00 | CGST and IGST are not part of state revenue hence not considered here. |
| Add-The centre will transfer the amount of IGST to the Consumer state which has been taken as input credit while discharging the liability of SGST. | 79000.00 | NA | |
| Revenue of the Consumer State | 88000.00 | NA |
Note:– The sale price at consumer state is Rs.11.00 Lakhs @ 8% hence the revenue calculated at Rs.88000.00 is cross tallied and supported the same concept.
THE CENTRE
| S.NO. | DESCRIPTION | CGST | IGST | TOTAL |
| 1. | The amount of CGST deposited by the First seller in the Selling state. | 100000.00 | NIL | 100000.00 |
| 2. | The amount of IGST deposited by the Second seller in the Selling state. | NIL | 9000.00 | 9000.00 |
| Total | 100000.00 | 9000.00 | 109000.00 | |
| 3. | Add:-The selling state will transfer the amount of SGST to the centre which has been taken as input credit while discharging the liability of IGST. | NA | NA | 80000.00 |
| Total | NA | NA | 189000.00 | |
| Less - The centre will transfer the amount of IGST to the Consumer state which has been taken as input credit while discharging the liability of SGST. | NA | NA | 79000.00 | |
| Result-Revenue of the Centre | NA | NA | 110000.00 |
Note:- The sale price at consumer state is Rs.11.00 Lakhs @10% hence the revenue calculated at Rs.110000.00 is cross tallied and supported this concept.
This will complete the full circle of IGST.
The author can also be reached at Sudhirhalakhandi@gmail.com
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