Integrated Goods and Services Tax

Integrated Goods and Services Tax (IGST) applies to inter-State supplies of goods or services, including imports. It is a destination-based clearing mechanism: the Union collects the tax initially, but the revenue is ultimately apportioned between the Union and the jurisdiction where consumption occurs.

Constitutional basis

Under Article 269A, GST on inter-State supplies is levied and collected by the Union and apportioned between the Union and States in the manner provided by Parliament on the recommendations of the GST Council. Article 246A(2) gives Parliament exclusive power to legislate on inter-State GST, while supplies made during imports are deemed inter-State supplies.

Collection and credit settlement

The Union functions as a clearing house, while place-of-supply rules identify the destination State or Union Territory.

• The inter-State supplier charges IGST and deposits it with the Union after using permissible input tax credit.
• When State GST credit is used to pay IGST, the origin State transfers the corresponding amount to the Union.
• The recipient may use IGST credit against tax on subsequent supplies; when it is used against State GST, the Union transfers the corresponding amount to the destination State.
• These transfers preserve the input tax credit chain while ensuring that the origin State does not retain revenue attributable to consumption elsewhere.

Final apportionment

Under Section 17 of the IGST Act, 2017, specified IGST amounts are apportioned between the Union and the State or Union Territory determined by the place of supply. At final consumption, the Union retains the central component and the balance accrues to the destination jurisdiction according to the statutory rules.

• IGST does not belong wholly to the Union merely because the Union collects it initially.
• Thus, tax on a supply from one State to a consumer in another is ultimately shared with the consumer's State, subject to credit adjustments.