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IGST

Tax

Integrated Goods and Services Tax

The GST charged on inter-state transactions in India, collected as a single combined tax by the central government and later apportioned to the destination state.

Definition

IGST is the GST charged on transactions that cross state boundaries in India, replacing the CGST plus SGST split used for intra-state sales with a single, combined tax. It's collected by the central government and later apportioned to the destination state, the state where the goods or services are actually consumed, rather than the state of origin.

The IGST rate matches what the combined CGST and SGST rate would be for an equivalent intra-state sale, so the total tax burden stays consistent regardless of whether a transaction happens within one state or across two. This structure simplifies inter-state commerce by avoiding the need to split collection directly between two different state governments.

Formula

IGST = Transaction Value × Full GST Rate

Worked Example

A manufacturer in Gujarat sells goods worth ₹1,00,000 to a buyer in Rajasthan, an inter-state transaction, with an 18% GST rate applying.

  • IGST: ₹1,00,000 × 18% = ₹18,000

Compare this to an identical sale within Gujarat, which would instead split into ₹9,000 CGST and ₹9,000 SGST, the total tax burden is the same, only the collection and apportionment mechanism differs.

Key Things to Know

  • Applies specifically to inter-state transactions and imports. Intra-state sales use the CGST/SGST split instead, never IGST.
  • Rate equals the combined CGST plus SGST rate for the same goods. There's no tax rate difference based on whether a sale crosses a state line, only a structural difference in how it's collected.
  • Collected centrally, then apportioned to the destination state. This avoids the complexity of two state governments coordinating collection on a single cross-border transaction directly.
  • Offers the most flexible input credit utilization. IGST credit can offset CGST and SGST liability, following specific sequencing rules, more flexibility than CGST or SGST credit have with each other.
  • Also applies to imports into India. Imported goods and services are treated similarly to inter-state supplies for IGST purposes, on top of any applicable customs duty.

Related Terms

CGSTCentral Goods and Services TaxSGSTState Goods and Services Tax

Frequently Asked Questions

Why does IGST exist instead of just applying CGST and SGST across states?
Splitting inter-state tax collection between two states' governments directly would be administratively complex. IGST simplifies this by having the central government collect a single combined tax, then handle apportionment to the destination state afterward.
Is the IGST rate different from the combined CGST plus SGST rate?
No, IGST is set equal to the sum of what CGST and SGST would total for an equivalent intra-state transaction, an 18% intra-state rate (9% CGST + 9% SGST) corresponds to an 18% IGST rate for the same goods sold inter-state.
Who actually receives IGST revenue in the end?
The central government collects it initially, but a mechanism apportions the state's share to the destination state, the state where the goods or services are actually consumed, not the state where they originated.
Can IGST input credit be used to offset CGST or SGST liability?
Yes, IGST credit generally has the most flexibility, it can be used to offset CGST and SGST liability, following specific cross-utilization sequencing rules under GST law.
Does IGST apply to imports as well as inter-state domestic sales?
Yes, imports into India are also subject to IGST, treated similarly to an inter-state transaction for GST purposes, in addition to any customs duty that applies separately.