Understanding Interstate and Intrastate GST in India
The Goods and Services Tax (GST) system in India classifies supplies as either interstate or intrastate based on the supplier's location and the place of supply. Interstate transactions are subject to Integrated GST (IGST) levied by the Central Government, with revenue shared with the destination state. Intrastate supplies, conversely, incur both Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST). Understanding these distinctions is crucial for correct tax calculation and compliance within the Indian GST framework.
Understanding Interstate and Intrastate GST in India
The Goods and Services Tax (GST), implemented in India on July 1st, 2017, is crucial for determining which specific taxes – Integrated GST (IGST), Central GST (CGST), or State GST (SGST) – apply to a transaction. The classification of a supply as either interstate or intrastate depends entirely on the location of the supplier and the designated place of supply. This article aims to clarify the distinctions between interstate and intrastate GST under Indian law.
Definition of Interstate Supply Under GST
An interstate supply occurs when the supplier of goods or services is located in a different state or Union Territory than the place where the supply is consumed or delivered. Transactions involving imports, exports, or supplies to or from a Special Economic Zone (SEZ) unit or an Export-Oriented Unit (EOU) are also classified as interstate supplies. The Central Government is responsible for levying Integrated GST (IGST) on these interstate exchanges of goods and services within India.
When products and services move across state borders, IGST is imposed by the central government. A portion of this collected revenue is then distributed to the destination state. This distribution of IGST revenue between the central and state governments follows a predefined formula, ensuring tax sharing and eliminating the need for businesses operating nationwide to pay multiple taxes.
Definition of Intrastate Supply Under GST
An intrastate supply refers to a situation where both the supplier of goods or services and the place of supply are located within the same state. Intrastate supplies are subject to both Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST). These taxes are levied by the Central Government and the respective State or Union Territory governments.
The GST rate for intrastate supplies varies based on the specific type of good or service involved. Suppliers are required to collect both CGST and SGST from customers for all intrastate transactions.
GST Rates for Interstate and Intrastate Supplies with Illustrations
The GST rates for both interstate and intrastate transactions depend on the nature of the goods or services provided. India's GST system primarily uses four tax slabs: 5%, 12%, 18%, and 28%. Additionally, there are specific rates for certain high-value commodities and a zero rate for essential goods.
With a clear understanding of interstate and intrastate supplies, let us explore how GST is calculated for them through practical examples.
Illustrative Interstate GST Calculation
Consider ABC Ltd., a company based in Jaipur, Rajasthan, which supplies mobile phones valued at Rs.1,00,000 to a buyer in Mumbai, Maharashtra. This transaction constitutes an interstate supply. If the goods fall under the 18% GST slab, Integrated GST (IGST) will be applied. IGST is collected by the Central Government, and a share is subsequently transferred to the destination state.
IGST Calculation: Rs.1,00,000 * 18% = Rs.18,000
The dealer will charge Rs.18,000 as IGST. This sum is paid to the Central Government, which then allocates a portion to the destination state, Maharashtra, according to a pre-established ratio.
As a notable exception, if goods are supplied from Jaipur, Rajasthan, to a Special Economic Zone (SEZ) unit also located within Rajasthan, this transaction is still classified as an interstate supply. All goods and services provided to or by an SEZ unit are universally treated as interstate supplies.
Illustrative Intrastate GST Calculation
Suppose ABC Ltd., situated in Jaipur, Rajasthan, supplies mobile phones worth Rs.2,00,000 to another entity located in Udaipur, Rajasthan. This is an intrastate supply. The applicable GST rate is 18%, which is split equally as 9% CGST and 9% SGST.
CGST/SGST Calculation: Rs.2,00,000 * 18% = Rs.36,000
In this scenario, Rs.18,000 is the CGST, and Rs.18,000 is the SGST.
The dealer collects a total of Rs.36,000. Out of this, Rs.18,000 is remitted as CGST to the Central Government, and the remaining Rs.18,000 is paid as SGST to the Rajasthan Government.
Both CGST and SGST are levied by the Central and respective state governments. However, their combined rate always equals the IGST rate for the same good or service. This ensures that the overall tax burden remains consistent, regardless of whether the supply is interstate or intrastate; only the collection mechanism differs.
Distinguishing Between Interstate and Intrastate GST
The table below summarizes the key distinctions between interstate and intrastate GST in India:
| Parameters | Interstate Supplies | Intrastate Supplies |
|---|---|---|
| Applicable On | Supply of goods and services between different states and Union Territories. | Supply of goods and services within the same state or Union Territory. |
| Levied By | Central Government | CGST by the Central Government and SGST/UTGST by the State/Union Territory Government. |
| Tax Rate | IGST rate is applied based on the good or service. | CGST and SGST rates are applied equally and separately based on the good or service. |
| Destination State | Receives a share of the IGST collected. | Receives the full amount of SGST collected. |
| Place of Supply | A different state from the supplier's location. | The same state as the supplier's location. |
| Input Tax Credit | Input Tax Credit of IGST can be used to offset IGST, then CGST/SGST liabilities in any order. | Once IGST credit is fully utilized, CGST and SGST credits can offset their respective liabilities and IGST liabilities. Inter-utilization between CGST and SGST is not permitted. |
In summary, Interstate GST and Intrastate GST are distinct types of Goods and Services Tax in India, applied based on the supplier's location and the place of supply. The primary difference lies in how the tax is levied and collected.