Goods & Service Tax (GST) – One Question A Day by CA Sudhir Halakhandi – PART 3 

3. What is IGST and how this will monitor the interstate trade of Goods in GST? Will IGST replace the existing CST? Please explain with suitable example.


A new model is developed under proposed GST to monitor the interstate trade of Goods and Services and this is called IGST. 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 be presumed that IGST is a third tax but it is only a mechanism to monitor the interstate trade of Goods and services and further to ensure that the ultimate SGST is gone to the consumer state since the GST is a destination based tax.

Let us try to understand this IGST mechanism step by step:-

  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 12% and CGST is 14% then the rate of IGST will be 26%.
  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 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 SGST / CGST or IGST. For this purpose the total amount of IGST will be bifurcated in two parts SGST and CGST.
  5. Now come to the mechanism of transferring the SGST to the consumer state in which the central agency will transfer the amount of input credit of IGST used by selling dealer of consumer state while paying his liability of SGST. This will be clear from the example given below.

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 interstate Goods and service tax and also mentioned as integrated Goods and service tax in the discussion paper issued by the Empowered committee of the state Finance Ministers.

It seems that it is very complicated system which also appeared to me at also but what is written above and also see the example below very carefully it will be clear that this is only a mechanism to keep the chain of dealers intact and uninterrupted during the interstate trade and commerce and further ensure that the ultimate revenue of SST is gone to the consumer state.


The transaction under study is as under:-

TRANSACTIONS OF SALESX 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 12% and rate of CGST is 14%.


1.      X has to collect Rs. 1.20 Lakhs as SGST and Rs. 1.40 as the CGST on his sales to the dealer of same state on the sale of Rs. 10 Lakhs @ 12% and 14% CGST.

2.      The input credit for Y is Rs. 1.20 Lakhs as SGST and Rs.1.40 Lakhs as CGST paid by him to X the dealer of same state. .

3.      The rate of IGST will be 26% (SGST 12% + CGST 14%).

4.      Y will charge Rs. 2.73 Lakhs as IGST since the rate of IGST is 26% and the sale value is Rs. 10.50 Lakhs which he sold to the dealer of Rajasthan during the course of Interstate Trade. Y will deposit a sum of Rs. 13000.00 after claiming the input credit of SGST and CGST of Rs. 2.60 Lakhs as mentioned in point no. 2 above.

5.      The state of Maharashtra will transfer the amount of SGST as per point No.1 amounting to Rs. 1.20 Lakhs to the centre which is used by Y while paying his IGST.

6.      Z of Rajasthan sold these Goods to a consumer in Rajasthan on a sum of Rs.11 Lakhs and will collect from him Rs. 1.32 Lakhs as SGST and Rs. 1.54 Lakhs as CGST. Z has paid Rs. 2.73 Lakhs as IGST hence his input credit is Rs. 2.73 Lakhs which he will claim while paying his Liability of SGST and CGST. We can calculate his available input credit against SGST is Rs. 1.26 Lakhs and CGST Rs. 1.47 Lakhs out of his total IGST credit of Rs. 2.73 Lakhs. He will deposit Rs. 6000.00 as SGST and Rs. 7000.00 Lakhs as the CGST.

7.      A central agency will transfer the amount of input credit of SGST while discharging the liability to pay the SGST in the state of Rajasthan i.e. Rs. 1.26 Lakhs to the consumer state i.e. Rajasthan.

That will complete the full circle of IGST.


1.      The consumer state is Rajasthan and Sale price to the Consumer is Rs. 11.00 Lakhs hence the state of Rajasthan should get Rs. 1.32 Lakhs as SGST @ 12% on Rs. 11.00 Lakhs which this state will get as under:-Amount paid as SGST in Rajasthan by Z                                = Rs.0.06 LakhsAmount of SGST transferred by the central agency from theState of Rajasthan                                                                       =Rs.1.26 Lakhs

Total Amount to Rajasthan Exchequer Rs. 1.32 Lakhs

2.      The central will get a sum of Rs. 1.54 as CGST on the sale price of Rs. 11.00 Lakhs @14% and centre will get this amount as under:-

Amount deposited by X in state of Maharashtra as CGST       = Rs. 1.40 Lakhs

Amount deposited by Y as IGST (only part of CGST taken) = Rs. 0.07 Lakhs

Amount deposited by Z of Rajasthan as CGST                        =Rs.0.07 Lakhs

Total Amount to Central Exchequer Rs. 1.47 Lakhs                         

3.      The state of Maharashtra is the Supplier state in this transaction and since GST is consumer and destination based tax hence Maharashtra should not get any Tax out of this transaction which can be explained as under:-

Amount paid by first dealer X as SGST                                     = Rs. 1.20 Lakhs

Less:- Transferred to the Centre by Maharashtra as per IGST

Model                                                                                         = Rs. 1.20 Lakhs

Total amount to Maharashtra Exchequer = NIL

The overall calculation is showing that the IGST is not a third tax but a model to monitor the interstate Trade of Goods since both state and the centre is ultimately getting the amount of Tax as SGST and GCST on the Last consumer price (Nothing more or Nothing less) and further the GST is destination based tax hence besides centre the consumer state will get the whole amount of SGST and the revenue out of a interstate transaction to the selling state will be Zero.

The IGST system will be based on information technology system and both interstate seller and the purchaser will report their intestate transactions to a system based on IT system and will be controlled by a central agency.

Note: – Every care has been taken by the author in describing the system of IGST but since this system is too much complicated in understanding hence there may be more better ways to describe this system more intelligently hence readers may come and suggest some improvement in this article.

Click Here to Read Other Articles on GST from CA Sudhir Halakhandi

More Under Goods and Services Tax

Posted Under

Category : Goods and Services Tax (5972)
Type : Articles (15920)

37 responses to “IGST Model in Goods & Service Tax (GST)”

  1. Suman bhati says:

    I want to open supply business in Jodhpur, can i purchased good from Chennai and same can be sell in chennai, in this situation how GST will work.

    Thanking you

  2. Santosh says:

    I want to no one thing that if one origination of Hyderabad send some employ to Mumbai to take some services Like business met in a hotel then the hotel has to give bill of t IGST Or Normal GST

  3. Ravi Kumar says:

    Dear Sir,

    IGST is applicable supply of goods, but once question, suppose customer location is bangalore, billing address is bangalore, ship to Mumbai, In this transaction IGST is applicable, But customer not having any GSTIN number, how we will raise e-sugam, When raise e-sugam, it will ask interstate GSTIN number, how to bill these.

  4. Sarika M says:

    Hi, Sarika here.

    Thanks for Info. I think Amount paid to centre should be 1.54 not 1.47. i.e., Paid by X to centre is 1.4 + Paid by Y to centre is 0.13 + **Balance of amount transferred by X to centre post claiming payment to state rajasthan is 0.01

    **: SGST 1.32- IGST 1.19= 0.13+ 1.19 ( out of 1.2 transferred by X to centre)= 1.32
    Balance left with centre out of amount transferred by X to centre is 0.01( 1.2-1.19)

  5. Rajesh Karia says:

    if i have registered person in Maharashtra & Have order revived from Delhi & I also i manage to delivered that product from Delhi.

    So can i take bill on my name in IGST & I issue a bill to my client IN IGST??

    • J.C.Tewri says:

      sir my quary regardingCGST/SGST,IGST NOW
      X is register in UP, placed an order for supply and application to Y register in Haryana,Y has sublet order for application to Z register in UP Now Y saying to Z Provide service in UP on behalf of Y and billing address will be Y place (Haryana) so what GST will be claimed BY Z

  6. Bharath Kumar says:

    Hi Mr. Sudhir,

    Thanks for this useful info.
    How shall the HSS ( High sea sale transaction)work in GST/IGST. We understand that we need to follow IGST rules. But how will the customer sitting in a STPI Unit get the custom duty benefit for imported items.

  7. bijender saini says:

    Sir, I am from panipat. I paid 50000/-Rent of showroom , I deduct Rs 5000/- TDS per month of owner, what system in GST follow

  8. Madhavan says:

    I am buying an item in Mumbai from (X) manufacturer for Rs.100/- He charges me 18% GST (i.e. 9% SGST and 9% CGST). Thus my total cost is Rs.118/. i wish to sell the same item to a manufactuer in Gujarat at Rs.110/- where I will charge them 18% IGST. So the cost of my buyer in Gujarat will be (Rs.110 + 19.80) Rs. 129.80.
    I want to take set off credit of Rs.18/- paid to X and pay the differential tax of Rs.1.80.

    I believe the above transaction is perfect. I want help to translate the above transaction to an INVOICE which I would be raising on my Gujarat Customer.
    I wish to have an invoice template for above transaction

  9. priyodarshan says:

    Central will get 1.54 lakhs or 1.47 lakhs. Which one is correct?

  10. Srinivas says:

    At the time of sale by X, it is not known that his customer will make interstate sale. THen how it will be possible to CGST?

  11. N.Ananth says:

    It was very useful and informative. Thank you very much.

  12. N.Ananth says:

    Good. Useful. But the Voltas Adv is intruding in the middle of the text. I am unable to close the Adv and also unable to read your article. This is highly irritating. Please move the adv to one side, not blocking your text. Thanks.

  13. VISHANT says:

    status of untis under excise exemption

  14. VISHANT says:


  15. pradeep kumar says:

    dear sir
    please provide us detailed guidelines of gst and its accounting entries vs cst and vat.
    thanking you

  16. Shan says:

    Simply told, trace of input and output CGST is there in same state, inter state and consuming state transactions. Hence it is integrated and levied all the three instances.
    If consumed within state , SGST remains in the state , if not passed through IGST from source state to target state. Revenue should be used in the state where paid – in the ultimate destination point of SCM.Good economic sense prevails.

  17. Dhane says:

    Under taxability: point no. 6, how this 6000 for SGST and 7000 for CGST is calculated, poor in maths.

  18. Nilesh Dwivedi says:

    as gst is destination based tax and in example supplier state ie maharastra is not getting any amount then pl tell why any state will take interest in providing facility to production units ??

    • Sunny Popali says:

      You have got a point, I think Centre is giving some amount of tax losses to states, so as of now I think settling up taxes to respective states is one of the advantage.

  19. Ritesh says:

    In point 2 of “Ultimate effect of IGST” you have considered rs. 7000/- as CGST, what about rest rs. 6000/- out of total rs. 13,000? which govt will get that amount?what will be the effect?

    • Aishwarya Gupta says:

      1.26lakh is the sum of 1.2 lakh ,that the state of Maharashtra deposited at the center and 6000 is the amount that Y of Mumbai deposited to the center as his tax liability( Y had paid 13000 to center ,of which 7000 is for the center and 6000 is for the destination state , which the center now is giving to Rajasthan ) . So all together the center owed Rajasthan 1.26 lakh . Z of Rajasthan paid Rajasthan 6000 . So total tax collected by Rajasthan is 1.Lakhs + 6000+6000=1.32 lakhs

  20. Ritesh Mehta says:

    In point 2 of “Ultimate effect of IGST” you have considered rs. 7000/- as CGST, what about rest rs. 6000/- out of total rs. 13,000? which govt will get that amount?

  21. John says:

    Your understanding might be good but your explanation is flawed…. Please express the process diagrammatically.

  22. Vimal Kumar mehta says:

    Thanks for clarification.
    Pls rectify the following point.

    Point No. 2 Total Amount which will go to Central Govt’s Exchequer will be Rs.1.54 Lac instead of 1.47 lac.Pls rectify.

  23. CA Sanjeev Madan says:

    Thanks Sudhir sir for the article


    In my understanding, X of Maharashtra is originator of the material (under present regime, it would have been liable for excise duty if goods and service tax if services as per place of provision rules). Let restrict discussion only for goods and since X is starting the chain and we can assume that goods are manufactured. Presently on such manufacutured goods Central Government under Union list has right to collect excise duty and under GST regime as CGST. Today also X when remove goods from factory pays excise duty whcih goes to central pool and then charge VAT or CST whcih goes to State Governmnet.

    Under GST SGST (VAT under current) goes to State and CGST (Excis under current) goes to Central Government and from their as done under current arrangement get distributed to states will continue to be distributed to state in line with constitutional amendment bill.


    Sanjeev Madan

  24. Ravi Kumar says:

    One more question as per exchequer that what will be the benefit of producing state ?if it will going to get nothing because entire SGST will be distributed to consuming state.
    Then why all state will work on MAKE IN INDIA i.e MAKE IN PUNJAB,GUJRAT,H.P.etc.. Why not consume in state ?
    As per record Coffee production in India is dominated in the hill tracts of South Indian states, with the state of Karnataka accounting 53% followed by Kerala 28%.

    That means Giant producer will get nothing(SGST) if they are not giant consumer.And big state like UP,MP will get all the SGST BACK. Then entire progress & development of the state will depends upon consuming power & population.

    Ravi Kumar

  25. Ravi Kumar says:

    It is very clear from your quoted example that X has to collect Rs. 1.20 Lakhs as SGST and Rs. 1.40 as the CGST on his sales to the dealer of same state on the sale of Rs. 10 Lakhs @ 12% and 14% CGST.
    My confusion is :-
    1.) why X has to collect CGST if he is selling the goods within state ?
    2.) If all or partial goods will be consumed by the same state? Then why to collect CGST 14% on that sale ?
    3.)If consumer of goods & producer of the goods is within state then X has to collect SGST only ? If yes then why X has to collect CGST 14% ?
    4.) How tax exempted state like J &K will be replaced by IGST ?

    Thanks & Regards

  26. R.Chandrakanthan says:

    Whether the definition of “supply” of Goods and Services will be wide enough to tax Stock Transfers? Will there be special provisions under IGST Act to deal with Petroleum,Diesel and Alcohol kept outside GST?After discontinuing C Forms, even for B to B supplies the supplier has to charge higher rate of IGST equal to the total of SGST and CGST,which will be locked with the Tax Department for a long period…

  27. Ashawant Gupta says:

    What will happen to c forms? Will the hugely cumbersome process of collecting c forms or any other such forms be eliminated? Will the sellers invoice be enough? Ease of doing business will only improve when such useless non-productive processes/procedures are eliminated.

  28. Jeris says:

    Dear all,
    If GST is prone to be as explained above,
    What might be the case of normal traders who have a small marginng and service sectors with respect to other manufacturing and service sectors?

  29. R.chandrakanthan says:

    After making book adjustment for transfer of Input Tax Credit among States, in respect of B to B inter-state transactions,will Centre delay transfer of excess ITC from other States,as in the case of CST compensation? Whether origin State can retain ITC in respect of B to C sales?

  30. Arun says:

    Hi sudhir sir, excellent article. Thank you.

    @ Ajay,

    As per my understanding,
    every txn will attract SGST and CGST. Its in lieu of vat to state and Central Excise/Service Tax to centre. So both SGST & CGST will have to be paid on every txn even within state.

  31. Hemanth G says:

    it will be greatful if provide us a similar session over stock transfer of goods intra and inter state.


    Dear Ajay ji
    Please read the previous articles on GST and you will find that SGST and CGST
    both are chargeable on the single transaction of sale even if both the seller and purchaser are both in the same state. This article is on IGST hence please read my previous article on this site.

  33. Ajay M Pujara says:

    Dear Sir,

    Thank you very much for sharing this detailed information -with examples, on the proposed format / mechanism of ‘Calculation & Distribution’ of the SGST, CGST and/or, the ‘combined’ form of both of these -as ‘IGST’.

    I am bit ‘confused’ on the ‘out-come’ of the examples -in its totality.

    With respect to your ‘example -on TAXABILITY’ IS CONCERNED, Request to pl refer ITS PT. NO: 1, and note that:–>
    According to my understanding, when ‘X of MUMBAI’ (MAHARASHTRA State) -Selling mtrl -to ‘Y of MUMBAI’ (within the SaAME State of MAHARASHTRA), he has to ‘Charge / Collect’ the ‘SGST’ of Rs.1.20 Lakh, on the ‘sale’ of Rs.10. Lakh.
    Over & Above the ‘SGST’ already charged/collected, Why & how the ‘X’ can COLLECT / is REQUIRED TO COLLECT or CHARGE the ‘CGST’ of Rs.1.40 Lakh ADDITIONALLY -on his sales to ‘Y’ (a Dealer -within the ‘SAME’ State)???

    Sincerely Request you to please ‘clarify’ ASAP.

    Best regards,
    Baroda, Gujarat
    (M): +91 9909970977

Leave a Reply

Your email address will not be published. Required fields are marked *