IGST: Full Form, Applicability, Calculation, Rates and Refund Status

We often mention a single tax rate while calculating or discussing Goods and Services Tax (GST) on any commodity or service. However, it is not a monolithic tax structure. There are 3 layers of indirect taxation under GST based on the place of supply of goods and services. These are Central GST (CGST), State GST (SGST) and Integrated GST (IGST).

This article discusses everything you must know about IGST. 

IGST Full Form 

The full form of the IGST is Integrated Goods and Services Tax. 

What is IGST?

IGST is a goods and services tax that is levied and collected on the supply of goods and services from one state to another within India. Essentially, for any specific goods or services, IGST is the combination of the Central GST (CGST) and State GST (SGST) components.

IGST = CGST + SGST 

However, the apportionment of tax revenue collected through IGST differs from that of SGST. The Central GST authority (CBIC) collects IGST and transfers the state’s share to the respective state’s GST authority where the supply occurs. Comparatively, a state GST authority itself collects SGST and appropriates the revenue. 

Where the place of supply cannot be attributed to any single state, the SGST equivalent of the tax revenue collected through IGST is apportioned to each of the states involved equally. 

IGST Applicability

The Integrated Goods and Services Tax or IGST applies to all types of inter-state supply of goods and services. In the context of GST, inter-state supply signifies that goods and services move outside a state. 

Let us understand the IGST concept through an example. A Chennai-based (Tamil Nadu) electronics company sells laptops to a customer based in Mumbai (Maharashtra). As the consignment is transported from Tamil Nadu to Maharashtra, IGST will be applicable to the total value of the laptops supplied. However, IGST will not apply if the same Chennai-based seller supplies anywhere inside Tamil Nadu.  

In terms of place of supply, IGST can apply to 4 categories of supply transactions: 

Interstate supplies: When goods or services move from one state or union territory to another, IGST is levied on the transaction. The seller charges the tax on the sales invoice and deposits it with the Central Government. 

Imports and exports: 

• IGST also applies to goods and services imported into India or exported from India. For imports, the Central Government levies IGST along with customs duties. 
• Export is zero-rated under GST. So, the party exporting the goods and services from India can pay IGST and reclaim the amount later as a refund after submission of shipping bills. Alternatively, an exporter can choose not to pay IGST based on a Letter of Undertaking (LUT) or bond. It makes exports effectively zero-rated under GST.  

Special Economic Zones supplies: SEZs are considered to be outside India’s customs territory. So, IGST applies to the supply of goods and services to an SEZ or from an SEZ, even when the place of supply is within the same state.  

Export-oriented Units supplies: As per the Foreign Trade Policy, EOUs are manufacturing units which export their entire production. Similar to SEZs, the supply of goods and services to and from EOUs also attracts IGST. 

IGST Rate Structure

IGST is essentially a combination of Central GST and State GST. The standard IGST rate structure is as follows: 

Features of IGST

The salient features of Integrated GST are: 

• Applicable to inter-state supplies - IGST is applicable to any supply from one state to another, one state to a UT, one UT to a state, or between two UTs. 
• The uniform tax rate for any inter-state supply within India - Unlike the pre-GST era, IGST maintains indirect taxation at a uniform rate for inter-state supplies across India.  
• Allow buyers to claim ITC on IGST paid - Businesses purchasing inputs through inter-state supplies can claim the input tax credit on IGST paid. 
• Apportionment based on destination principle - As per the IGST Act, the Central Government apportions the state’s share in the revenue to the state in which the supply takes place, or the actual consumption occurs. 

How to Calculate IGST?

Following the example from the previous segment, let us consider that the Chennai-based electronics company supplies ₹1,00,000 worth of products to a Mumbai-based customer. 

The formula for calculating the total IGST to be collected is :

IGST = Sales price*IGST rate 

With electronics, like laptops, the total GST rate is 18%. So, IGST will also be 18%.  

So, the total sale price inclusive of tax will be Product price + IGST .i.e., ₹ 1,00,000 + (₹1,00,000*18%) = ₹1,18,000

Out of the IGST of ₹18,000, the Central Government will retain (₹18,000*50%) or ₹9,000 in the Central Government’s GST account and transfer the remaining ₹9,000 to Maharashtra’s GST account. 

Benefits of IGST

The IGST model of collecting indirect tax on inter-state supplies of goods and services is beneficial for the government, sellers, and buyers as well. 

1. The IGST system is a lot more transparent and easy to self-monitor for states and the Central Government. 
2. It helped establish a tax-neutral business environment across India. Earlier, indirect taxes varied significantly from one state to another, causing much confusion about the apportionment of tax revenue and its implications. 
3. The uniform tax rate across India has reduced the actual tax burden and cost of compliance for buyers and end-consumers.
4. Claiming Input Tax Credit (ITC) for registered businesses on their purchase of inputs has become a lot easier as tax collection and ITC claim is processed centrally.   

How can Businesses Claim Input Tax Credit (ITC) on IGST?

The process of claiming input tax credit on IGST paid on B2B sales is similar to claiming ITC under SGST and CGST. However, there are some prerequisites for claiming ITC:

• The entity claiming ITC must be GST registered. 
• The B2B invoice must clearly mention the applicable IGST rate, the total tax paid, the HSN of the items supplied, and other required details.  
• The buyer must accept the supplier’s invoice in the GST portal’s IMS dashboard. 
• The buyer must file GST returns (GSTR-3B) for the relevant tax period on time.

IGST Example

Assume a company "Creative Creations" based in Kolkata, West Bengal, sells handcrafted sarees online across India.

In March 2025, Creative Creations received an order from a customer in Chennai, Tamil Nadu. Sarees worth ₹10,000. The applicable Integrated Goods and Services Tax (IGST) rate for sarees is 12%.

1. Inter-state supply: Kolkata Creations in West Bengal to Chennai in Tamil Nadu. 
2. IGST applicability: Yes 
3. IGST rate - For inter-state supplies, the Integrated Goods and Services Tax (IGST) for sarees 12% applicable.
4. IGST calculation: 12% of ₹10,000 = ₹1,200.
5. Collection: Creative Creations collected ₹1,200 as IGST from the customer in Chennai.

Refund of IGST

A refund of IGST becomes necessary when the ITC claim by a B2B buyer is higher than the GST liability. Such a situation may occur in the export business. Usually, exports are zero-rated under the GST Act. So, the tax liability on export is NIL when used an Letter of Undertaking (LoU). Hence, the exporters, SEZs, and EoUs can claim a refund of IGST paid on inputs.