CS Professional INTEGRATED GOODS AND SERVICE TAX (IGST)
INTEGRATED GOODS AND SERVICE TAX (IGST)
Integrated goods and service tax means levied under the IGST act on the supply of any goods/service in the course of inter-state trade or commerce.
Centre will collect tax on interstate supplies. IGST is basically CGST and SGST on interstate supplies of goods and services. IGST will be paid by interstate seller after setting off the credit from IGST, CGST and SGST.
WHY IGST WAS NEEDED?
Before the IGST model the interstate supply of goods and services are managed under the central sales tax, 1956 and defined as a central sales tax in short CST. No state can levy state tax on sale and purchase of goods and services, only the parliament had the right to levy such tax.
The CST suffers from the following shortcomings
- CST is collected and retained by the Origin State, the incidence of which is borne by the customer. The tax must accrue to the Destination State having jurisdiction over the consumer.
- Input Tax Credit of CST is not allowed to the buyer which, results in cascading of tax on tax in the supply chain.
- Many accounting forms are required to be filed in which add to the compliance cost of the business and impedes the free flow of trade.
- Previous there was a huge arbitrage position available to people which they misuse because of the huge difference between tax rates under VAT and CST being levied on intra-State sales and interstate sales respectively.
ADVANTAGES OF IGST MODEL
- It helps to maintain chain of interstate transaction without any interruption.
- It helps to keep tax payment simple without any ambiguity.
- Customer did not required to claim refund in state to which it is exporting , as input tax credit will be used to pay the tax
- It’s a self monitoring model which is easy for both tax payer and government
- Simple accounting is involved in this type model and tax payer do not have to worry about additional compliance burden and focus more on business
- There will be no upfront payment of tax or substantial blockage of funds for the interstate seller or buyer
- Because of its self monitoring thing, any additional changes will be easily to follow
PAYMENT OF IGST
Payment of IGST can be done by cross utilization of credit or by simple cash
There is hierarchy which tells us how payment of IGST will be done:-
- First preference will be the input tax credit of IGST, which will be used first
- After fully exhausting the input tax credit we will move to the credit of CGST
- After exhausting the balance of IGST and CGST, input tax credit of SGST will be used
There shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, high speed diesel oil and petroleum on the value determined under not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council.
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