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Under the GST system, there are two important terms related to the supply of goods and services: interstate and intrastate supply. Understanding these terms is quintessential to figure out whether IGST, CGST, or SGST applies. If the supply is interstate, IGST is charged, while intrastate supply attracts CGST and SGST. In this article, we’ll break down what the terms interstate and intrastate supply mean under the GST regime.
Interstate supply meaning can be defined as, “transactions wherein goods/services are provided between two states or union territories in India.” Such transactions are critical as they fall under a different tax regime than the intrastate supply. Interstate supplies are subject to a distinct tax treatment, namely Integrated Good and Service Tax, abbreviated as IGST.
Under the GST system, interstate supply is a key concept. It is important to understand its features for businesses that engage in transactions between different states/UTs.
The salient features of intrastate in GST are as follows:
Any goods’ movement from one state to another qualifies as interstate supply, regardless of whether it is for business or consumer use.
A transaction is regarded as an interstate supply when the supplier and the recipient are in different states or UTs.
IGST is levied, instead of the Central Good and Service Tax (CGST) and State Good and Service Tax (SGST), for inter-state supplies. The IGST rate is equal to the sum of the CGST and SGST rates.
Companies that acquire goods from other states are eligible to receive an input tax credit for the IGST paid on such purchases, which they can utilize to reduce the IGST obligation on their own supplies.
Inter-state supply applies to the flow of goods across states, including exchanges between wholesalers, distributors, and retailers.
Intrastate supply meaning can be defined as, “Transactions involving the supply of products or services within the same state or union territory.” The Central Good and Service Tax (CGST) and State Good and Service Tax (SGST), or Union Territory Goods and Service Tax (UTGST) in the case of union territories, are the separate taxes that apply to intra-state transactions as opposed to inter-state supply (on which only IGST is levied).
It is essential for businesses that operate within a single state/union territory to understand the features of intrastate supply. By having a thorough understanding, businesses can determine the applicability of taxes, registration requirements and compliance obligations within the Goods and Services Tax system.
The key features of intrastate supply are mentioned below:
Intrastate supplies are transactions that occur entirely within one state without crossing the state or union territory’s boundaries. If the boundaries are crossed, it is no longer an intrastate supply.
Both the seller and buyers involved in intrastate supply are within the same state or union territory’s boundary.
Both the Central Goods and Services Tax (CGST) and State Good and Service Tax (SGST) are applied to intra-state transactions. The central government receives half of these taxes, while the state governments receive the other half of them.
Intra-state transactions are exempt from the Integrated GST (IGST), in contrast to inter-state supplies.
Depending on turnover thresholds and the type of business, companies that provide products or services intrastate might need to register for GST.
The primary difference between interstate and intrastate supplies is that, while interstate supply takes place between one state and another, the intrastate supply takes place within the same state.
Another difference between them is that interstate supply attracts integrated Goods and Services Tax (IGST) whereas intrastate supply attracts Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST).
For inter-state supply, the Integrated Goods and Services Tax is charged by the Central Government of India. Whereas, for intra-state supply, the Central Good and Service Tax is charged by the Central Government and the State Good and Service Tax is charged by the State government.
When it comes to an interstate transaction, the input tax credit from IGST purchases must first be deducted from IGST liabilities. Then, if there is any input tax credit left over, it may be used to set off CGST or SGST charges. However, the CGST input tax credit can only be utilized to offset CGST liabilities in intra-state transactions. In a similar vein, SGST liabilities can only be offset by the SGST input tax credit.
However, it is not possible to offset CGST obligations with SGST input tax credits or vice versa. Nonetheless, IGST liabilities may be offset by both Central Goods and Services Tax and State Goods and Services Tax input tax credits.
The GST rates for intra-state and inter-state transactions in India vary depending on the type of goods or services involved. GST rates are categorized into four slabs: 5%, 12%, 18%, and 28%. Certain high-value goods are subject to special rates, while some essential goods are taxed at a NIL rate.
ABC Ltd, located in Bengaluru, Karnataka, sells mobile phones worth Rs. 1,00,000 to Chennai, Tamil Nadu. Since the sale is between different states, it qualifies as an interstate supply. The mobile phones are subject to the 18% GST slab.
To compute the IGST, the value of the goods (Rs. 1,00,000) is multiplied by the GST rate (18%), resulting in Rs. 18,000. This IGST amount of Rs. 18,000 is collected by XYZ Ltd and then is paid to the Central Government. Later on, it is shared between the Central Government and the destination state Tamil Nadu.
In a specific scenario, if XYZ Ltd supplies goods from Bengaluru, Karnataka, to a Special Economic Zone (SEZ) unit within Karnataka, it is still regarded as an interstate supply. This rule applies to all transactions involving SEZ units.
ABC Ltd, based in Mumbai, Maharashtra, sells mobiles worth Rs. 2,00,000 to another company in Pune, Maharashtra. The GST rate is 18%, divided equally into 9% CGST and 9% SGST.
To calculate Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST), we multiply the value of goods (Rs. 2,00,000) by the GST rate (18%), which amounts to Rs. 36,000. This amount is split equally, with Rs. 18,000 paid as CGST to the Central Government and Rs. 18,000 paid as SGST to the Maharashtra State Government.
Both CGST and SGST are charged by the Central and State Governments, respectively. However, the combined rate of CGST and SGST equals the IGST rate charged on interstate supplies. Therefore, the total tax amount/rate basically remains the same regardless of whether it's an interstate or intrastate supply. The difference only lies in how the tax is levied.
Inter-state supply and intra-state supply are two important concepts in the GST system. Without understanding them, you won’t be able to understand how CGST, SGST and IGST are levied. While inter-state supply attracts IGST, intra-state supply attracts SGST and CGST. If you want GST registration for your business, connect with Registrationwala for assistance.
Q1. Which tax applies to interstate sales?
A. IGST (Integrated Good and Service Tax) applies to interstate sales.
Q2. What supplies attract SGST and CGST?
A. Intra-state supplies attract both SGST and CGST.
Q3. What are the full forms of IGST, CGST, and SGST?
A. IGST stands for Integrated Goods and Services Tax, CGST stands for Central Goods and Services Tax, and SGST stands for State Goods and Services Tax.
Q4. If the total GST rate is 18%, how much are CGST and SGST?
A. If the total GST rate is 18%, CGST and SGST will each be 9%.
Q5. Is the IGST rate higher than the combined CGST and SGST rates?
A. No, the IGST rate equals the combined CGST and SGST rates. This means that 18% IGST is equal to 9% CGST + 9% SGST.
Q6. Does the State Government collect IGST on goods?
A. No, the Central Government collects IGST on goods.
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