When you deal with GST, one of the most important questions is: when does tax actually apply when goods or services move from one state to another in India?
This is where IGST levy and collection comes in.
IGST (Integrated GST) applies when goods or services move from one state to another within India. In this guide, we will break down how IGST is charged, who pays it, and when exemptions apply.
What is IGST Levy?
Think of this situation: You are in Odisha and you sell goods to someone in Maharashtra. Since it is a different state, IGST applies.
IGST is a tax charged on inter-state supply (between two states).
This means, IGST depends on location of supplier and place of supply. If both are in different states, then IGST applies.
This ensures tax is shared properly between states and the central government.
IGST is charged on:
- Goods
- Services
- Both
But not on alcoholic liquor for human consumption.
When Does IGST Apply?
For IGST to apply, 3 basic conditions must be satisfied:
- There must be a supply (sale, transfer, exchange, etc.)
- It must be an inter-state transaction
- The person must be a taxable person (registered or required to register under GST)
Example
You sell goods worth ₹50,000 from Odisha to Bengaluru:
- This is inter-state
- IGST will apply on ₹50,000
Who Pays IGST?
Usually, the seller pays GST. But IGST law has some exceptions.
1. Normal Case (Forward Charge)
The supplier (seller) pays tax.
Example:
- You sell goods worth ₹1,00,000
- You charge IGST to the customer
- You deposit it to the government
2. Reverse Charge Mechanism (RCM)
In some cases, the buyer pays tax instead of the seller.
This happens when:
- Government notifies certain goods/services
- Or in some cases, purchase from unregistered supplier
Example:
You hire a service where RCM applies → You (buyer) must pay IGST directly
It means:
- Normally, the seller charges GST and pays it to the government
- But under Reverse Charge Mechanism (RCM), this responsibility shifts to you (the buyer)
Note: Many people think GST is always paid by the seller — not true.
RCM is a rule under GST where:
- Supplier does NOT collect/pay GST
- Buyer must calculate and pay GST to the government
Example (RCM on Legal Services)
- You are located in Odisha
- You hire an advocate from Maharashtra
- Legal services are covered under RCM
- The advocate issues an invoice without GST
- You (the recipient) calculate GST @ 18%
- Since it is an interstate service, you pay IGST directly to the government
- The tax must be paid in cash (not using ITC)
- After payment, you can claim Input Tax Credit (ITC) (if eligible)
Key Point: Under RCM, tax liability shifts to the recipient, not the supplier
3. E-commerce Operator Pays Tax
In some services, platforms like aggregators are responsible.
Example:
- Cab services booked online
- Hotel bookings via apps
Here:
- Platform (like aggregator) pays IGST
- Not the actual service provider
Why this exists: It is easier for the government to collect tax from big platforms.
Special Case: IGST on Imports
This is where things get slightly different. When you import goods from outside India:
- IGST is charged
- But it is collected under customs law, not normal GST process
When is IGST charged on imports?
At the time of filing bill of entry (when goods enter India officially).
Example
You import goods worth ₹1,00,000
- Basic Customs Duty applies
- IGST also applies on value
Even if there is no “sale” (supply concept), IGST can still apply on imports
This is different from normal GST logic.
Petroleum Products – Special Treatment
Items like:
- Petrol
- Diesel
- Natural gas
Currently:
- IGST is not yet applied
- It will apply only when government notifies
Understanding “Taxable Person”
A taxable person is:
- Someone registered under GST
- Or required to register
Example: If your business crosses ₹40 lakh turnover (goods), you must register. You become a taxable person
What is Exemption Under IGST? (Section 6)
Sometimes, the government removes or reduces tax. Why exemption is given;
- Public interest
- Support certain sectors
- Reduce burden on essential goods/services
Types of Exemptions
1. Absolute Exemption
- Full tax exemption
- No GST charged
Example: If fertiliser is fully exempt, you cannot charge GST at all
If exemption is absolute, you cannot collect tax even by mistake
2. Conditional Exemption
Exemption only if conditions are met
Example: GST exemption if No input tax credit (ITC) is claimed
If condition fails, GST applies
3. Special Order Exemption
- Given in rare situations
- Case-by-case basis
Example: Imports for defence during emergency
Summary Table
| Scenario | Who Pays IGST |
|---|---|
| Normal supply | Supplier |
| RCM | Recipient |
| E-commerce notified services | Platform |
| Imports | Importer |
Conclusion
IGST is the backbone of taxation for inter-state transactions in India. It ensures smooth tax flow between states and simplifies taxation for businesses operating across India.
Once you understand when IGST applies, who pays it, and how exemptions work, GST becomes much easier to handle in real life.
