The Goods and Services Tax Act was introduced in July 2017 to standardize the previous taxation system. The new system includes all previous state and central tax laws in one system and subsumes several taxes and duties.
The new taxation model has both the state and central government involved in its implementation. Both have the power to levy and collect taxes through their legislations because India is a federal country.
The current model has distributed powers to both the state government and the Union to levy taxes concurrently. It has four components: Central GST (CGST), State GST (SGST), Union Territory GST (UTGST), and Integrated IGST (IGST).
Integrated GST is very different from the other three. It’s treated differently and is applied in very unique and different situations with regards to the movements of goods and services. However, running business operations in more than 2 states can be pretty heavy tax-wise because at an 18% IGST tax rate, your working capital could reduce further. Meeting your financial needs and responsibilities can be quickly achieved through a business loan.
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Source: HR Block
Basic Outlook on IGST
IGST is subjected to situations of inter-state supply of taxable goods and services. The rate matches the applicable GST rate of the certain good or service. But the tax is collected by the central government to avoid disrupting the credit chains.
The Union and the state government apportion the tax collections between each other in a manner either provided by Parliament or by law on recommendations from the Goods and Services Tax Council.
CGST, SGST, and UTGST have centralized taxes on supplying goods or services in one state. But a uniform taxation on inter-state supply was needed and this is what IGST does, which abolished the Central Sales Tax (CST) Act, 1956 that had previously regulated inter-state trade and commerce.
Source: Trade Finance Global
What makes IGST Different From CST?
CST suffered major shortcomings that pushed huge tax amounts over and above taxes in the supply chain with no input tax credits allowed to buyers. IGST monitors the inter-state trading of goods and services while ensuring SGST accrues within the consuming state. It is equal to the total of CGST and SGST rates. The Union levies IGST in every inter-state transaction of taxable goods and services. It is applicable in these situations:
- Supplying goods and services from one state or Union Territory to another
- Importing and exporting goods and services
- Supplying of goods and services to or by Special Economic Zone
- Supplying to international tourists
- Any supplying situations in taxable territory that is not within a state.
Here’s an example to visualize. Tarun is a manufacturer in Maharashtra who sells goods worth INR 25,000 to Suresh in Gujarat. This is an interstate transactions and so IGST is applicable at 18%. So, the Central Government charges an IGST amount of INR 4,500 and the final product cost will be INR 29,500.
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Intrastate Transactions are the Key Here
What makes the IGST different is that it applies to any transactions or movement of goods and services between different states. It is simple when the place of the buyer or supply is in one state while the location of the supplier or seller is in another state.
Another major point to be noted is how IGST is applied to transactions associated with Special Economic Zones (SEZs). Importing or exporting of goods and services to or by an SEZ developer or unit is also considered interstate supply. And so, IGST is collected by the seller from the buyer. Essentially the tax burden falls on the company buying those goods and services, similar to consumption by regular individual as well as with CGST, SGST, and UTGST.
With the new rules and uniform system for intestate commercial activities, running business activities across different states are a lot simpler for MSMEs and large companies. Now, it is a big part of their growth and success. But operating in over 2-3 states can be expensive tax-wise and could eat away at available working capital, resulting in your business failing to meet other financial needs. So a loan serves as a great option to meet those financial responsibilities and expenses.GSTIN Number
If your business is GST-compliant, getting a business loan is much easier and we know loans are very needed. On Finserv MARKETS, you can get business loans approved within 24 hours through their easy eligibility criteria with minimal documents required. In addition to this, if you opt for the Hybrid Flexi Loans available on Finserv MARKETS, you can choose to withdraw only the amount you need with interest charged solely on the amount withdrawn. This helps lower your EMIs up to 45%, thus boosting your cash flow. You can enjoy repayment schemes suiting your cash flow with zero prepayment charges. Opt to repay the entire principal after the tenure ends while paying only interests as your EMIs.
The IGST tax is definitely high, and may eat away at a huge chunk of your finances. However, the IGST tax mechanism has made running an interstate business a lot easier and cheaper by subsuming a host of other taxes and duties the old system had. GST has allowed easier business initiation processes, higher cash flows, decreased tax burdens, and expansive company visibility in the market. So businesses can thrive in the new market with ease in conducting various interstate business activities. For the long-run, remain GST-compliant as an interstate business and reap the best benefits the new tax system can offer.
If you are eligible for GST, you should also know about eway bill, which is used for transporting of goods and can save tax on it. Read more about GST eway bill only at Finserv MARKETS
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