IGST applies when the supplier and the place of supply are in different states. It is charged at the full rate as one tax: an 18% item sold from Rajkot to a buyer in Pune carries 18% IGST. The central government collects it and settles the state share with the state where the goods or services are consumed.
Where else it applies
- Imports
- IGST is collected with customs duty.
- Exports and SEZ supplies
- these are zero-rated. You either export under a Letter of Undertaking without paying IGST, or pay IGST and claim a refund.
Using IGST credit
IGST credit is the most flexible. It is used first, to pay IGST, and any balance can pay CGST and SGST in any order. A business that buys mostly from other states and sells mostly within its own state often has IGST credit that it uses against local tax.
An example
A Jamnagar brass parts maker bills 10,000 terminals at ₹4.50 to a switchgear company in Haryana. Taxable value ₹45,000, IGST 18% ₹8,100, total ₹53,100.
In MatruOS an invoice to a buyer in another state carries IGST, and an export invoice without an LUT on file charges IGST and shows where to add one.