What Is Inter-State GST?
Inter-State GST, or IGST, is the tax the Central Government charges when goods or services cross a state border in India. It replaces the CGST + SGST split that applies on sales within one state, and the IGST Act, 2017 governs the whole mechanism.
Here is the part that confuses most business owners: the total tax does not change. An 18% GST item costs the buyer 18% whether it is 9% CGST + 9% SGST or a flat 18% IGST. What changes is plumbing. IGST goes entirely to the Centre, which later settles the consuming state’s share under Article 269A of the Constitution.
When Does IGST Apply Instead of CGST + SGST?
Section 7 of the IGST Act lays out four triggers:
| Scenario | Why IGST Applies |
|---|---|
| A Bhopal wholesaler ships stationery to Raipur | Supplier in Madhya Pradesh, delivery in Chhattisgarh. Different states |
| Machinery imported from Germany | All imports count as inter-state supply per Section 7(2) |
| Spice exporter in Kerala shipping to Dubai | Zero-rated under Section 16. IGST at 0%, or paid and refunded |
| Goods sold to an SEZ unit in another state | SEZ supplies are zero-rated under Section 16(1)(b) |
Sections 10 to 13 of the IGST Act pin down the place of supply. Goods? Where the shipment terminates. Services? Mostly the recipient’s registered location. Get this wrong, and you charge the wrong tax type on the invoice.
How Is IGST Calculated?
IGST = Taxable Value x IGST Rate
Same maths, different bucket. A stationery wholesaler in Bhopal sells Rs.1,65,000 worth of goods at 12% GST.
| Sold To | Tax Type | Calculation | Tax |
|---|---|---|---|
| Retailer in Bhopal (same state) | CGST + SGST | 6% + 6% of Rs.1,65,000 | Rs.9,900 + Rs.9,900 |
| Retailer in Raipur, Chhattisgarh | IGST | 12% of Rs.1,65,000 | Rs.19,800 |
Rs.19,800 leaves the buyer’s pocket either way. In the Raipur sale, the full amount goes as IGST to the Centre, and Chhattisgarh gets its share through settlement later. Because the consignment crosses Rs.50,000, an e-way bill is mandatory under Rule 138 of the CGST Rules.
Why Does IGST Matter for Indian Businesses?
Wrong tax type on the invoice, that is the single biggest headache we see across Petpooja’s 8,000+ Invoice clients. A garment retailer in Vashi bills a buyer with CGST + SGST because delivery is in Pune (same state), but the buyer’s GSTIN is registered in Karnataka. Place of supply follows the GSTIN state code in B2B transactions. The ITC claim gets rejected, and GSTR-1 shows a mismatch that takes two filing cycles to fix.
ITC sequencing is the subtler trap. IGST credit must be fully exhausted before you touch CGST or SGST credits. CGST credit can offset CGST or IGST, never SGST (and the reverse holds). Mess up the order and cash gets stuck in one ledger while another shows a liability.
Every inter-state goods shipment above Rs.50,000 also needs an e-way bill. Skip it, and the penalty is Rs.10,000 or the tax evaded, whichever is higher. The GST return filing checklist and this guide on GST for restaurants cover the compliance steps.
How Petpooja Invoice Handles IGST
The pattern we notice most often is a GSTIN state code mismatch on the buyer side. Petpooja Invoice picks up the state code and applies IGST or CGST + SGST on its own. E-invoicing and e-way bill generation pull from the same data, and Tally sync carries the tax split to the books.
Frequently Asked Questions
CGST and SGST split the tax on sales within a single state (each gets half the rate). Cross a state border, and the full rate goes as IGST to the Centre instead. The buyer’s total outgo stays the same.
At zero rate, yes. Exporters ship under a Letter of Undertaking (LUT) with 0% IGST, or pay IGST upfront and file for a refund. Section 16 of the IGST Act covers both routes.
It can, and it must be used first. IGST credit offsets IGST, CGST, or SGST liabilities. Only after IGST credit is fully exhausted should you dip into CGST or SGST balances.
Only for goods above Rs.50,000 consignment value. Services are exempt. Some states set lower limits for intra-state movement.
Destination. The Centre collects IGST and settles the consuming state’s share. This is the destination principle under Article 269A, and it is the reason IGST exists at all.
Both. A CA firm in Mangalore auditing a company registered in Hyderabad charges 18% IGST because supplier and recipient sit in different states.
