The Integrated Goods and Services Tax (IGST) is a core concept and a legislation, formally known as the Integrated Goods and Services Tax Act, 2017. It was introduced in March 2017 as a critical pillar of India's unified indirect tax system. The IGST Act was created to solve the problem of tax cascading caused by the pre-GST Central Sales Tax (CST), which was levied on inter-state trade but was not eligible for Input Tax Credit (ITC).
The IGST is levied by the Central Government on the supply of goods or services in the course of inter-State trade or commerce, including imports and exports. The mechanism is governed by Section 5 of the IGST Act, 2017, which is the charging section. A supply is classified as inter-state under Section 7 when the location of the supplier and the place of supply are in different states or Union Territories. The IGST rate is essentially the sum of the Central GST (CGST) and State GST (SGST) rates, with a maximum cap of 40%.
The IGST mechanism ensures that the tax revenue accrues to the destination state, where the consumption occurs. The Central Government collects the IGST and later apportions the revenue between the Centre and the destination state. This system maintains the integrity of the ITC chain across state borders. The determination of whether a transaction is inter-state relies heavily on the Place of Supply rules detailed in Sections 10 to 14 of the IGST Act. The rates are recommended by the GST Council. The IGST framework replaced the old Central Sales Tax (CST) regime, but the fundamental concept of IGST itself has remained consistent since the implementation of GST in 2017.