The Integrated Goods and Services Tax (IGST) is a central concept and a statutory provision governed by the Integrated Goods and Services Tax Act, 2017. This Act was passed by Parliament on April 12, 2017, and its operational provisions came into effect from July 1, 2017, as part of the nationwide rollout of the Goods and Services Tax (GST). The IGST was created to solve the problem of the cascading effect and administrative complexity of the pre-GST Central Sales Tax (CST), which was levied on inter-state sales and retained by the origin state, with no Input Tax Credit (ITC) available to the buyer.
The IGST mechanism works by levying a single tax on all inter-State supplies of goods or services, or both, which is collected by the Central Government. The rate of IGST is broadly equal to the sum of the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) rates. The key provision is Section 5(1) of the IGST Act, 2017, which mandates the levy and collection of this tax on inter-State supplies, including imports. The IGST is a destination-based consumption tax, meaning the revenue is ultimately apportioned to the consuming state, as provided under Article 269A(1) of the Constitution of India. The IGST framework ensures a seamless flow of Input Tax Credit (ITC) across states, which is crucial for maintaining the integrity of the GST chain.
The IGST Act is intrinsically connected to the Central Goods and Services Tax Act, 2017 (CGST Act) and the respective State Goods and Services Tax Acts (SGST Acts), as the IGST rate is a combination of the CGST and SGST rates. The entire framework is governed by the recommendations of the GST Council. A recent significant change, effective from October 1, 2023, involved the substitution of Section 16(3) of the IGST Act, which withdrew the blanket option for all exporters to claim a refund of IGST paid on zero-rated supplies, allowing the government to specify the class of persons or goods eligible for this refund route. Additionally, the definition of Online Information and Database Access or Retrieval Services (OIDAR) under Section 2(17) was amended, also effective from October 1, 2023, to eliminate the condition of minimal human intervention for classification.