Explain briefly the integrated goods and services tax act.

The Integrated Goods and Services Tax (IGST) Act, 2017, is one of the key components of the Goods and Services Tax (GST) framework in India. It regulates the taxation of inter-state transactions and imports, ensuring that the movement of goods and services across state borders is tax-efficient and smooth. The IGST framework is crucial because, under the Indian Constitution, state governments have the authority to levy taxes on goods and services within their jurisdictions, while the central government manages inter-state commerce. The IGST Act helps manage these complexities by implementing a uniform tax structure for inter-state transactions.

Overview of the GST System

To understand the IGST Act, it is essential to comprehend the larger GST system, which came into effect on July 1, 2017. The GST is a comprehensive indirect tax levied on the supply of goods and services across India, replacing various indirect taxes like Value Added Tax (VAT), Service Tax, Central Excise, etc. The GST system comprises three main components:

1. CGST (Central Goods and Services Tax): Levied by the central government on intra-state supplies of goods and services.
2. SGST (State Goods and Services Tax): Levied by state governments on intra-state supplies of goods and services.
3. IGST (Integrated Goods and Services Tax): Levied by the central government on inter-state supplies of goods and services and imports.

The GST system is based on the principle of "destination-based consumption," meaning the tax revenue goes to the state where the goods or services are consumed, not where they are produced.

Purpose of the IGST Act

Before the implementation of the GST, businesses had to navigate a complicated tax structure when conducting inter-state transactions. They faced multiple taxes such as the Central Sales Tax (CST), which often led to cascading taxes (tax on tax) and complicated the supply chain.

The IGST Act was introduced to eliminate these complications by:

• Ensuring seamless inter-state transactions: It applies a uniform tax rate on inter-state supplies, facilitating ease of doing business across India.
• Preventing cascading taxes: By allowing businesses to claim input tax credit (ITC) for the tax paid on purchases made in another state, the IGST system ensures that there is no double taxation.
• Simplifying tax compliance: With a single framework for inter-state transactions, businesses now need to comply with just one tax regime for inter-state trade, making tax compliance more manageable.

Key Features of the IGST Act

1. Levy and Collection: IGST is levied by the central government on inter-state transactions of goods and services, as well as imports. The tax collected under the IGST is shared between the center and the states. For inter-state transactions, the supplier of goods or services charges IGST from the buyer, and the buyer can claim an input tax credit when the goods or services are further sold within or across the state.

2. Applicability: The IGST is applicable in the following situations:

• Supply of goods and services from one state to another (inter-state supply).
• Import of goods and services into India.
• Export of goods and services from India.
• Supply of goods or services to or by a Special Economic Zone (SEZ).

3. Input Tax Credit (ITC): The IGST Act allows businesses to claim credit for the tax they pay on their inputs (purchases), which can be offset against the IGST liability when they sell their goods or services. This mechanism is key to avoiding tax cascading. The ITC for IGST can be used in the following order:

• First, it can be used to pay IGST.
• Then, any remaining credit can be used to pay CGST.
• Finally, if there is any credit left, it can be used to pay SGST.

4. Reverse Charge Mechanism (RCM): In certain circumstances, the liability to pay IGST is shifted from the supplier to the recipient of goods or services. This is known as the reverse charge mechanism. It is applicable when a registered business receives goods or services from an unregistered supplier, or for certain specified services such as transportation.

5. Determining Place of Supply: The place of supply under the IGST Act is crucial in determining whether a transaction is inter-state or intra-state. The place of supply rules vary depending on the nature of the supply (goods or services), the type of transaction, and the location of the parties involved.

• For Goods: The place of supply is usually the location where the goods are delivered to the buyer.
• For Services: The place of supply depends on the type of service provided. For example, in the case of B2B (business-to-business) services, the place of supply is typically the location of the recipient.

6. Zero-rated Supplies: Exports and supplies to SEZs are classified as zero-rated supplies under the IGST Act. This means that although IGST is levied, businesses can claim a refund of the tax paid on inputs used to produce these goods or services. This provision supports the competitiveness of Indian exports in the global market.

7. Tax Refunds: Businesses that export goods or services, or supply to SEZs, are eligible for a refund of the IGST paid, as these are zero-rated transactions. The refund process under IGST has been simplified, allowing businesses to get refunds faster, thereby easing their working capital requirements.

8. Imports and IGST: Imports are treated as inter-state supplies under the IGST Act. Therefore, IGST is levied on imports of goods and services. This ensures parity between goods produced domestically and those imported from abroad. Importers can claim input tax credit on the IGST paid on imports, which can then be used to offset their output tax liability.

Challenges in the Implementation of IGST

Despite the simplified tax structure, businesses have faced some challenges during the implementation of the IGST framework:

1. Compliance and Filing: Even though the GST system has simplified taxation, the number of returns businesses need to file has increased. Under IGST, companies involved in inter-state transactions must ensure they file the correct returns, or they may face penalties or lose out on input tax credit claims.
2. Transitional Issues: Many businesses faced transitional issues, particularly related to input tax credit. Companies that had paid taxes under the previous regime (such as CST) encountered difficulties in transitioning their tax credits to the IGST system.
3. Place of Supply Rules: Determining the place of supply can be complex, especially for services. Businesses must ensure they correctly identify the place of supply to avoid being charged the wrong tax or losing out on credits.
4. Refund Delays: Though the IGST framework offers a provision for refunds, businesses sometimes face delays in getting refunds, particularly exporters who rely on timely refunds to maintain their cash flow.

Conclusion

The IGST Act is a pivotal element of India's GST system, streamlining inter-state transactions and ensuring a uniform tax framework across the country. By eliminating the complexities of the previous tax regime and allowing businesses to claim input tax credits on inter-state transactions, the IGST Act fosters a more efficient and transparent business environment. However, challenges such as compliance complexities and refund delays need to be addressed to make the system more effective for businesses. As India continues to refine its GST framework, the IGST Act remains central to promoting the ease of doing business and enhancing the country's economic integration.

Subscribe on YouTube - NotesWorld

For PDF copy of Solved Assignment

Any University Assignment Solution

WhatsApp - 9113311883 (Paid)