GST registration compulsory for interstate supply: Interstate supply under GST means when the goods or services provider is in a different state or Union Territory, and the place of supply is in a different state or Union Territory. The supplies involving import, export, or supply to or from a Special Economic Zone (SEZ) unit or Export-oriented Unit (EOU) are also considered interstate supplies. The Central Government levies integrated GST (IGST) on the interstate supply of goods and services in India.
What is Interstate Supply under GST?
Inter-State Supply refers to any supply where the location of the supplier and the place of supply are in:
- Two different States
- 2 Different Union Territories
- A State and a Union Territory
Additionally, any supply in a taxable territory, that is not an Intra-State supply is deemed to be an Inter-State supply. The following supplies are also treated as Inter-State supplies:
- Supplies to or by Special Economic Zones (SEZs)
- Goods or services imported to India
- Services or goods exported outside India
- Supply of goods or services to international tourists
Thus, on the Inter-State supply of goods or services, only IGST is levied and collected by the Central Government.
GST Laws for Inter-State Supply
Inter-State Supply is subject to Integrated Goods and Services Tax (IGST). IGST is a tax levied by the central government on inter-state transactions. The tax is collected by the central government and then distributed between the state governments in proportion to the destination of the goods or services. The IGST rate varies depending on the type of goods or services being supplied.
When you make an inter-state supply, you will need to obtain a Goods and Services Tax Identification Number (GSTIN). This number is used to identify your business in inter-state transactions and helps the government keep track of your tax liabilities.
Who should get GST registration compulsory under GST?
Section 22 of CGST Act, 2017 mandates every person whose aggregate turnover exceeds the threshold limit in a financial year to take GST Registration.
Section 23 of CGST Act, 2017 exempt any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax.
Section 24 of CGST Act, 2017 overrides section 22 and mandates every person making inter-state taxable supply to take registration under GST irrespective of aggregate turnover.
However, a person making inter-state supply of services is not required to register under GST if his aggregate turnover is less than ₹ 20/10 lakhs (Notification No. 10/2017-IT dated 13-10-17).
Nature of Supply
It is very important to determine the nature of supply – whether it is inter-State or intra- State, as the type of tax to be paid (IGST or CGST+SGST) depends on that.
Place of supply
Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce.
In the case of services, if it’s imported into the territory of India, then it shall be treated to be a supply of services in the course of inter-state trade or commerce.
As per section 2(11)of the IGST Act, the term import of services means the supply of service where the supplier is located outside India, the recipient is located in India, and the place of supply of service is in India.
In following cases, the supply of goods or services or both shall be treated in the course of interstate trade or commerce under section 7(5):-
- Supplier is located in India and the place of supply is outside India;
- supply is to a special economic zone developer or a special economic zone; or
- supply is by a special economic zone developer or a special economic zone; or
- in the taxable territory, not being an intra-state supply and not covered elsewhere in this section.
If you analyze, section 7 of the IGST Act, you will find that the section talks about two types of supplies-
- Supplies within India
- Supplies from outside India
In case supplies are within India, then it will be considered as interstate supplies if:
- you supply goods and/or services to a different state or Union territory within India.
- You supply goods and/or services to a SEZ developer or SEZ unit
- You are a SEZ developer or your office is in a SEZ unit.
In case supplies are from outside India, then it will be considered as inter-state supply of goods and/or services if:
- You bring goods into India from a place outside India and they cross the customs frontier of India.
- You received services in the territory of India from a supplier who is located outside India.
GST slab rates
The rates of GST depend on the goods or services being offered. The GST rates in India are divided into four slabs, i.e. 5%, 12%, 18%, and 28%. There are also special rates of GST for certain high-value goods as well as a Nil rate for certain essential goods.
In the case of inter-state supplies, integrated goods and services tax (IGST) is to be levied on the transaction value under section 15 of CGST Act. This means GST is levied when supplies of goods and/or services are;
- to a different state; or
- to a Union territory; or
- to a SEZ unit; or
- to a SEZ developer.
On following items GST will not be charged even if its inter-state supplies;
- Alcoholic liquor for human consumption (its outside the purview of GST law)
- Petroleum crude
- High speed diesel
- Motor spirit/Petrol
- Natural gas and
- Aviation turbine fuel
A company XYZ ltd is located in Mumbai, Maharashtra, and it supplies mobiles worth Rs.1,00,000 to Jaipur, Rajasthan. This supply will be considered an interstate supply. The goods supplied fall under the GST slab of 18%. IGST, or Integrated GST, is levied by the Central Government, a share of which is paid to the destination state.
IGST Calculation: 1,00,000 * 18% = Rs.18,000
The dealer will charge Rs.18,000 as IGST. This amount is paid to the Centre and then split in a predetermined ratio between the Centre and the destination state, i.e. Rajasthan.
Input Tax Credit setoff
- IGST Credit should be fully utilised before using CGST or SGST credit.
- IGST liability can be set-off by CGST and SGST credit in any order and in any proportion.
- CGST credit to be first utilised towards the payment of CGST liability, then towards IGST liability.
- SGST credit to be first utilised towards the payment of SGST liability, then towards IGST liability.
- GST Portal may show you different set-off since the liability can be setoff in multiple ways.
- CGST ITC cannot be used for SGST liability and vice-versa
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