Key Takeaways:
- IGST full form is Integrated Goods and Services Tax, applicable on inter-state supplies and imports in India.
- IGST rates equal CGST + SGST and follow revised slabs effective 22 September 2025 (0%, 5%, 18%, 40%).
- IGST is charged and collected by the Central Government, then shared with the destination state.
- Input Tax Credit (ITC) under IGST is fully cross-utilizable, improving cash flow for businesses.
- Exports are zero-rated, making IGST paid on exports eligible for refund.
- IGST ensures destination-based taxation, preventing double taxation in inter-state trade.
The implementation of the Goods and Services Tax (GST) regime in India in July 2017 was a historic change in the history of indirect taxation. GST was meant to replace a complex structure of central and state taxes and simplify compliance, increase transparency and harmonize the fractured taxation system of the country. Out of its three significant elements that are CGST, SGST/UTGST, and IGST, it is the IGST (Integrated Goods and Services Tax) which facilitates the seamless implementation of taxation across state borders.
This blog will explore in detail what IGST full form is, why it is necessary in inter-state and international trade, how it is implemented and the real-life implications of IGST on Indian enterprises.
What is IGST Full Form and Meaning?
Integrated Goods and Services Tax is the IGST full form. It is a form of GST that is levied on the inter-state dealings and imports/exports of goods and services in India. The IGST Act, 2017 governs it and it is charged by the Central Government.
The IGST meaning and concept is able to tackle one of the most serious problems in the pre-GST regime: the taxation of inter-state trade. Previously, sellers were forced to contend with a mixture of Central Sales Tax (CST), entry-taxes and numerous paper requirements when selling across state borders. Not only did this result in tax cascading (tax on tax) but it also broke supply chains and caused regional price differences. IGST rates have substituted CST and facilitated a destination-based tax system where the tax revenue collected is paid to the state where the goods or services are actually consumed.
When Does IGST Apply?
IGST rates can be applied to a supply that causes movement of goods or services between states or between a Union Territory and a state or vice versa. A transaction will be inter-state depending on the place of supply and the location of the supplier.
The main idea of IGST is to enable the flow of tax credit between states and prevent the occurrence of double taxation. It acts as a facilitator between CGST and SGST and makes sure that:
- On inter-state transactions, suppliers are allowed to claim Input Tax Credit (ITC).
- The Centre and the destination state share the revenue without subjecting the tax payer to multiple compliances.
The IGST rates are equal to the sum of CGST and SGST rates. For instance, if CGST is 9% and SGST is 9%, the igst rates will be 18%.
IGST Rates Structure (Post-GST Council Update on 22 September 2025)
After the major simplification proposed by the 56th GST Council, the IGST rates structure for goods and services (applicable to inter state supplies and imports) has now been brought in line with the new GST slabs effective from 22nd September 2025. This updated method of IGST calculation is intended to ease compliance and reduce the tax load on daily use items. At the same time, it looks to adjust the rates of luxury and sin goods.
| Type of Items | IGST Rates | Examples |
| Essential & exempt items (nil GST) | 0% | Fresh milk & bread, life-saving medicines, life & health insurance |
| Merit/common goods & services | 5% | Everyday essentials such as FMCG (soap, toothpaste, shampoos), packaged foods, personal care |
| Standard goods & services | 18% | Consumer durables (TVs, ACs), small cars ≤1200 cc, most services |
| Luxury & sin goods (higher rate) | 40% | Tobacco products, caffeinated & carbonated beverages, luxury cars |
IGST Example with IGST Calculation
Let’s learn the working of IGST with the help of a real world IGST example, after the GST Council’s recent IGST rates changes which came into effect on 22 September 2025.
IGST Example:
Let us suppose Ajay Traders (a business registered in Gujarat) sells industrial goods to Vijay Enterprises (a business registered in Kerala) for a total value of ₹ 100,000. The applicable igst rates on these goods is 18% as per the recent GST rate notifications. Here is how the igst calculation is carried out:
- The taxable value: ₹100,000
- The applicable IGST rates: 18% (standard IGST slab)
- IGST amount = ₹100,000 × 18% = ₹18,000
- Total invoice value (taxable value + IGST amount): ₹100,000 + ₹18,000 = ₹118,000
- Input Tax Credit (ITC) benefit for buyer:
Vijay Enterprises pays ₹118,000 but can claim ₹18,000 IGST as ITC in its GST returns, reducing future tax liability.
Key Points in This IGST Calculation Flow:
- The seller collects ₹18,000 IGST and deposits it with the government.
- The buyer uses that ₹18,000 as Input Tax Credit (ITC) when filing GST returns.
This structure ensures IGST is only paid on the value addition at each stage and the end consumer ultimately bears the tax burden.
IGST vs CGST and SGST: Key Differences
| Parameter | IGST | CGST + SGST |
| Nature of Supply of Goods and Services | Inter-state | Intra-state |
| Levied By | Central Government | Centre (CGST) and State (SGST) |
| Revenue Sharing | Centre and Destination State | Centre and Originating State |
| Input Tax Credit Usage | Cross-utilizable across GST types | Limited to same jurisdiction |
| Applicability on Imports | Yes | No |
| Returns | GSTR-1, GSTR-3B | GSTR-1, GSTR-3B |
The biggest benefit of IGST is the cross utilization of credits which promotes business liquidity to a great extent. For example, IGST credit can be utilized to pay CGST or SGST credit, whereas SGST credit cannot be used to pay CGST and vice versa.
ITC (Input Tax Credit) under IGST
Tax neutrality can be achieved through the ITC mechanism under IGST. This mechanism allows a taxpayer to claim the tax that he/she has paid on his/her purchases against the tax payable on his/her sales. Thus,tax credit flow is maintained through the whole GST system.
Order of Utilization of IGST Credit:
- First, the credit is utilized to set off against IGST liability.
- Next, towards CGST liability.
- Lastly, towards SGST/UTGST liability.
This sequence guarantees that the credits are utilized to their fullest extent and accumulation is prevented, especially in the case of businesses engaged in pan India operations.
Illustrative IGST Example:
Let’s assume a business has the following tax liabilities and credits:
- IGST Credit Available: ₹1,50,000
- IGST Liability: ₹50,000
- CGST Liability: ₹70,000
- SGST Liability: ₹30,000
The IGST credit will be utilized in the following manner:
- ₹50,000 against IGST liability → Balance ₹1,00,000
- ₹70,000 against CGST liability → Balance ₹30,000
- ₹30,000 against SGST liability → Balance ₹0
Thus, the business pays zero cash in tax due to proper ITC planning.
Registration and Compliance Requirements under IGST
Under GST law, a person making inter-state taxable supplies is required to obtain compulsory registration, regardless of turnover threshold.
Key Compliance Requirements:
- GSTIN: A valid GST registration with correct state-wise coding.
- Return Filing: Businesses must file GSTR-1, GSTR-3B, and GSTR-9, reporting inter-state supplies with IGST.
- E-Way Bills: Mandatory for inter-state movement of goods valued above ₹50,000.
- Documentation: Tax invoices must clearly show IGST charged separately, not as combined tax.
It is highly advisable to remain fully compliant with the IGST regulations. A failure to do so may invite penalties, interest, and blocking of ITC, which, in turn, will badly impact your cash flow and reputation.
Refund of IGST
An export of goods or services and the excess IGST paid on inter state supplies or imports are the major cases where a refund of IGST arises. An exporter, under the GST law, is allowed to get a refund of the IGST amount paid on exports because exports are treated as zero rated supplies.
The refund can be processed automatically through the GST portal (for IGST paid on exports). Alternatively, you can claim it by filing a refund application in Form RFD-01. After the verification, the amount of IGST refunded is credited directly to the bank account of the registered taxpayer.
Final Thoughts:
IGST is a core element of the GST framework in India that maintains the inter state as well as cross border transactions tax neutral, efficient, and fair. By means of IGST rates, the Indian tax structure is able to follow the international best practices. This is because it converts the tax system to a destination based consumption tax, instead of the origin based tax that has been in use.
Businesses should not learn about IGST full form, rates and calculation merely to comply with it. Rather, they should look to use IGST for simplifying their operations, reducing tax outflows and maintaining competitive prices in the borderless Indian market. The better the implementation and knowledge of IGST rates and calculation, the easier will be the movement of trade and credit within the Indian economy.
