How is the Place of Supply Determined for Inter-State Supplies? [Changes suggested. Do not upload]

Introduction 

Taxing is a duty of every citizen and business set up in a country. The funds collected from taxes help develop various services in the country. Some people try to exempt themselves from this procedure by different malpractices. Such practices help one to escape from paying taxes and also allow one to escape from playing the role of a responsible citizen of the country.  India’s tax system is divided into different sections. It helps in the easy collection of taxes and also helps to eliminate confusion while paying taxes on goods and services transported from one place to another. The movement of goods and services also decides the applicable tax on them for easy classification and understanding of the taxation system for the seller and buyer of the goods. In the case of the transportation of goods from one state to another, tax classification plays an essential role in deciding which government can collect the tax revenue and use it for the development of the respective state. 

1.1 Classification of Tax

A certain percentage of the amount paid from the income to the government for the country’s development is known as tax. The amount of tax to be paid depends on the certain income bed included under the Indian Taxation System. The taxes are divided into direct and indirect taxes, which are further segregated into various other forms for easy collection and classification of taxes.  1.2 Direct Taxes  Direct taxes are paid by a country’s individuals and corporate entities. These taxes are further divided into income, capital gain, and corporate tax. The form of tax is levied in each assessment year, from 1st April to 31st March. Paying direct tax is mandatory and non-transferable.

•  Indirect Taxes                                                      

The taxes levied upon moving goods and services from one place to another are indirect. These are further classified into different forms, such as service tax, Indian excise duty, VAT, customs duty, securities transaction tax, stamp duty, and entertainment tax. Such a tax form is also known as Goods and Service Tax or GST. It is applicable for goods and services and is paid by the consumer at the time of purchasing a product as they are included in the final price of the product. 

1.3 Relation between Taxes and Place of Supply of Goods and Services 

Taxes apply to the supply of goods and services as well. These taxes are classified based on the location of goods and services to be supplied. Hence, the place of supply of goods and services plays an essential role in GST law. It helps decide the right amount of tax to be levied according to the movement of goods and services. Hence, the location of the supply of goods and services is an essential aspect of the Indian Taxation System. 

1.4 What are Inter-State and Intra-State Supplies?

When the goods and services are transported from one state to another, it is known as inter-state supply, whereas when the goods and services are supplied within the state, the scenario is termed as intra-state supply of goods and services. The classification of the supply of goods and services helps decide the right form of taxation for each situation.  Mentioned below is the difference between GST rates for interstate supplies and intra-state supplies for easy taxation: [[[ Table Required ]]]

2.1 GST Rates for Inter-State Supplies

The GST rates applicable for the supply of goods and services in India fall into four tiers, i.e., 5%, 12%, 18%, and 28%. Application of the ideal percentage depends upon the type of movement of goods and services and the type of goods. Specific rates for high-value goods and no rates for essential goods are also included under GST law. When the goods and services are supplied from one state to another, the taxation falls under the slab of 18%. IGST levied by the Central Government is included in this tax, which is paid to the supply destination.  IGST stands for Integrated Goods and Services Tax and applies to the supply of goods and services from one state to another. It also applies to supply goods and services to any Union Territory. The Central Government levies it, and a share of it is received by the destination of goods and services supplied.

 3.1 Tax Rate Structure for Transactions between States 

The tax rate structure for the supply of goods varies upon the movement of goods. IGST, also known as Integrated Goods and Service Tax, is applicable if the goods and services are transported from one state to another. CGST, also known as Central Goods and Services Tax, is applicable when the goods and services are transported within a state. The form of tax is levied and collected by the central government due to the offers it provides. Intra-state supply of goods and services may also go through SGST tax. It stands for State Goods and Services Tax. The State Government levies it.  These classifications help in the easy calculation and collection of taxes. It also helps the taxpayer and receiver understand the taxation system and stay at bay from any confusion. The classification also helps the respective state’s government understand the movement of goods and services and the consumption amount of the taxes levied on them. [[[ Taxes under GST – Image of Tree diagram (is from cleartax) ]]]

4.1 Understanding GST Rates on Inter-State Trade

GST is a location-based taxation system. Its rates are decided as per the location of goods and services. It differs as per the movement of goods. If the goods and services are transported from one state to another, the situation is termed inter-state trade. When goods and services are transported within the state, the situation is known as intra-state trade. Both situations involve different taxation systems. IGST is applicable for inter-state movement of goods and services, whereas CGST and SGST forms of taxation are applicable when the goods and services are transported within the state.  It is the responsibility of the GST council to decide the ideal GST rates. The procedure requires the involvement of central and state governments. The council meets periodically to revise the decided GST rates per the country’s economic situation and to maintain a proper balance of revenue for the country’s development. The GST rates are divided into different slabs, such as 5%, 12%, 18%, and 28%. These rates differ for special categories and essential categories of goods and services. The IGST rate is the same as the combined CGST and SGST rates.  For example, If a state’s CGST and SGST rates are 9%, the IGST rate for inter-state transactions will be 18%. 

5.1 Categories of GST Rates for Inter-State Supplies

GST rates are distinguished into different categories depending upon the trade of goods and services. The revenue generated from these taxes is also collected with the help of GST classification. Hence, classification is helpful for the buyer, seller, as well as the government of a state. With the help of the state and central governments, the GST Council will revise the rates to maintain the state’s revenue for its proper development. The rates are also revised to maintain the economic balance of a state. The rule also applies to goods and services mentioned under special and essential categories. 27th August 2020 was the 41st GST Council Meeting for recent rate revision.  The current GST rates of 2023 are mentioned below, along with the difference from old GST rates for different categories of goods and services.  [[[ Table Required ]]]

6.1 Applicable Tax Rates for Inter-State Transactions

Different tax rates for different commodities help the buyer and seller of goods and services to understand the taxation system. The classification of tax rates is also essential for the government to maintain a state’s revenue and the country’s economic balance. GST rates are revised as per the country’s current economic condition. Hence, the rates keep fluctuating and may rise or dip depending on the country’s economic situation. Inter-state and intra-state supply of goods and services help to identify the right and applicable form of taxes in the right percentage.  Mentioned below are the different forms of GST and their proper application, along with their current rate: [[[ Table Required ]]] 

7.1 Inter-State Supply and Corresponding GST Rates

Inter-state supply refers to the activity of exchange of goods from one state to another. The type of movement is divided into different tax categories to ease the classification of payable tax. The movement of the goods and services decides the tax type to be paid. After a fixed period, the GST Council changes the GST rates of different commodities and services. These changes depend upon the economic conditions of the country and are also useful to generate revenue for the country’s development.  The recent GST Council meeting for 2023 was held on 11th July. Mentioned below are the tax rates that were changed compared to the previous ones:  [[[ Table Required ]]]

Conclusion 

GST is a location-based tax that changes depending on the movement of goods and services. These changes decided the type of tax to be levied on the goods and services. The classification helps the government decide the share for the country’s development and the seller’s share. These rates keep changing depending on factors such as the changing economy, the country’s revenue condition, and other similar aspects. 

Frequently Asked Questions 

• What is tax defined as?

In simple terms, tax is a percentage of an individual’s income to be paid to the government for the country’s development and revenue.

• What are the different sectors in which tax is divided?

Tax is divided into direct and indirect tax, where direct tax is levied on individual and corporate entities of the country, and indirect tax is levied on goods and services. 

• What is GST?

GST, or Goods and Service Tax, is levied on moving goods and services from one place to another. 

• What are the different belts in which GST is divided?

GST is divided into IGST (Integrated Goods and Service Tax) and CGST (Central Goods and Service Tax). 

• In which categories is the movement of goods and services divided?

The movement of goods and services is divided into inter-state and intra-state supply. 

• How are the terms inter-state supply and intra-state supply defined?

Inter-state supply refers to the supply of goods from one state to another, whereas intra-state supply of goods and services refers to the supply of goods and services within the state. 

• What are the different rate slabs in which GST is divided?

GST rates are usually divided into 5%, 12%, 18%, and 28%, which keep changing for different categories of goods and services depending upon the country’s economic condition. 

• Which tax applies to inter-state and intra-state supply of goods and services?

IGST tax is levied on the inter-state supply of goods and services, whereas CGST and SGST are levied on the intra-state supply of goods and services. 

• Who is responsible for revising the GST rates?

The GST Council and the representatives from the Central and State Governments can revise the GST rates. 

• Why is a place of supply essential to decide the type of tax to be levied on goods and services?

The type of movement of goods and services helps decide the type of tax to be levied, which helps the government decide the right share of the tax to be used for the country’s development.