Import of Goods and Services and Applicability of Integrated Goods and Services Tax (IGST)

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Published Date:  27-01-2024   Author:   amitha-shet
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Ever since 2017, the Indian regime over taxation has shifted to new ideologies and revolutionizations, which have helped India streamline its taxation and compliance matters in a unified way.

While considering the need to track these taxations and compliance issues, the IGST (integrated goods and services tax) tops the list. It’s not easy to cater to issues and matters related to interstate transactions and imports.

For the good of welcoming foreign clients and international trade, it’s great if there is a thorough understanding of the rules of IGST.

The blog contains all the relevant information regarding crucial matters regarding IGST, levied taxes, and compliance. It also contains a comprehension of the complex matters of importing in India and its solutions, and it has a guideline for streamlining the process as well.

Let’s dive in and learn more about the process, its complexities, and the solutions as well.

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IGST rate and calculation for imports

When it comes to understanding different types of IGST rates, these are:

  1. Bound rates: It explains the categorization of goods and services through tax slabs. These tax slabs vary from 28 to 0%. Bound rates declare rates of domestic GST; these rates are responsible for ensuring both international and domestic products. Some of the basic examples of bound rates are grains and pulses, upon which 0% IGST is levied. Another example of zero percent tax applies to important drugs and equipment necessary to save lives. Apart from these goods/products, almost 28% of IGST applies to the import of experience gifts, luxury items, and automobiles. 
  2. Residual rates: Almost 18% of IGST is supposed to be paid for goods, with no bound rate declared. When the tax is not declared or explicitly mentioned, there may be consistent payment of taxes. 
  3. Exempt categories: All items used for life-saving, fulfilling basic needs, or social welfare are exempt from paying any IGST. Besides medication and healthcare, goods that promote education or knowledge, such as books, are exempt from paying any IGST. Medical devices essential for elderly people or people who need instant and regular checkups are also exempt from paying taxes.

Also Read: How To Calculate The IGST Liability In GSTR-8 Part 2?

Key factors influencing IGST calculation

The following factors greatly influence IGST, and these are:

  1. Nature of goods and services: Classifying goods and products is important. This way, it will help have an impact on the IGST rate. 
  2. Origin of imports: From whichever place the products or goods are imported, they can be considered subject to paying IGST trade under the belt of trade agreements. 
  3. Purpose of imports: For whatever purpose the goods are being used, it can impact the calculation of IGST. 
  4. Customs valuation: As per this method, you can easily access the value of each good or product that is supposed to be imported. By getting the value of goods and products, you may notice its influence on the calculation of IGST. 

IGST credit mechanism

This mechanism is beneficial for dealing with tax compliance and tax effects. The GST credit mechanism is a great explanation for offsetting IGST paid on goods and services against future tax liabilities.

It helps claim the insights of IGST credit. It can also help claim various credit types along with different procedure requirements.

It’s not only beneficial for giving a valid explanation of the IGST credit mechanism but also for defining certain challenges that can occur during IGST claims, documents that are not complete, and time limits.

Once you get hold of these intricacies, the usage of IGST can be maximized, which can also help optimize the tax burden. 

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The process through which IGST Credit can be claimed

  1. Filing GSTR-2A: Any or every IGST paid on imported goods and services is documented in this file, which gets updated via the system. 
  2. Reconciling details: Accuracy and completion are only promised when things are streamlined by documenting import invoices and records. 
  3. Claiming credit in GSTR-3B: The credit for IGST, which is eligible, can be claimed in this file. It is considered the monthly return for the GST. 
  4. Credit utilization: When it is meant to offset output IGST liability, the claimed IGST credit can be used.

Also Read: How to File GSTR-2A? A Complete Overview of the Process

Tax benefits and exemptions for imports 

The Indian government is well aware that importing goods can change the overall shape of their economic stability. It also recognizes that inculcating tax in their trading can be beneficial for their economy, and hence, it provides these benefits to multiple goods and services that are being imported.

When any company or industry is well aware of the benefits of taxation and compliance and the positive impact it builds on the overall portfolio of a company or business, it tends to focus more on this factor. 

Other benefits

  1. Duty-free imports: The products included in this category included medical devices, machines, energy equipment, and scientific instruments. 
  2. Concessional IGST Rates: It applies to certain food items, agriculture, educational books, and medical devices. 
  3. Advanced authorization scheme: This scheme works when registered exporters want to import goods such as raw materials. 
  4. EPCG: It stands for export promotion capital goods scheme. This scheme is helpful in such a way that it reduces the costs at the initial stage. 
  5. FTA stands for free trade agreements, and when it comes to India, it has negotiated a lot with several countries. 

Aspects to be considered

The following are the aspects that need to be considered. These are:

  1. Eligibility criteria: Importers must fulfill the eligibility criteria to meet this criterion and avail themselves of the benefits of taxation and IGST. 
  2. Documentation: Maintaining proper documentation and fulfilling requirements require these documents. It includes bills, transactions, and invoices. If you wish to avail of the benefits and Apple for them, you must check these documents and maintain them properly. 
  3. Filing and compliance: Punctuality in the regulatory framework and ensuring meeting deadlines are important to use the benefits.

Also Read: Determining the Place of Supply for Different Categories of Imports: Goods vs Services

Import documentation and invoicing requirements 

IGST assessment and customs can only proceed when documents are complete and appropriate or have false information. The documents that top the list are the invoice, bill of entry, LC, packing list, and certificate of insurance. Every document is important and necessary at every step of this process.

Under the regime of GST, important invoice requirements are a separate case of fulfillment of the criteria. It also comes with product descriptions, taxation details, HS codes, and values. The requirements related to the invoice are as follows:

  1. Product description: it should give proper details of the product, such as its name, the number of the model, and its specs
  2. Quantity and value: It should properly explain the quantity and value of the product that is being imported or exported. 
  3. Currency: If currency conversion is needed, that should be specified by the customs department when filing the case. 
  4. Breakdowns: The breakdown should be of costs such as freight costs, incidental charges, insurance costs, and other related costs. 
  5. Seller/buyer details: It should also give proper details of the buyer and the seller. Information includes address and contact number. 
  6. Terms of sale: To define the buyer and seller’s identities, you must specify the terms.

Compliance with GST regulations

The following are the key factors for compliance with the regulations of compliance:

  1. Registration: It’s evident that every business and company needs to be registered with GST. Once registered with GST, they will be given a number called GSTN. It’s helpful to get goods and services registered under GST. 
  2. Record keeping: Maintaining a proper record of documents and requirements needed during the process is important. Once you get all the documents, the best way to secure them is by maintaining and documenting their profile. 
  3. Filing returns: When the documents are correctly submitted, timely filing is the best way to eliminate late submissions. 
  4. Deadline of the payment: It’s best if payments are done timely. If you follow the deadlines to pay IGST on time, it will help get rid of penalties and unwanted charges. 
  5. Account maintenance: Maintenance of accounts and documents can be the best thing an importer or an exporter can do. 
  6. Compliance regulations: Imported goods are not only supposed to pay IGST, but they also have to deal with customs, duties, certification, and other relevant requirements. 

Conclusion  

While you have plans to import goods and services into India, you must follow the rules and regulations of the Indian regime. They have proper planning and demonstration towards the usage and characterization of IGST and its implementations.

As this document contains all the relevant details regarding taxation, compliance, and IGST implications, it also shares knowledge and guidance to cater to unseen complexities as well.

Once you get hold of IGST rates and their implications, it’s great as it helps claim credits and benefits. All you need is the maintenance of proper documents and compliance requirements. It’s best to stay current with regulatory changes per the Indian regime. Also, one must get in touch with a taxation expert or take a guide for compliance.

FAQs

Q1. Is IGST applicable to the import of goods?

Suppose the goods and services that are being imported are levied to pay IGST; depending on the type of good, the rate is applicable. Along with IGST, the customs duty is also chargeable on imported goods. The collection and placement of IGST will take place at the customs department. 

Q2. What is the IGST?

IGST is a short form of integrated goods and services tax. Under the Act of IGST 2017, any interstate supplies of services or goods, both in regards to imports and exports of goods, that take place in India are subject to a tax called IGST. IGST is a tax that is the sum of SGST and CGST.

Q3. What is the difference between IGST and CST?

IGST is the integrated goods and services tax, and CST is the central sales tax. CST is an indirect tax levied only on trade and commerce that takes place on the interstate and not on the imports and exports of goods. This tax was administered earlier by the state government under the Act of CST 1956. Since the introduction of GST in 2017, the CST tax is no longer applicable. IGST is a type of GST tax that applies to interstate supplies both in terms of exports and imports of goods or services in India. It is collected by the central and shared with the specific state from which it is collected.

Q4. What is the import of goods and services?

Importing is any process through which you pay money and can bring home high-end, luxurious food and beverages, medication, and healthcare. There are a few taxation processes and steps after which the imported goods can be transferred to the desired location.

Exporting goods and services is any process in which whichever product a company excels at sending out of the country. When the export of goods is greater than the import of goods, a country goes into a trade surplus. 

Q5. What are the benefits of IGST in India?

IGST and its application of good rules in India help ensure double taxation. It also makes sure to verify that the tax is paid only once. This strategy has helped many businesses in India save on their costs. 

Q6. What are the features of IGST?

IGST, as per the Indian regime, is responsible for ensuring that taxation has uniform rules for interstate movements. It ensures the eradication of problems that are related to multiple state taxes. 

Q7. What are the major advantages of the IGST model?

IGST can bring positive changes to overall taxation and compliance methods. It can help reduce the burden of taxes on businesses. It can also help maintain ITC, and you can easily track interstate transactions. 

Q8. Which tax is applicable in the local state?

It’s the value-added tax that is applicable in the local state. It’s applied when a sale of goods is done within the state. 

Q9. What is a tax invoice?

The main function of a tax invoice is to keep a record of the transactions between a buyer and a seller. The tax invoice has a record of whatever sum of money has been exchanged between the two parties. 

Q10. What are the four types of GDP?

  • Government spending 
  • Consumption type
  • Investment 
  • Exports
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Amitha Shet

Amitha is a creative enthusiast, which gets her into educating the world about things she comprehends. Finance, business, and digital transformation are the topics that she is profoundly interested in so that she can make things simpler for the audience. She is currently a content strategist for a fintech company. She holds a Bachelor of Engineering in Civil Engineering, although finance is a niche that piques her interest to not just educate but to invest and gain experience.

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