In the case of the Supply of a service or goods, when the provider of the goods or the service is situated in a different union territory or a state, and the supply place is also in a different union territory or state, it is called an inter-state supply.
Other than these supplies that include export and import and those that are coming from or going to an export-oriented unit or SEZ that is a special economic zone are considered inter-state supplies. For example, if A is a supplier supplying some goods or a service to B, who is a recipient of the Supply? This also falls under the type of interstate Supply.
One has to pay IGST, the integrated GST imposed by the central government for the interstate Supply of services and goods. The central government imposes the IGST on interstate supplies in India, and the money is then distributed to the state where the Supply is destined to go.
According to the predetermined formula, the revenue generated from interstate supplies gets distributed between the state and central governments. This method ensures that businesses or individuals don’t have to pay multiple taxes to the state or the central government.
1. Definition of inter-state Supply
According to the integrated goods and services tax or IGST, section 7, a supply from one state to another is called an inter-state supply. In those cases where the location of the supplier and the location of the Supply are –
- In two different UTs or Union Territories
- In two different states
2. Understanding transactions across state borders
Details About Cross-Border Transactions
When people or enterprises from different countries worldwide or neighboring nations do currency transactions, it’s known as cross-border transactions. It is simple to do cross-border transactions by expanding your business.
Every business expansion plan is different, but there are some steps one needs to follow in every niche market that covers all the non-technical and technical aspects. If you are planning to accept international payments, the best integration lift you can do is connect to an international payment gateway.
The transaction becomes much safer once connected to an international gateway since it combines various payment systems and methods. On top of that, the transactions become fast and easy for the users.
The cross-border transaction has various aspects that need to be managed, such as tax, operational, and regulatory considerations; there are different nuances for every market which require experienced navigation and trusted local intel.
After the expansion, smooth operations will be possible with customer due diligence and regulatory considerations. Compliance requirements are the most burdensome when the onboarding process is ongoing, as they must adhere to the tax system and local laws.
Timeline of International Payment Integration
After the completion of the initial setup, the payment processor has to bear the burden of ongoing regulatory compliance, and the merchant is usually relieved. Here are some timelines international payments take while they process expansions —
- Expending to international markets needs to be relatively simple and quick.
- The best-case scenario is when the cross-border payment integration is done in 6 to 8 weeks. If you are looking for expanded integrations, you can discuss this with your payment partner. If they have more experience, they might give you direction about other integrations.
- The timetable for implementation, however, can take weeks if they have good improvements regarding the solutions related to legacy payments.
Lightweight API architecture supports the rollout of international payment integration and the combination of the API with an expert and qualified team of solution consultants and implementation managers.
3. Characteristics of inter-state supplies
There are many characteristics of the inter-state Supply, the primary being the location of the suppliers, which determines the nature of the Supply.
- The supply process happens between 2 states, 2 UTs, or Union territories or between a state and a Union Territory.
- Supplies occurring in a taxable territory (which means the Supply is not intra-state) can be categorized as inter-state Supply.
- Goods or services imported to India are also considered an interstate supply.
- Goods or services supplied to international tourists are also considered interstate supplies.
4. Identifying Inter-state Supply Scenarios
| Location of Supply | Place of Supply | Nature of Supply | Different or Same UTs or State – Tax Leviable |
| In a UT/State | To Different UTs/State | Interstate Supply of Goods [sec 7(1)] | Different UTs/State
(tax under IGST) |
| In a UT/State | To Different UTs/State | Interstate Supply of Services [sec 7(3)] | Different UTs/State
(tax under IGST) |
| In a UT/State | To Different UTs/State | Intrastate Supply of Goods [sec 8(1)] | Same UTs/State
(tax under SGST/CGST) |
| In a UT/State | To Different UTs/State | Intrastate Supply of services [sec 8(2)] | Same UTs/State
(tax under SGST/CGST) |
5. Legal aspects of inter-state Supply
When an interstate supply occurs, IGST is the tax levied on it. The central government collects IGST, which is India’s integrated goods and services tax. The central government distributes it amongst the state government according to the proportion of services and goods. The rate of the IGST tax varies based on the type of goods or services supplied.
You must get a GSTIN, the integrated goods and services tax identification number. This number is important as it signifies your company in the interstate transaction and helps you maintain your tax liability.
6. Inter-state Supply in GST regulations
When goods and services from one state are supplied to another, that procurement is called inter-state Supply; if the supply location of goods and services is India (in case of importation), that is also categorized as inter-state Supply. The buyer of the goods or the services needs to pay the GST even before the goods and services reach their customs station.
The IGST is applied to interstate supplies and is collected by the central government. One example of interstate Supply can be if company X of Chennai supplies their goods or services worth 10,000 Rs. to a recipient in Kolkata after adding 15% GST to the GST, which the central government will collect. Which means the entire 1500 rs will be deposited to the central government.
Conclusion
Whether IGST, CGST, or SGST will be applied heavily depends upon the location of the Supply. IGST is incorporated when the Supply is interstate, which means that the supplier and the place of Supply are two different states, UTs or a state and a UT. The revenue is generated from collecting taxes by the central government of India, and the money is distributed among the state governments.
FAQs
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What is the difference between interstate and intrastate Supply?
Section 7 and 8 of the IGST Act describes the interstate and intrastate supplies. According to the integrated goods and services tax or IGST, a supply from one state/UT to another state/UT is called an inter-state supply. Intrastate Supply is when the supply and supplier locations are within the same state.
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What GST is applicable for an across-state supply product?
When the supply location is a different state or a union territory, it comes under the interstate supply category, and thus, the tax one needs to pay for them is the integrated goods and services tax or IGST.
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What is an example of IGST or inter-state GST?
One example of interstate Supply can be if a shoe company in Madhyapradesh supplies their goods or services to Pune; the GST applied here is the interstate GST. The central government will collect the GST.
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Is it compulsory to get registered for GST for interstate Supply?
If you are a supplier and, in the present financial year, have an aggregate turnover exceeding the threshold limit, you will have to register your business under GST. However, a few categories of people are obligated to be registered under the GST, and interstate suppliers are part of them. So, yes, interstate suppliers must get registered under GST.
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What GST is the interstate GST?
IGST is the tax one needs to pay for interstate supplies, and the full name of IGST is the integrated goods and services tax. Under the GST ACT, all interstate supplies from one state to another state, one UT to another UT, or between a UT and a State get IGST levied on them.
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Is RCM implemented in interstate Supply?
RCM is the reverse charge mechanism, and it has to be paid by the purchaser or the buyer, but this rule is applicable for intra-state supplies. But when it comes to interstate supplies, the buyer only has to pay the IGST to the central government.
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What are the types of GST available currently?
There are a total of 4 types of GST: state goods and services tax or SGST, integrated goods and services tax or IGST, central goods or services tax or CGST, and union territory goods and services tax or UTGST. The rate of taxes varies between each of the 4 tax categories.
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Can you buy interstate goods without the GST number?
Currently, yes, you can purchase whatever interstate goods you want as long as the supplier has a registered GST number and a valid GSTIN number. But, as the Eway bill is coming along with other GST procedures, it might be difficult to do so in the future. That’s why you need to register your GST number.
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Can you get a refund for your IGST?
In the case of exports, you can get a refund if you generate the scroll of eligible liable shopping bills. You can generate the temporary IGST refund scroll or the shopping bill scroll ICES with the help of the CLK authorized officer who is in charge. With this scroll, you can generate the permanent scroll bill from the officer who is in the AC_DBK role.
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Can you claim IGST for imports?
If the importers issue the BoE or the bill of entry, they can claim the IGST and get paid for the particular imports.
