The introduction of the Goods and Services Tax (GST) system has completely transformed the way businesses operate and pay taxes in India. By consolidating multiple indirect taxes into one single tax, the government of India has significantly cut down on complexity and enhanced its tax revenue.
Among the various concepts within this indirect taxation system that every business owner must be aware of are interstate and intrastate. Understanding the difference between these two types of transactions is essential for businesses to comply with GST regulations and calculate their tax liabilities accurately. Continue reading to learn about these concepts and a comparison of interstate vs. intrastate transactions within the GST system.
What is the Meaning of Interstate in GST?
In the Goods and Services Tax system, an interstate transaction is one where the supplier of goods and services is in one state (or union territory) and the place of supply is in another state (or union territory). To put it simply, interstate supply is the movement of goods or services between two different states or union territories in India.
Let us consider a hypothetical scenario to better understand how interstate supply works in GST.
Assume there is a furniture manufacturer based in Maharashtra who sells a consignment of chairs to a retailer based out of Gujarat. Since the supplier of the goods resides in Maharashtra and the place of supply of the said goods takes place in Gujarat, this transaction is classified as an interstate supply under GST.
Also Read More About What is Integrated Goods and Services Tax (IGST)?
What is the Meaning of Intrastate in GST?
Now that you are aware of the meaning of interstate in GST, let us explore the meaning of intrastate transactions.
An intrastate transaction is one where the supplier of goods and services and the place of supply are both within the same state or union territory. To simplify it further, interstate supply is the movement of goods or services between the same state or union territory in India.
Also Read More About What is State Goods and Service Tax (SGST)?
Let us consider a hypothetical scenario to better understand how intrastate supply works in GST.
Assume that the Maharashtra-based furniture manufacturer referred to in the previous example sells a consignment of tables to a retailer based out of the same state. Since the supplier of the goods resides in Maharashtra and the place of supply of the said goods also takes place in Maharashtra, this transaction is classified as an intrastate supply under GST.
Also Know More About What is Central Goods and Service Tax (CGST)?
Interstate vs. Intrastate: The Differences
Here is a detailed tabulated comparison of interstate vs. intrastate transactions in the Goods and Services Taxation system. The table below should help you better understand the various distinctions between these two concepts.
| Particulars | Interstate Supply | Intrastate Supply |
| Definition | It is the movement of goods or services between different states or union territories. | It is the movement of goods or services within the same state or union territory. |
| Applicable Taxes | For interstate goods and services supplies, the Integrated Goods and Services Tax (IGST) is levied. | For intrastate goods and services supplies, two types of GST are levied: Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). |
| Levied By | The Integrated Goods and Services Tax is charged by the Union Government of India. | The Central Goods and Services Tax is charged by the union government, whereas the State Goods and Services Tax is charged by the state government. |
| Tax Rates | The respective GST rate applicable for the particular good or service in question shall be the rate of IGST.
For instance, if the rate of GST is 5%, then the entire rate would be levied as IGST. |
The respective GST rate applicable for the particular good or service in question is equally split and charged under CGST and SGST, respectively.
For instance, if the rate of GST is 18%, then CGST would be 9% and SGST would be 9%. |
| Revenue to the State Receiving the Supply | The state that receives the supply of the goods or services is provided with a share of the tax revenue collected as IGST. | The state receives the full amount of the tax revenue collected as SGST. |
| Use of Input Tax Credit | The input tax credit from IGST purchases must first be set off against IGST liabilities. Then, if there is any input tax credit left over, it may be used to set off CGST or SGST liabilities. | The input tax credit from CGST can only be used to set off CGST liabilities. Similarly, the input tax credit from SGST can only be used to set off SGST liabilities.
Setting off CGST liabilities with SGST input tax credit or vice versa is disallowed. However, both CGST and SGST input tax credits can be used to set off IGST liabilities. |
With this, the comparison of interstate vs. intrastate in GST is now complete. The primary differences between the two lie in the place of supply, applicable taxes, and input tax credit utilisation.
Conclusion
Both interstate and intrastate supply of goods and services are crucial concepts in the Goods and Services Taxation system. Businesses must carefully determine the nature of their transactions to ensure proper tax calculation, input tax credit utilisation, and compliance with the various regulations.
Furthermore, the GST system is ever-evolving, with new regulations and updates to the act being notified from time to time. To thrive in the Indian market, business owners must stay informed about the various changes to the regulations.
FAQs
What is the primary differentiating factor between interstate sales and intrastate sales?
The location of the supplier and the recipient is the primary differentiating factor between interstate and intrastate sales. If the supplier and recipient of goods or services reside in the same state, it will be classified as an intrastate sale. On the other hand, if the supplier and recipient of goods and services reside in different states, it will be classified as an interstate sale.
Can a business engage in both interstate and intrastate sales?
Yes. Businesses are free to engage in both interstate and intrastate supply of goods and services.
Which tax is applicable on interstate sales?
Integrated Goods and Services Tax (IGST) is levied on sales from one state to another (interstate).
Can input tax credits from interstate purchases be used for intrastate tax liabilities?
Yes. Input tax credit (ITC) from interstate purchases can be used to set off tax liabilities that arise from intrastate sales.
Which type of GST is levied for interstate and intrastate sales?
Integrated Goods and Services Tax (IGST) is levied for interstate sales, whereas Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) are levied for intrastate sales.
