The meaning of intra-state supply and inter-state supply is important in GST law to know the tax implication. As per the present GST law, states only have the power to regulate intra-state supply, not inter-state supply of goods and/or services.
Before getting into the tax implication under GST law, you should first understand the difference between intra-state supply and inter-state supply of goods or services or both.
Inter-state supply takes place when the supply of goods and/or services conducted between two states. For example; if your company is in the state of Karnataka, supply goods to someone in another state outside of Karnataka then it will be considered as inter-state supply. This means the transaction will be an inter-State supply if the location of the supplier and the place of supply are in different States.
Intra-state supply takes place when the supply of goods or services conducted within the same state. For example; if your company supplied goods from the factory at Bengaluru (in Karnataka state) to Mysore (in Karnataka state), then it will be considered as intra-state supply as both the places are in Karnataka. This means supply will be an intra-State supply if the location of the supplier and the place of supply are within the same State.
Tax implication on inter-state and intra-state supply under GST Law
GST has replaced the following taxes;
- Central Excise duty
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- State VAT
- Central Sales Tax
- Entertainment and Amusement Tax (except when levied by the local bodies)
- Taxes on lotteries, betting, and gambling
- Luxury Tax
First four taxes were previously levied and collected by the Centre; others were previously levied and collected by the State.
As per present GST law, taxes are levied on different goods or services based on the place of supply. If the transaction is an Intra-State supply of goods and/or services, then central GST (CGST) is levied by the Centre and State GST (SGST) is levied by the state where supply has taken place.
In the case of inter-state supply of goods and services, Integrated GST (IGST) is collected by Centre. In this case, CGST and SGST will not be charged.
The rate of IGST will be equal to the rate of CGST plus SGST. For example; if a particular commodity is charged at the rate of 9% then in the case of intra-state supply, you need to charge CGST @ 9% and SGST @ 9%. In case of Interstate supply IGST will be 18% (i.e. 9% + 9%).
If IGST is charged on Inter-state supply, then input tax credit first be applied to set off IGST paid in other cases then it to be set off against CGST. Balance if any left out will be applied to set off SGST. To know the whole process of input tax credit, we request you to go through input tax credit in case of IGST, CGST and SGST.