The meaning of intrastate supply and interstate supply is important in GST law to know the tax implication. As per the present GST law, states only have the power to regulate intrastate supply, not interstate supply.
Before getting into the tax implication under GST law, let us first understand the difference between intrastate supply and interstate supply.
Interstate supply takes place when the supply of goods 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 interstate supply. This means the transaction will be an interState supply if the location of the supplier and the place of supply are in different States.
Intrastate 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, Karnataka to Mysore, Karnataka then it will be considered as intrastate business as both the places are in Karnataka. This means supply will be an intraState supply if the location of the supplier and the place of supply are within the same State.
Tax implication on interstate and intrastate supply in 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 intraState supply of goods 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 interstate 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 intrastate supply, you need to charge CGST @ 9% and SGST @ 9%. In case of Interstate supply IGST will be 18% (i.e. 9% + 9%).
In the case of IGST charged on Interstate supply, 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.