IGST vs GST: When To Charge Each And Why It Matters

Key Takeaways

• IGST applies when the supplier’s state and the place of supply differ, CGST plus SGST or UTGST applies when they match, the rate is the same, only the tax head changes.
• Place of supply, not who raises the invoice or where payment is received, controls IGST vs CGST+SGST, especially in bill-to-ship-to and SEZ cases.
• Wrong tax head blocks the buyer’s ITC until the supplier amends GSTR-1, the correction cycle can tie up working capital for weeks.
• GSTR-1 amendments close by 30 November of the following financial year, refunds of wrong-head tax are time bound to two years from paying the correct tax.
• IGST credit is the most flexible, it can offset IGST, then CGST, then SGST, CGST and SGST credits cannot cross each other.

IGST vs GST, the difference in practice

GST is the umbrella, IGST, CGST, SGST, and UTGST are its components. The operative question for every invoice is simple: which component applies to this supply, given the place of supply rules in the IGST Act, 2017.

The rate does not change, for example, 18 percent is 18 percent whether split as 9 percent + 9 percent or charged as 18 percent IGST. What changes is which government receives the revenue, and which ledger your buyer uses for set off.

Rule of thumb: if the supplier’s state and the place of supply differ, charge IGST. If they match, charge CGST plus SGST, or CGST plus UTGST inside a Union Territory.

Place of supply: when it flips the tax head

The place of supply decides IGST versus CGST+SGST, and four scenarios cause most errors in the real world.

Bill-to-ship-to, the drop-shipment trap

Under Section 10(1)(b) of the IGST Act, when goods are delivered to a third party on the buyer’s instructions, the place of supply is the third party’s location.

Example: Buyer in Gujarat, supplier in Maharashtra, delivery to Karnataka. The place of supply is Karnataka, the supplier must charge IGST, not CGST+SGST. If the buyer resells to the consignee, the second leg also attracts IGST.

SEZ supplies, zero-rated not tax free

Supplies to SEZ are zero-rated under Section 16 of the IGST Act. You either:

• Issue with payment of IGST, then claim refund of IGST, or
• Issue under LUT or bond with zero tax, then claim ITC refund.

Keep the SEZ authorisation, approvals, and a clear “zero-rated supply to SEZ” declaration on the invoice. Missing documents slow refunds.

Import of goods and services

For goods, IGST is collected at customs along with basic customs duty, the credit syncs with your returns post filing. For services, the recipient pays IGST under the Reverse Charge Mechanism, see Reverse Charge Mechanism. You self-invoice, pay in cash, then avail ITC subject to eligibility.

Services across states, B2B vs B2C

For domestic B2B services, the place of supply is the registered location of the recipient per Section 12, IGST Act. A Mumbai-based consultant billing a Bengaluru-registered company charges IGST. For B2C services, the place of supply is the supplier’s location, so the same consultant billing an unregistered Bengaluru individual charges CGST+SGST in Maharashtra.

How the tax head hits ITC and cash flow

Misclassification is not just a filing error, it dictates where your input credit lands and what it can legally offset.

The mandatory set off sequence

Order of utilisation
IGST credit offsets IGST first, then CGST, then SGST or UTGST. CGST credit offsets CGST first, then IGST, never SGST. SGST or UTGST credit offsets SGST or UTGST first, then IGST, never CGST.

A worked ledger example

Opening ITC: IGST ₹10,000, CGST ₹5,000, SGST ₹5,000. Liabilities: IGST ₹7,000, CGST ₹6,000, SGST ₹4,000.

• Pay IGST: use ₹7,000 IGST ITC, IGST ITC left ₹3,000.
• Pay CGST: use ₹3,000 IGST ITC, balance CGST ₹3,000 from CGST ITC, CGST ITC left ₹2,000.
• Pay SGST: use ₹4,000 SGST ITC, SGST ITC left ₹1,000.

Cash outflow is ₹0. Now, imagine a vendor wrongly charged CGST+SGST on an inter-state purchase, your GSTR-2B has no IGST credit, your IGST liability of ₹7,000 must be paid in cash. The “excess” CGST and SGST sit stranded until the vendor corrects.

GSTR-2B locks your ITC

Since 1 January 2022, Rule 36(4) allows only ITC that appears in GSTR-2B, see a practical guide in 2A vs 2B: GST ITC. Wrong head on the vendor invoice means wrong head in your 2B, and the right credit only appears after the vendor amends GSTR-1. Every week of delay is needless float or cash outflow.

Automated reconciliation helps, for example, GSTR-2B Reconciliation highlights IGST vs CGST+SGST mismatches at line level, prepares corrective entries, and reduces quarter end surprises.

Charged the wrong tax head, how to fix it

The statutory framework

Sections 77 of the CGST Act and 19 of the IGST Act permit refund of tax paid under the wrong head after paying the correct head. CBIC guidance clarifies timelines and interest, see CBIC circulars on wrong-head corrections.

The step by step sequence

1. Pay the correct tax first, this triggers refund eligibility.
2. Issue a credit note to reverse the wrong head, then issue a fresh or revised invoice with the correct head.
3. Amend GSTR-1 within the statutory window so the buyer’s GSTR-2B reflects the correction.
4. Adjust GSTR-3B for reduced wrong-head liability and increased correct-head liability in the same tax period.
5. File FORM GST RFD-01 within two years from the date of paying the correct tax to claim the refund of the wrong-head tax.

An illustrative example

Supplier in Maharashtra charges CGST 9 percent plus SGST 9 percent on a ₹1,00,000 sale delivered to Karnataka, correct head is IGST ₹18,000. Supplier pays IGST ₹18,000, issues a credit note for the wrong head, amends GSTR-1, adjusts GSTR-3B, and files RFD-01. Refund of ₹18,000 flows back, cash is tied up only for the processing period.

Controls that stop IGST vs CGST+SGST errors

Tally Prime configuration, the non negotiables

• Accurate party master data, correct state and GSTIN for every counterparty, Tally derives the tax head from these fields.
• Separate ledgers for Output CGST, Output SGST, Output IGST, and for Input CGST, Input SGST, Input IGST, avoid a single generic “GST” ledger.
• Use the transaction level place of supply field, override it for bill-to-ship-to so the delivery state drives the tax head.

E-invoice validation as a pre flight check

Where e-invoicing applies, the IRP JSON has a POS field, mismatches between POS and tax head are rejected at IRN generation. See the implementation playbook, E-Invoice, IRN, and QR integration guide. Below the threshold, this gate does not exist, so master data quality and reviews matter more.

The team SOP, four quick checks

1. Verify GSTIN and registered state at onboarding, then sync to Tally.
2. During invoice prep, confirm place of supply and tax head, for drop-shipments enter the delivery state as PoS.
3. Do a second person head check on high value inter-state invoices, a half minute review prevents weeks of correction.
4. Before filing, reconcile purchases to GSTR-2B at head level, mismatch alerts can be automated with vendor bill matching and bookkeeping automation.

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