IGST vs CGST vs SGST — India's GST Structure Explained

India's Goods and Services Tax is not one tax but three: CGST (Central GST), SGST (State GST), and IGST (Integrated GST). Which one you pay depends on a single question: does the supply cross a state boundary? If a Delhi-registered company sells to a Delhi buyer, CGST + SGST applies. If that same company sells to a buyer in Maharashtra, IGST applies. For foreign companies importing goods into India, only IGST applies at the port of entry. The distinction is not academic: it controls how you claim input tax credits, which returns you file, and how the government settles revenue between center and states.

After GST 2.0 reforms effective September 22, 2025, the rate structure has been rationalized to primarily three slabs: 5%, 18%, and 40% (with a few niche rates at 0%, 3%, and 0.25%). Whether you pay 18% as IGST or as 9% CGST + 9% SGST, the total rate is the same. The difference lies in who collects it, how input credits flow, and what compliance obligations follow.

Quick Comparison Table

Place of Supply: The Decisive Factor

The entire IGST-vs-CGST/SGST determination rests on place of supply rules under Sections 10-13 of the IGST Act. Getting this wrong means charging the wrong tax, misreporting on returns, and facing penalties under Section 122 of the CGST Act (INR 10,000 or the tax amount involved, whichever is higher).

For Goods (Sections 10-11)

For Services (Sections 12-13)

The general rule under Section 12(2): place of supply for services is the location of the recipient if registered; otherwise, the recipient's address on record. For cross-border services under Section 13, the place of supply depends on the nature of the service:

• Performance-based services (installation, training): Where the service is physically performed
• Immovable property services: Where the property is located
• Events, exhibitions: Where the event is held
• General B2B services: Location of the recipient

For a foreign company providing SaaS to an Indian business, the place of supply is the recipient's location in India. If the foreign company has no Indian GST registration, the Indian recipient pays GST under the reverse charge mechanism.

Input Tax Credit: The Cross-State Chain

ITC rules are where IGST, CGST, and SGST interact most critically. The utilization hierarchy, governed by Rule 88A of the CGST Rules and clarified by Circular No. 98/17/2019-GST, works as follows:

IGST Credit (Most Flexible)

• First: Set off against IGST output liability (mandatory)
• Then: Any IGST credit remaining may be set off against CGST and SGST/UTGST liabilities in any order and in any proportion

CGST Credit

• First: Set off against CGST output liability
• Then: Set off against IGST liability
• Cannot be used against SGST liability

SGST Credit

• First: Set off against SGST output liability
• Then: Set off against IGST liability
• Cannot be used against CGST liability

The cross-credit prohibition (CGST cannot offset SGST and vice versa) exists to protect state revenue. This means a company operating across states must carefully track credits by type. A business that accumulates large SGST credits in one state but has IGST liabilities from inter-state sales can use SGST credits against IGST, but not against CGST.

Practical ITC Impact for Foreign Companies

A foreign company's Indian subsidiary that imports components (paying IGST at customs) and sells finished goods within the same state (collecting CGST + SGST) can use the IGST import credit against both CGST and SGST output liabilities. This is a significant cash flow advantage: the IGST paid at import is fully recoverable against any GST output liability.

Import and Export: IGST-Only Territory

All imports into India are treated as inter-state supplies under Section 7(2) of the IGST Act, regardless of which state the goods arrive in. The calculation at customs:

• Assessable Value = CIF value (transaction value plus actual freight, insurance, and loading/handling costs). The notional 1% landing charge was omitted from the Customs Valuation Rules with effect from 26 September 2017, so nothing is added on top of CIF.
• Basic Customs Duty (BCD) = Assessable value x applicable BCD rate (varies by product, typically 0-150%)
• Social Welfare Surcharge = 10% of BCD
• IGST = (Assessable Value + BCD + SWS) x applicable IGST rate

Key rule: BCD and Social Welfare Surcharge are not claimable as input tax credit. Only the IGST component is claimable. An importer must declare their GSTIN on the Bill of Entry to claim ITC. Without a GSTIN, the IGST paid becomes a sunk cost.

For exports, the exporter can either pay IGST and claim a refund, or export under a Letter of Undertaking (LUT) / bond without paying IGST. Most regular exporters prefer the LUT route to avoid tying up working capital in refund claims.

Compliance Differences for Foreign Companies

Foreign companies with Indian operations must understand that GST registration is state-specific. A company selling in three states needs three GSTINs, three sets of GSTR-1 and GSTR-3B filings, and three reconciliation exercises.

Which Should You Choose?

You do not choose between IGST and CGST/SGST; the tax type follows automatically from the transaction's geography. But you can influence which tax applies through supply chain design:

Optimize for IGST if:

• You import components and want maximum ITC flexibility (IGST credit offsets all three tax types)
• You operate from an SEZ (all supplies to/from SEZs are treated as inter-state, attracting IGST)
• You sell to customers across multiple states (IGST simplifies invoicing vs maintaining multiple state registrations)
• You are an exporter seeking zero-rated treatment (only IGST applies to exports)

Optimize for CGST + SGST if:

• Your customers are concentrated in the same state as your registration (avoids inter-state compliance)
• You want to minimize e-way bill requirements (intra-state thresholds are often higher)
• You deal with state government contracts (some states prefer local suppliers for procurement)
• You want to accumulate SGST credits for use against future SGST liabilities in the same state

Common Mistakes

• Charging CGST+SGST on inter-state supplies: If your registered state is Karnataka and you ship goods to a Tamil Nadu buyer, you must charge IGST, not CGST+SGST. Charging the wrong tax creates a mismatch: the buyer cannot claim ITC on incorrectly charged CGST+SGST of another state, leading to credit blockage and potential penalties.
• Not registering in states where you have a business presence: Under Section 22 of the CGST Act, registration is mandatory in every state where you make taxable supplies. A foreign subsidiary selling from a Delhi warehouse to customers in Delhi must have a Delhi GSTIN, even if its head office is registered in Maharashtra.
• Ignoring the IGST credit hierarchy: Businesses sometimes hoard IGST credits without realizing they can be applied against CGST and SGST liabilities. This is free cash flow. The amended utilization order (Circular 98/17/2019-GST) requires IGST credits to be fully exhausted before using CGST or SGST credits.
• Forgetting GSTIN on import Bill of Entry: IGST paid on imports is claimable as ITC, but only if the importer's GSTIN appears on the Bill of Entry. Foreign companies that import before completing IEC and GST registration lose the ITC permanently.
• Misapplying place of supply for services: For B2B services, place of supply is the recipient's location, not where the service is performed. A consulting firm registered in Mumbai providing services to a client in Bengaluru must charge IGST, not CGST+SGST, because the place of supply (Bengaluru) differs from the supplier's state (Maharashtra).

Practical Example

Meridian Systems Pte Ltd, a Singapore electronics company, sets up an Indian subsidiary registered in Karnataka. Monthly operations:

• Imports components from Singapore: CIF value INR 50 lakh. BCD at 10% = INR 5 lakh. SWS at 10% of BCD = INR 50,000. IGST at 18% on (50 + 5 + 0.5) = INR 9,99,000. BCD (INR 5,50,000) is a cost; IGST (INR 9,99,000) is claimable as ITC.
• Sells finished goods within Karnataka: INR 40 lakh at 18% GST = INR 7,20,000 (INR 3,60,000 CGST + INR 3,60,000 SGST). The company uses IGST import credit (INR 9,99,000) to offset CGST (INR 3,60,000) and SGST (INR 3,60,000). Remaining IGST credit: INR 2,79,000 carried forward.
• Sells finished goods to a Maharashtra buyer: INR 30 lakh at 18% IGST = INR 5,40,000. The carried-forward IGST credit (INR 2,79,000) offsets this partially. Net IGST payable: INR 2,61,000.

Total GST paid in cash for the month: INR 2,61,000. Without proper ITC utilization, the cash outflow would have been INR 22,59,000 (INR 9,99,000 + INR 7,20,000 + INR 5,40,000). Correct ITC management reduces the cash tax burden by 88%.

Key Takeaways

• IGST applies to inter-state supplies and all imports/exports. CGST + SGST applies to intra-state supplies. The total rate is the same; only the levy mechanism differs.
• IGST credit is the most flexible: it can offset IGST, CGST, and SGST liabilities. CGST and SGST credits cannot cross-offset each other.
• All imports are treated as inter-state supplies and attract IGST, which is fully claimable as ITC if the importer has a valid GSTIN on the Bill of Entry.
• Place of supply rules under Sections 10-13 of the IGST Act determine which tax applies. For goods, it is the delivery location; for B2B services, it is the recipient's location.
• After GST 2.0 reforms (September 2025), the primary rate slabs are 5%, 18%, and 40%, with the CGST/SGST split always being equal halves of the IGST rate.
• Foreign companies must register for GST in each state where they have a taxable presence. Each GSTIN requires separate GSTR-1 and GSTR-3B filings.

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