GST GST basics
IGST vs CGST and SGST
Charge CGST plus SGST when the supplier and the place of supply are in the same state, and IGST when they are in different states. The total rate is the same; what changes is which government gets the tax.
- Traders selling to other states
- Manufacturers with dealers across India
- Billing staff
- Businesses with multi-state branches
- Accountants filing GSTR-3B
On this page 11
The three (or four) taxes
| Tax | Charged on | Goes to |
|---|---|---|
| CGST | Intra-state supplies | Central government |
| SGST | Intra-state supplies in a state, or Delhi, Puducherry, J&K | State government |
| UTGST | Intra-state supplies in UTs without a legislature | Union territory |
| IGST | Inter-state supplies, imports, supplies to SEZ | Centre, then shared with the consuming state |
UTGST replaces SGST in Chandigarh, Ladakh, Lakshadweep, Andaman and Nicobar Islands, and Dadra and Nagar Haveli and Daman and Diu. Delhi, Puducherry and Jammu and Kashmir have their own legislatures and levy SGST.
How to decide: one question
Compare your registered location (the state in your GSTIN) with the place of supply:
- Same state: split the rate equally. 18% becomes 9% CGST + 9% SGST.
- Different state: full rate as IGST. 18% IGST.
The buyer's state on its own does not decide it. What matters is the place of supply, which for goods is usually where delivery ends. The rules are in place of supply for goods.
A worked example
A Kanpur (Uttar Pradesh) manufacturer sells two lots at 18%:
| Sale | Taxable | Tax charged | Invoice total |
|---|---|---|---|
| To a dealer in Lucknow (UP) | ₹5,00,000 | CGST ₹45,000 + SGST ₹45,000 | ₹5,90,000 |
| To a dealer in Patna (Bihar) | ₹5,00,000 | IGST ₹90,000 | ₹5,90,000 |
The buyer pays the same total either way. The difference is in the returns: the first sale reports CGST and SGST, the second IGST with place of supply 10-Bihar, and the Lucknow dealer claims CGST and SGST credit while the Patna dealer claims IGST credit.
Using credit across the taxes
Input tax credit is set off in a fixed order:
- IGST credit is used first, against IGST liability, then against CGST and SGST in any order or proportion. All IGST credit must be used up before CGST or SGST credit is touched.
- CGST credit is used against CGST, then IGST. Never against SGST.
- SGST credit is used against SGST, then IGST. Never against CGST.
Example. Liability: IGST ₹30,000, CGST ₹50,000, SGST ₹50,000. Credit: IGST ₹70,000, CGST ₹20,000, SGST ₹20,000.
- IGST credit ₹70,000: ₹30,000 against IGST, the remaining ₹40,000 split, say ₹20,000 against CGST and ₹20,000 against SGST.
- CGST credit ₹20,000 against the remaining CGST ₹30,000 → cash ₹10,000.
- SGST credit ₹20,000 against the remaining SGST ₹30,000 → cash ₹10,000.
Total cash: ₹20,000. Because CGST credit cannot pay SGST, a business with only local purchases and mostly inter-state sales can build up credit in one head while paying cash in another. Plan purchases and the split with your accountant. See what is GSTR-3B for where this happens.
Charged the wrong tax?
If you charged CGST + SGST on what was an inter-state supply (or the reverse), the tax does not convert automatically. You pay the correct tax and then claim a refund of the tax paid under the wrong head. No interest is charged on the correct tax paid in such a case under the law, but the refund process takes time and paperwork, and your buyer's credit has to be corrected too. It is much cheaper to get the place of supply right on the invoice.
Signs of trouble: an invoice with CGST + SGST where the ship-to state differs from yours, or IGST to a party whose GSTIN starts with your own state code and who took delivery locally.
This is general information, not tax advice.
Stock transfers and branches
If you have registrations in two states, moving stock from one to the other is a taxable supply between "distinct persons", and IGST applies even though no third party is involved. Moving stock between two godowns under the same GSTIN within a state is not a supply. More in GST on stock transfer between branches.
How Cashflow OS applies it
When a sales or purchase voucher is created in TallyPrime from the Cashflow OS app, GST is worked out from the item's rate and the party's state: IGST for a party in another state, CGST and SGST for a local one. Tally validates the entry before it is saved. Keeping each party's state correct in the Tally ledger is what makes this work.
Avoid these
Common mistakes
- MistakeDeciding the tax from the billing address aloneDo this instead
Look at the place of supply; for goods it is usually where delivery ends. Bill-to and ship-to in different states need care.
- MistakeCharging CGST + SGST on an inter-state saleDo this instead
The tax does not convert. You pay IGST and claim a refund of the wrong tax, and the buyer's credit must be corrected. Check the ship-to state first.
- MistakeUsing CGST credit to pay SGSTDo this instead
Follow the set-off order: IGST credit first; CGST against CGST then IGST; SGST against SGST then IGST.
- MistakeTreating transfers to an out-of-state branch as non-taxableDo this instead
Transfers between your own GSTINs are supplies between distinct persons; IGST applies and a tax invoice is needed.
Keep handy
Checklist
IGST vs CGST and SGST — 7 checks. Tick them as you go.
In Cashflow OS
How Cashflow OS helps
Cashflow OS puts your TallyPrime books on every phone in the team. Where it fits this topic:
Tax head picked from the party's state
When a sales or purchase voucher is created from the app, GST is worked out from the item's rate and the party's state: IGST for another state, CGST and SGST for a local party.
See Create Tally vouchers from your phone
Check the split before you file
The GSTR-1 and GSTR-3B views prepared from your Tally data show the tax heads separately, so a wrongly charged invoice can be caught before filing on the portal.
See GST reports from your Tally data
Questions people ask
Is IGST more expensive than CGST plus SGST?
Can CGST credit be used to pay SGST?
Is UTGST charged in Delhi?
Is IGST charged on supplies to an SEZ in my state?
Does my buyer care whether I charge IGST or CGST and SGST?
Which tax applies when goods go to a third party on my buyer's instruction?
Is IGST charged on exports?
Do I need separate ledgers for IGST, CGST and SGST?
This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.
