IGST applies when a supply crosses state lines (an inter-state supply) or on imports into India. Instead of splitting into CGST and SGST, the full rate is charged as one IGST amount — an 18% inter-state supply is billed as 18% IGST.
The centre collects IGST and apportions the state’s share to the destination state, preserving GST’s destination-based design. Getting CGST/SGST versus IGST right depends on correctly determining the place of supply.
IGST reaches further than domestic inter-state trade. Imports of goods attract IGST alongside customs duties, computed on the assessable value plus the customs duty itself, and a registered importer can claim that IGST as input tax credit. Supplies to and from Special Economic Zones are treated as inter-state regardless of geography, and exports fall under the IGST Act as zero-rated supplies — taxed at zero while preserving the exporter's credits.
Mechanically the maths is simple: a Bengaluru seller invoicing a Mumbai buyer ₹1,00,000 at 18% charges ₹18,000 IGST, which the buyer claims in full as credit. The subtlety is on utilisation — IGST credit must be exhausted first, and it can then be applied against CGST or SGST liability in either order. That flexibility makes IGST credit the most freely usable balance in the credit ledger, and businesses with inter-state purchases often lean on it to cover local liabilities.
The costliest routine error is charging the wrong head: billing CGST and SGST on what was actually an inter-state supply, or the reverse. The remedy is not a simple swap — the tax must be paid afresh under the correct head and the amount paid under the wrong one claimed back as a refund, though the law spares the taxpayer interest where tax was genuinely paid, just under the wrong head. Catching the error at invoicing is far cheaper than unwinding it later.