by 1. Intra-State Sale of Goods
In an intra-state supply, both the supplier and the place of supply are located within the same state. Under GST, the tax collected is divided equally between the Central Government and the State Government in the form of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). This apportionment ensures that both governments receive revenue from the transaction. The supplier collects both components of tax and deposits them with the respective authorities. The mechanism promotes cooperative federalism by sharing tax revenue fairly between the Centre and States. It also simplifies tax administration by replacing multiple indirect taxes with a unified tax structure. Equal distribution of tax revenue ensures that the state where the transaction occurs benefits financially while the Centre receives its designated share.
Example: A dealer in Bihar sells furniture worth ₹1,00,000 within Bihar. GST at 18% is charged as CGST ₹9,000 and SGST ₹9,000.
2. Inter-State Sale of Goods
An inter-state sale occurs when the supplier and the place of supply are located in different states. In such cases, Integrated Goods and Services Tax (IGST) is charged instead of CGST and SGST. The Central Government initially collects the entire IGST amount. Later, through a settlement mechanism, the revenue is apportioned between the Centre and the destination State where the goods are ultimately consumed. This system ensures that GST remains a destination-based tax and that the consuming state receives the tax revenue. The apportionment process is managed electronically through the GST Network, ensuring accuracy and transparency. This arrangement prevents disputes between states and facilitates smooth tax administration. It also supports the free movement of goods across India without creating tax barriers between states.
Example: A trader in Bihar sells goods worth ₹2,00,000 to a buyer in Uttar Pradesh. IGST of ₹36,000 is collected and later apportioned between the Centre and Uttar Pradesh.
3. Inter-State Supply to an Unregistered Consumer
When goods are supplied from one state to another and the recipient is an unregistered consumer, IGST is charged on the transaction. The Central Government collects the tax and subsequently transfers the appropriate share to the destination State where consumption takes place. Since the consumer cannot claim Input Tax Credit, the tax burden is borne by the final consumer. The destination-based principle ensures that the state where the goods are used or consumed receives revenue from the transaction. This apportionment mechanism strengthens state finances and promotes fairness in tax distribution. It also prevents revenue concentration in producing states and supports balanced economic development across the country. The GST framework thus ensures that consumption-driven revenue reaches the appropriate state government.
Example: A Delhi-based seller supplies electronic goods worth ₹50,000 to an individual consumer in Rajasthan. IGST of ₹9,000 is collected and apportioned between the Centre and Rajasthan.
4. Inter-State Supply to a Registered Dealer
In inter-state transactions involving registered dealers, IGST is charged by the supplier and collected by the Central Government. The purchasing dealer can claim Input Tax Credit on the IGST paid. When the dealer subsequently sells the goods, the credit mechanism and settlement process ensure proper distribution of tax revenue between governments. The apportionment system guarantees that the destination State eventually receives its share of tax revenue. This process supports seamless credit flow across states and eliminates cascading taxes. It also encourages interstate trade by ensuring that businesses can claim tax credits without complications. The electronic settlement mechanism under GST ensures efficiency, transparency, and fairness in revenue allocation between the Centre and States.
Example: A manufacturer in Maharashtra sells machinery worth ₹5,00,000 to a registered dealer in Gujarat. IGST of ₹90,000 is collected and later apportioned through the GST settlement process.
5. Import of Goods into India
Under GST, imports of goods are treated as inter-state supplies. Consequently, Integrated Goods and Services Tax (IGST) is levied on imported goods in addition to applicable customs duties. The Central Government collects the IGST at the time of import. Since GST follows the destination-based principle, the revenue is later apportioned between the Centre and the State where the imported goods are consumed or utilized. This ensures equal treatment between imported and domestically produced goods. The system also prevents tax distortions and promotes fair competition. Businesses importing goods can generally claim Input Tax Credit on the IGST paid, subject to eligibility conditions. Thus, the import taxation mechanism contributes to revenue generation while maintaining neutrality in the GST framework.
Example: A company in Karnataka imports machinery worth ₹10,00,000. IGST of ₹1,80,000 is paid at the time of import and apportioned between the Centre and Karnataka.
6. Import of Services
The import of services is also treated as an inter-state supply under GST. In most cases, the recipient located in India is required to pay IGST under the Reverse Charge Mechanism (RCM). The tax collected by the Central Government is subsequently apportioned between the Centre and the destination State where the service is consumed. This ensures that imported services receive the same tax treatment as domestic services. The mechanism broadens the tax base and prevents revenue leakage. It also ensures fairness between domestic and foreign service providers. Businesses receiving imported services can generally claim Input Tax Credit of the IGST paid, subject to GST rules and conditions.
Example: A company in Tamil Nadu receives consultancy services from a foreign firm valued at ₹1,00,000. IGST of ₹18,000 is paid and apportioned between the Centre and Tamil Nadu.
7. E-Commerce Transactions Across States
E-commerce transactions often involve suppliers and customers located in different states. Such transactions are treated as inter-state supplies and attract IGST. The Central Government collects the IGST and later apportions the State share to the destination State where the customer is located. This mechanism ensures that tax revenue reaches the state where consumption occurs. Apportionment is particularly important in e-commerce because online transactions frequently cross state boundaries. The GST system supports efficient tax collection while promoting digital commerce. It also prevents revenue disputes among states and ensures transparency in online business activities. The destination-based approach strengthens state finances and supports balanced economic growth.
Example: A seller in West Bengal supplies products worth ₹30,000 through an online platform to a customer in Odisha. IGST of ₹5,400 is collected and apportioned between the Centre and Odisha.
8. Supply of Services Across States
When services are provided across state boundaries, the transaction is treated as an inter-state supply and attracts IGST. The Central Government collects the tax and later apportions the State share to the destination State where the service is consumed. This mechanism ensures that states benefit from services utilized within their territory, regardless of where the supplier is located. Proper apportionment is particularly important in sectors such as information technology, consultancy, education, and professional services. The GST framework facilitates smooth interstate service transactions by providing a uniform tax structure. It also eliminates tax barriers and promotes business expansion across state boundaries.=
Example: A software company in Karnataka provides software development services worth ₹3,00,000 to a client in Kerala. IGST of ₹54,000 is collected and apportioned between the Centre and Kerala.
9. Utilization of IGST Credit and Settlement
One of the unique features of GST is the seamless utilization of Input Tax Credit across tax categories. Taxpayers can use IGST credit to pay IGST, CGST, or SGST liabilities according to prescribed rules. Whenever such credit utilization occurs, settlement takes place between the Centre and the concerned State Governments. The GST Network electronically manages these adjustments to ensure that each government receives its rightful share of revenue. This settlement mechanism supports the smooth flow of tax credits and prevents revenue imbalances. It also simplifies compliance for businesses and strengthens the efficiency of the GST system. Proper apportionment through settlement is essential for maintaining fiscal balance within the federal structure.
Example: A dealer uses IGST credit of ₹20,000 to pay CGST liability of ₹10,000 and SGST liability of ₹10,000. Settlement ensures correct revenue allocation between governments.
10. Destination-Based Taxation Principle
GST is fundamentally a destination-based tax, meaning that tax revenue belongs to the state where goods or services are consumed rather than where they are produced. Apportionment mechanisms are designed to implement this principle effectively. Whenever inter-state transactions occur, the destination State ultimately receives its share of tax revenue through the IGST settlement process. This system promotes fairness and prevents producing states from receiving disproportionate tax benefits. It also encourages balanced regional development by ensuring that consumption-driven revenue is distributed appropriately. The destination-based approach is one of the key strengths of the GST framework and supports cooperative federalism.
Example: A manufacturer in Gujarat sells goods worth ₹1,50,000 to a consumer in Bihar. IGST of ₹27,000 is collected, and Bihar receives the State share because the goods are consumed there.
