Section 5 of IGST explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 5 is the charging section of the IGST Act, 2017. It levies integrated tax on all inter-State supplies of goods or services (except alcoholic liquor), on the value under Section 15 of the CGST Act, at rates up to a maximum of 40%. IGST on imported goods is collected under the Customs Tariff Act at the point of import, and reverse charge and e-commerce rules apply.
What Section 5 Says — In Plain English
Every tax needs one section that actually creates the charge — the clause that says who must pay, on what, and at what rate. For integrated tax, that clause is Section 5. It levies IGST on inter-State supplies and imports, borrows the valuation rules from Section 15 of the CGST Act, sets a rate ceiling, and then adds three machinery mechanisms: a deferral for petroleum products, reverse charge in specified cases, and e-commerce operator liability for notified services. Importantly, IGST on imported goods is not collected by Section 5 directly; it piggybacks on the customs machinery and is collected at the frontier under the Customs Tariff Act, 1975, alongside basic customs duty.
Clause / Sub-section Breakdown
| Sub-section | Effect |
|---|---|
| 5(1) | Levies IGST on all inter-State supplies (except alcoholic liquor for human consumption) on the Section 15 value, at a notified rate not exceeding 40%; IGST on imported goods is levied under Section 3 of the Customs Tariff Act, 1975, at the time of import. |
| 5(2) | IGST on petroleum crude, high-speed diesel, petrol, natural gas and aviation turbine fuel is levied only from a date to be notified later. |
| 5(3) | Reverse charge on notified categories — the recipient pays IGST instead of the supplier. |
| 5(4) | Reverse charge on supplies received by a registered person from an unregistered supplier, as notified. |
| 5(5) | For notified services supplied through an e-commerce operator, the operator is liable to pay IGST. |
Applicability & Scope — Who & When
Section 5 applies to every inter-State supply and every import. If a supply is inter-State under Section 7, IGST — not CGST plus SGST — is the correct levy. For imports of goods, IGST is charged with basic customs duty at clearance. For imported services and other reverse-charge cases, the Indian recipient discharges the IGST and can usually claim it back as input tax credit. E-commerce operators become the deemed payer for notified services routed through their platforms. The statutory rate ceiling of 40% (raised from the earlier 20% cap in this Act) sets the outer limit; actual notified slabs such as 5%, 12%, 18% and 28% sit well below it.
Worked Examples
| Scenario | Value | Rate | IGST | Who pays |
|---|---|---|---|---|
| Inter-State sale (Delhi to Kolkata) | ₹2,00,000 | 18% | ₹36,000 | Supplier |
| Import of goods (customs clearance) | ₹5,00,000 (assessable + BCD) | 18% | ₹90,000 | Importer, at customs |
| Import of consultancy service (RCM) | ₹1,00,000 | 18% | ₹18,000 | Recipient (reverse charge) |
Example 1 — Inter-State sale. The Delhi supplier collects ₹36,000 IGST from the Kolkata buyer and deposits it with the exchequer as a single integrated levy.
Example 2 — Import with reverse charge. On imported goods, the importer pays ₹90,000 IGST at customs under the Customs Tariff Act. On the imported consultancy, the Indian recipient self-assesses and pays ₹18,000 under reverse charge, then claims it as input tax credit if eligible — so the net cost is often nil.
Step-by-Step / How It Works
- Classify the supply as inter-State (Section 7) or an import.
- Value it under Section 15 of the CGST Act.
- Apply the notified IGST rate (capped at 40%).
- Decide who pays — supplier, recipient under reverse charge, e-commerce operator, or importer at customs.
- Deposit the tax and claim input tax credit where eligible.
Common Mistakes & Practical Notes
- Charging CGST + SGST on an inter-State supply that should attract IGST.
- Missing reverse charge on imported services under 5(3)/5(4).
- Forgetting that IGST on imported goods is collected under the Customs Tariff Act, not directly under Section 5.
- Assuming petroleum products and alcoholic liquor attract IGST — the former are deferred under 5(2), the latter is outside GST.
- Confusing the 40% statutory ceiling with actual notified rates, which are much lower.
Related Sections (CGST cross-refs)
- Section 7 — Determines which supplies are inter-State and thus liable to IGST.
- Section 8 — Intra-State supplies that attract CGST plus SGST instead of IGST.
- Section 6 — Power to grant exemption from IGST.
- Section 9 of the CGST Act — Parallel charging section for central tax.
Recent Amendments & Context
The most notable change to Section 5 is the increase of the statutory rate ceiling from 20% to 40% within this Act, giving the GST Council headroom without a further amendment. The reverse-charge provision for supplies from unregistered persons under 5(4) has also been recast over time to a narrower, notification-driven mechanism rather than the broad, blanket charge originally contemplated.