IGST Section 17 — Apportionment of tax and settlement of funds

IGST Act  ·  Apportionment of tax and settlement of funds

IGST 9 Amendments 85 views

Quick Answer

Section 17 of the IGST Act, 2017 governs Apportionment of tax and settlement of funds. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 17 IGST: Apportionment of tax and settlement of funds — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Amendments 9

Plain-English Explanation

Plain English Summary

Section 17 of the IGST Act deals with how the IGST (Integrated Goods and Services Tax) collected by the Central Government is divided between the Central Government and the State Governments or Union Territories. It ensures that the tax revenue reaches the correct government entities based on where the supply of goods or services ultimately takes place.

This section applies to all inter-state supplies of goods or services (including imports) where IGST is paid to the Central Government. It comes into play when determining how the IGST revenue is distributed after it's collected. Specifically, it addresses situations where the final destination of the supply, and therefore the right to the State GST (SGST) or Union Territory GST (UTGST) portion, is not immediately obvious.

The apportionment process has several key conditions and exceptions:

  • Apportionment to the Central Government: A portion of the IGST is initially attributed to the Central Government, calculated at a rate equivalent to the Central Tax (CGST) rate on similar intra-state supplies. This applies in specific scenarios:

    • Supplies to unregistered persons.
    • Supplies to registered persons who have opted for the composition scheme (paying tax under Section 10 of the CGST Act).
    • Supplies to registered persons who are not eligible for input tax credit (ITC).
    • Supplies to registered persons where ITC is not availed within the due date for filing the annual return for the relevant financial year, and therefore the IGST paid remains unutilized in the government account. This essentially means the registered buyer slept on claiming the ITC.
    • Identical rules apply for imported goods.

  • Apportionment to States/UTs: The remaining balance of the IGST, after the central portion is carved out as above, is then assigned to:

    • The State where the supply actually takes place.
    • The Central Government if the supply takes place in a Union Territory.

  • Undetermined Place of Supply: If the place of supply cannot be determined separately, the remaining balance is apportioned proportionally to each State and Union Territory, based on the taxable person's total supplies made to each in that financial year.

  • Unidentifiable Taxable Person: If the taxable person making the supplies is unidentifiable (rare, but possible), the remaining balance is apportioned to all States and the Central Government in proportion to the amount of SGST or UTGST collected by each during the immediately preceding financial year.

Practical Examples:

  • Example 1 (B2C Inter-State Supply): A company in Maharashtra sells goods to an unregistered customer in Karnataka. The IGST collected is initially with the Central Government. After the apportionment under Section 17, an amount equivalent to the CGST is retained by the center, while the rest, equivalent to SGST, will go to Karnataka.

  • Example 2 (ITC Not Availed): A registered business in Tamil Nadu purchases machinery from a supplier in Gujarat, paying IGST. However, the Tamil Nadu business forgets to claim the ITC on this IGST within the deadline of filing the annual return. After the deadline passes, the amount equivalent to CGST is retained by the center and the remaining IGST goes to Gujarat. The Tamil Nadu business has lost the ITC and Gujarat gets an unanticipated revenue windfall.

  • Example 3 (Undetermined Place of Supply): A software company provides services across multiple states, but the exact location where each service is consumed is difficult to pinpoint. The remaining IGST will be apportioned based on the company's total turnover in each state.

Important Amendment:

Sub-section (2A) was inserted via the IGST (Amendment) Act, 2018, effective February 1, 2019. This allows for a temporary, ad hoc apportionment of any unapportioned IGST, pending a more precise determination. The Council (GST Council) can recommend a 50/50 split between the Central Government and the State/UT Governments. This helps ensure funds are available for government operations while the final apportionment is sorted out. This is later adjusted when the final apportionment is determined using normal rules above.

Section 17 also dictates that the same apportionment logic applies to interest, penalties, and compounding fees related to the IGST. Finally, if IGST that has already been apportioned is later refunded, the amount is deducted from the subsequent apportionment to the relevant State or Union Territory. The Central Government is responsible for transferring funds between the IGST account, the CGST account, and the accounts of the State Governments and Union Territories according to the apportioned amounts.

*Section 17.Apportionment of credit and blocked credits.-
(1)Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
(2)Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
(3)The value of exempt supply under sub-section (2) shall be such as may beprescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 ofSchedule II, sale ofbuilding.
Explanation.-For the purposes of this sub-section, the expression "value of exempt supply" shall not include the value of activities or transactions specified inSchedule III,1except,—4
(i)the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii)the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule.];]except,—4
(i)the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii)the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule.];]
(4)A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of subsection (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse: Providedthat the option once exercised shall not be withdrawn during the remaining part of the financial year: Providedfurther that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
(5)Notwithstanding anything contained in sub-section (1) ofsection 16and sub-section (1) ofsection 18, input tax credit shall not be available in respect of the following, namely:-
(a)motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-2
(A)further supply of such motor vehicles; or
(B)transportation of passengers; or
(C)imparting training on driving such motor vehicles;]
(aa) vessels and aircraft except when they are used-2
(i)for making the following taxable supplies, namely:-
(A)further supply of such vessels or aircraft; or
(B)transportation of passengers; or
(C)imparting training on navigating such vessels; or
(D)imparting training on flying such aircraft;]
(ii)for transportation of goods;2
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): Providedthat the input tax credit in respect of such services shall be available-2
(i)where the motor vehicles, vessels or aircraft referred to in clause
(a)or clause (aa) are used for the purposes specified therein;]
(ii) where received by a taxable person engaged-2
(I)in the manufacture of such motor vehicles, vessels or aircraft; or
(II)in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;]
(b)the following supply of goods or services or both-3
(i)food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Providedthat the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;]
(ii) membership of a club, health and fitness centre; and3
(iii)travel benefits extended to employees on vacation such as leave or home travel concession: Providedthat the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]
(c)works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d)goods or services or both received by a taxable person for construction of an immovable property (other thanplant and machinery7) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation 18.-For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Explanation 2.––For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery.9
(e)goods or services or both on which tax has been paid undersection 10;
(f)goods or services or both received by a non-resident taxable person except on goods imported by him;
(fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in5
section 135 of the Companies Act, 2013;]
(g)goods or services or both used for personal consumption;
(h)goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i)any tax paid in accordance with the provisions ofsection 74 in respect of any period up to Financial Year 2023-246
(6)The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.
Explanation.-For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i)land, building or any other civil structures;
(ii)telecommunication towers; and
(iii)pipelines laid outside the factory premises.
(i)for making the following taxable supplies, namely:-
(A)further supply of such vehicles or conveyances ;or
(B)transportation of passengers; or
(C)imparting training on driving, flying, navigating such vehicles or conveyances;
(ii)for transportation of goods;" by s.9 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
(i)food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii)membership of a club, health and fitness centre;
(iii)rent-a-cab, life insurance and health insurance except where-
(A)the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B)such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
(iv)travel benefits extended to employees on vacation such as leave or home travel concession;" by s.9 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.

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Frequently Asked Questions

What is IGST Section 17 and what does it address?

IGST Section 17 of the IGST Act, 2017, deals with the crucial mechanism for the apportionment of Integrated Goods and Services Tax (IGST) collected on inter-state supplies of goods and services, as well as the settlement of funds between the Central Government and the respective State Governments. It ensures that the IGST collected is distributed fairly to the state where the consumption of the goods or services occurs.

How is the 'place of supply' determined for apportionment of IGST under Section 17?

The determination of the 'place of supply' is paramount for apportioning IGST. This is governed by the Place of Supply Rules defined in the IGST Act (Sections 10-13). The place of supply is considered the destination where the goods or services are ultimately consumed, and it dictates which state receives the allocated IGST amount. Different rules apply depending on the nature of supply (goods or services), and whether it involves movement of goods, services related to immovable property, etc.

What are the different scenarios and mechanisms involved in the settlement of funds under IGST Section 17?

IGST settlement involves a complex interplay between the Central and State Governments. It typically involves periodic reconciliations of IGST collected and Input Tax Credit (ITC) availed in each state. The Central Government provisionally assigns the IGST based on GSTR-1 and GSTR-3B returns. Any discrepancies arising from the matching of ITC claims and IGST payments are then settled through fund transfers, ensuring that the consuming states receive their due share of the tax revenue.

What are the consequences of incorrect 'place of supply' declaration on IGST apportionment?

An incorrect declaration of the 'place of supply' can lead to significant financial implications. It results in the misallocation of IGST to the wrong state. This can trigger demand notices, interest, and penalties from the tax authorities for the supplier. Furthermore, the receiving state may need to refund the wrongly allocated IGST amount.

How does the concept of 'zero-rated supply' affect IGST apportionment under Section 17?

Zero-rated supplies (exports and supplies to SEZs) are considered deemed exports. While no IGST is charged on such supplies, the supplier can claim a refund of the input tax credit (ITC) related to those supplies. This ITC refund is sourced from the IGST pool, impacting the net IGST revenue available for apportionment among the states. The state where the exporter is located benefits from the enhanced ITC refund, indirectly impacting other states' share of IGST.

What is the role of GSTN (Goods and Services Tax Network) in IGST apportionment and settlement under Section 17?

The GSTN acts as the crucial IT infrastructure for the entire GST regime. It plays a vital role in IGST apportionment by capturing and processing the details of inter-state transactions. The GSTN system uses this data to calculate the provisional IGST allocation to each state. It also facilitates the reconciliation process and the transfer of funds between the central and state governments, ensuring accurate and transparent settlement.

Where can I find the most up-to-date guidelines and notifications related to IGST Section 17?

The most reliable sources for up-to-date guidelines and notifications related to IGST Section 17 are the official websites of the Central Board of Indirect Taxes and Customs (CBIC) and the GST Council. These websites publish circulars, notifications, and amendments related to GST laws, including those specifically pertaining to IGST apportionment and settlement of funds. Regular monitoring of these official sources is essential for accurate compliance.

Key Conditions & Requirements

ConditionDetails
Inter-State supply to unregistered person or composition dealer Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government, when the supply is made to an unregistered person or a registered person paying tax under section 10 of the CGST Act.
Inter-State supply where recipient is ineligible for ITC Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government when the registered person is not eligible for input tax credit.
Inter-State supply where ITC is not availed within specified period Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government when the registered person does not avail of the input tax credit within the specified period (i.e., by the due date for furnishing annual return of the year supply was made).
Import by unregistered person or composition dealer Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government, for import of goods/services by an unregistered person or a composition dealer.
Import where recipient is ineligible for ITC Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government when the registered person is not eligible for input tax credit for the imported goods/services.
Import where ITC is not availed within specified period Out of IGST paid, an amount equivalent to CGST on similar intra-State supply is apportioned to the Central Government when the registered person does not avail of ITC on imported goods/services within specified period (i.e., by the due date for furnishing annual return of the year goods/services were received).
Apportionment of remaining IGST after Central Government's share The balance amount of IGST (after apportioning CGST equivalent to Central Government) is apportioned to the State where the supply takes place, or to the Central Government if the supply takes place in a Union Territory.
Undeterminable Place of Supply If the place of supply cannot be determined separately, the remaining IGST is apportioned to each State and UT in proportion to the total supplies made by the taxable person to each State/UT in a financial year.

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Amendment History

Enforced w.e.f. 1st July, 2017.
123456789Superscript numbers in the text mark amended passages — click them to jump here. Click "↑ view in text" to jump back.
1
2018↑ view in text

Inserted by s.9 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018)- Brought into force w.e.f. 01st February, 2019.

2
↑ view in text

Substituted for " (a) motor vehicles and other conveyances except when they are used-

3
↑ view in text

Substituted for " (b) the following supply of goods or services or both-

4
2023↑ view in text

Substituted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023-C.T. , dated 31st July, 2023 ) by s. 139 of The Finance Act 2023 (No. 8 of 2023) for "except those specified in paragraph 5 of the said Schedule".

5
2023↑ view in text

Inserted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023-C.T. , dated 31st July, 2023 ) by s. 139 of The Finance Act 2023 (No. 8 of 2023).

6
2024↑ view in text

Substituted by section 119 of The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024.

7
2025↑ view in text

Substituted by section 124 of The Finance Act (No. 7) Act, 2025 and shall be deemed to have been substituted with effect from the 1st day of July, 2017.

8
2025↑ view in text

Renumbered (w.e.f. 01.10.2025) by section 124 of The Finance Act (No. 7) Act, 2025.

9
2025↑ view in text

Inserted (w.e.f. 01.10.2025) by section 124 of The Finance Act (No. 7) Act, 2025.

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