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.
Key Facts About Section 5 of IGST
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What does Section 5 of the IGST Act levy tax on?
It levies integrated tax on all inter-State supplies of goods or services (except alcoholic liquor) and on imports of goods and services into India.
What is the maximum IGST rate under Section 5?
The notified rate cannot exceed 40%. Actual rates such as 5%, 12%, 18% and 28% are well below this statutory ceiling.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Section 5 of IGST: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.
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