CGST + SGST or IGST? How Place of Supply Decides the Tax on Your Invoice
Every GST invoice has to answer one question before any tax is calculated: is this an intra-state supply or an inter-state supply? The answer decides whether you charge CGST and SGST, or IGST. Get it wrong, and your customer cannot use the credit, even though the total tax was the same.
This guide explains the rule in plain terms, gives worked examples, and shows what to do when you have charged the wrong tax.
The basic rule
Compare two things: the location of the supplier and the place of supply.
- Same state (intra-state supply): charge CGST + SGST, split equally. For a union territory without a legislature, such as Chandigarh or Ladakh, it is CGST + UTGST.
- Different states (inter-state supply): charge IGST at the full rate.
For an 18% item, that means either 9% CGST + 9% SGST, or 18% IGST. The total tax is the same; what changes is which government receives it.
Note that the comparison is with the place of supply, not simply the buyer's billing address. Usually they are the same, but not always.
Place of supply for goods
Section 10 of the IGST Act sets the place of supply for goods. The main rules are:
- Goods that move: the place where the movement ends for delivery to the recipient.
- Bill-to-ship-to: when goods are delivered to a third party on the direction of the buyer, the place of supply is the principal place of business of the buyer who gave the instruction.
- Goods that do not move (for example, a machine sold while it is already installed at the buyer's site): the location of the goods at the time of delivery.
- Goods assembled or installed at site: the place of installation.
- Goods supplied on a vehicle such as a train, ship or aircraft: the place where the goods are taken on board.
Place of supply for services
For services, Section 12 of the IGST Act applies when both supplier and recipient are in India. The general rule is:
- Registered recipient: the location of the recipient, usually the state of their GSTIN.
- Unregistered recipient: the recipient's address on record, if available; otherwise the location of the supplier.
There are many specific rules that override this, including:
- Services related to immovable property (construction, renting, hotel stays): where the property is located.
- Restaurant and catering, personal grooming, fitness, health services: where the services are actually performed.
- Training and performance appraisal: location of a registered recipient, otherwise where performed.
- Event admission: where the event is held.
- Passenger transport: location of a registered recipient, otherwise where the passenger embarks.
- Telecom and banking: special rules based on billing address or account location.
Worked examples
| Situation | Supplier in | Place of supply | Tax |
|---|---|---|---|
| Pune trader sells goods to a Nagpur shop, goods shipped to Nagpur | Maharashtra | Maharashtra | CGST + SGST |
| Pune trader sells goods to an Indore buyer, shipped to Indore | Maharashtra | Madhya Pradesh | IGST |
| Akola designer bills a GST-registered client in Bengaluru | Maharashtra | Karnataka | IGST |
| Akola designer bills an unregistered client with no address on record | Maharashtra | Maharashtra (supplier's location) | CGST + SGST |
| Delhi firm renovates an office in Mumbai for a Delhi client | Delhi | Maharashtra (property location) | IGST |
| Export of goods or services | Any | Outside India | IGST (or zero-rated under LUT) |
| Supply to an SEZ unit | Any | Treated as inter-state | IGST (or zero-rated under LUT) |
What goes on the invoice
Under Rule 46, an inter-state invoice must state the place of supply with the name of the state. Many businesses show it on every invoice, with the state code, for example "Place of supply: 27 - Maharashtra". It removes any doubt when the buyer reviews the bill.
The first two digits of a GSTIN are the state code. Comparing them gives you a quick sense check: if your GSTIN starts with 27 and the buyer's starts with 29, a regular sale of goods shipped to them will almost always be inter-state.
What if I charged the wrong tax?
Suppose you charged CGST + SGST on what was actually an inter-state supply. Section 77 of the CGST Act and Section 19 of the IGST Act cover this:
- You pay the correct tax (IGST in this example).
- You can claim a refund of the CGST and SGST wrongly paid.
- No interest is charged on the correct tax paid in this way.
The invoice itself also needs correcting. Typically you issue a credit note against the original invoice and a fresh invoice with the correct tax heads. Your buyer cannot claim credit under the wrong head, so they will usually ask for this.
Common mistakes
- Using the billing address when goods are shipped elsewhere. Check the bill-to-ship-to rule.
- Charging IGST to an out-of-state customer for a hotel stay or event. The location of the property or event usually wins.
- Charging CGST + SGST on an SEZ supply. SEZ supplies are inter-state.
- Splitting the rate wrongly, for example charging 18% CGST + 18% SGST instead of 9% + 9%.
Let the invoice do the split
OwnInvoice's GST invoice editor, available with a free account, compares your state with the customer's state and shows whether the invoice is intra-state (CGST + SGST) or inter-state (IGST) before you save. That removes the most common manual error.
Note: Place of supply has many special cases. This article covers the common situations for general information; for complex contracts, ask a GST practitioner.