IGST or CGST + SGST: getting the GST split right on construction bills

Every GST invoice in India charges either IGST, or CGST and SGST together. At a given rate the total tax is the same. What changes is which government collects it and where it appears in returns. Get the split wrong and the tax has been paid under the wrong head, and the supplier’s return, your input tax credit and the reconciliation between them all go off.

This guide covers the rule, how it applies to common construction purchases and subcontracts, and a checklist for whoever books bills. GST has many special cases, so confirm anything unusual with your CA.

The rule

Compare two places: where the supplier is located, and the place of supply.

• Same state: an intra-state supply. The invoice charges CGST and SGST, each at half the rate. In some union territories, UTGST takes the place of SGST.
• Different states: an inter-state supply. The invoice charges IGST at the full rate.

The supplier’s location is normally the registered place of business the supply is made from. The first two digits of a GSTIN are the state code: 24 for Gujarat, 27 for Maharashtra. The real work is deciding the place of supply.

Place of supply for goods

When goods are moved, the place of supply is generally where the movement ends for delivery to the recipient. Steel loaded in Pune and unloaded at a site in Vadodara has its place of supply in Gujarat.

One common exception is “bill to, ship to”: goods delivered to one person on the direction of a third person who is billed. There, the place of supply is the principal place of business of the person billed. If your purchases are routed this way, ask your CA how they should be invoiced.

Place of supply for site work

For services directly in relation to immovable property, where both supplier and recipient are in India, the place of supply is where the property is located (Section 12(3) of the IGST Act). This covers carrying out or coordinating construction work, which is where most works contracts fall, and related services such as those of architects, surveyors and engineers.

So for a subcontractor’s bill, the place of supply is the site, not your head office or the subcontractor’s office.

Three worked examples

A contractor registered in Gujarat is building at a site in Vadodara. The rates below are for illustration: check the current rate for the HSN or SAC on each bill.

1. Steel from a Gujarat dealer, delivered to the Gujarat site

An Ahmedabad dealer supplies 10 tonnes of TMT bars at ₹56,000 a tonne, delivered to Vadodara. The supplier is in Gujarat and the movement ends in Gujarat, so the supply is intra-state.

Taxable value ₹5,60,000. CGST at 9% is ₹50,400 and SGST at 9% is ₹50,400. Invoice total ₹6,60,800.

2. Steel from a Maharashtra dealer, delivered to the Gujarat site

The same order from a dealer in Pune. The supplier is in Maharashtra and the movement ends in Gujarat, so the supply is inter-state.

Taxable value ₹5,60,000. IGST at 18% is ₹1,00,800. Invoice total ₹6,60,800, exactly as before. Only the tax head has changed.

3. A Maharashtra subcontractor working on the Gujarat site

A waterproofing subcontractor registered only in Maharashtra does work at the Vadodara site and raises a running bill of ₹4,00,000 from its Maharashtra registration. The work relates to a property in Gujarat, so the place of supply is Gujarat. The supplier, billing from Maharashtra, is in Maharashtra. Two different states, so IGST.

At 18% (confirm the rate for the type of work), IGST is ₹72,000 and the bill is ₹4,72,000.

Charging CGST + SGST because “the work happened in Gujarat” is a common mistake: the place of supply is Gujarat, but the supplier is not. The answer can change if the subcontractor has, or should have, a GST registration in Gujarat for this site and bills from it: then supplier and place of supply are in the same state, and the bill carries CGST + SGST. The subcontractor should settle the registration question with its CA before the first bill.

What goes wrong when the split is wrong

A wrong split is not a rounding error. The tax has gone to the wrong government.

• The supplier has to pay under the right head and recover what was paid under the wrong one. That is a refund process, not a quick adjustment.
• You, the recipient, see the credit in your GSTR-2B under a head that does not match the transaction. Credit taken on tax charged under the wrong head can be questioned later.

Not every construction bill carries usable credit anyway: Section 17(5) of the CGST Act blocks credit in several construction situations. Your CA will know which of your bills are affected.

The usual fix is for the supplier to issue a credit note against the wrong invoice and a fresh invoice with the right tax, or to amend the invoice in a later return where that is still allowed. Which route works depends on timing, so ask the supplier to agree it with their CA.

How debit and credit notes fit

A credit note reduces the value or tax of an invoice: goods returned, a rate reduced, short supply, deficient work. A debit note increases it: an extra quantity or an upward rate revision. Under GST both are issued by the supplier. The “debit note” many buyers send for a return is a commercial document; the GST adjustment still needs the supplier’s credit note.

Either way, the note follows the original invoice. It should refer to that invoice and carry the same split: a credit note against an IGST invoice reduces IGST, not CGST and SGST.

Credit notes also have a deadline. Under Section 34 of the CGST Act, a credit note has to be declared in a return no later than 30 November following the end of the financial year of the supply, or the date the annual return is filed, if that is earlier. Confirm the current limit with your CA.

Checklist before you book a bill

1. Check the bill is in your company’s name and shows your correct GSTIN.
2. Read the supplier’s state from the first two digits of its GSTIN.
3. Decide the place of supply. For goods, where they were delivered: check the challan or goods receipt. For work on a site, the state the site is in.
4. Same state: CGST + SGST, each at half the rate. Different states: IGST at the full rate.
5. Check that the place of supply printed on the invoice agrees with your answer.
6. Check the HSN or SAC, the rate, and that the tax adds up.
7. Compare with the purchase order. If the order and the bill disagree on the split, find out which is right before booking.
8. If the split is wrong, send the bill back. Do not book it and plan to fix it later.
9. For a debit or credit note, check it refers to the original invoice and uses the same split.
10. For an out-of-state site, a “bill to, ship to” delivery or a supplier with several registrations, ask your CA before the first bill, not after the tenth.

A note on software

In BuildAura, the person entering a purchase order, bill or invoice chooses IGST or CGST + SGST on each entry. BuildAura does not work out the place of supply for you, so the checklist above is what keeps the split right. Purchase orders in procurement show the split and HSN on the PDF, which gives whoever books the bill something to check it against.