Place of Supply Rules under GST: IGST vs. CGST/SGST Explained

One of the most complex questions in the Goods and Services Tax (GST) system is not how much tax to pay, but which tax to pay. Should you charge CGST + SGST, or should it be IGST?

The answer depends entirely on the Place of Supply (PoS). Because GST is a "destination-based consumption tax," the revenue belongs to the state where the goods or services are actually consumed.

If a supplier in Maharashtra sells to a buyer in Karnataka, it is an Inter-state supply, and IGST is charged. If they both are in Maharashtra, it is an Intra-state supply, and CGST + SGST is charged.

However, determining the "Place of Supply" is not always as simple as looking at the buyer's address. For events, cross-border services, and "bill-to ship-to" transactions, the rules become highly technical.

This guide explains the Place of Supply rules for both goods and services for the 2026 Assessment Year.

Why is Place of Supply Critical?

Charging the wrong tax is not a "neutral" mistake. If you accidentally charge CGST + SGST when you should have charged IGST:

1. The government will not allow you to simply "adjust" or transfer the money between ledgers.
2. You must pay the correct tax (IGST) in cash.
3. You then have to apply for a refund of the incorrectly paid tax (CGST+SGST), which can take months to process.

In the meantime, your working capital is drained by double the tax amount.

Place of Supply for Goods (Section 10)

For physical items, the Place of Supply is generally where the movement of goods terminates.

The "Bill-to Ship-to" Rule (Section 10(1)(b))

If a company in Delhi (Buyer A) orders goods from Maharashtra (Supplier B) and asks them to deliver it directly to a factory in Haryana (Recipient C), the Place of Supply is Delhi. Even though the truck went to Haryana, Supplier B will charge IGST based on Buyer A's location in Delhi.

Place of Supply for Services (Domestic)

For services, the rules depend on whether the recipient is Registered (B2B) or Unregistered (B2C).

The General Rule (Section 12(2))

• B2B: Location of the registered person (buyer).
• B2C: Address of the recipient available on record; if not available, the location of the supplier.

Specific Exceptions to the General Rule

The IGST Act provides specific rules for certain service categories to capture the true destination of consumption:

1. Immovable Property (Real Estate): The location where the property is situated (e.g., hotel stay, architects).
2. Training & Performance Appraisal:
   • B2B: Location of the registered buyer.
   • B2C: Location where the services are actually performed.
3. Events (Conferences, Sports, Entertainment):
   • B2B: Location of the registered buyer.
   • B2C: Location where the event is held.
4. Intermediary Services: Location of the supplier of services (e.g., an agent in Mumbai facilitating a sale for a US client).

Legal Reference

Relevant Law: The Integrated Goods and Services Tax (IGST) Act, 2017 governs these rules. Section 10 & 11 deal with Goods; Section 12 & 13 deal with Services.

Place of Supply for Services (Cross-Border)

When either the supplier or the recipient is located outside India, Section 13 of the IGST Act activates.

For most export of services, the Place of Supply is the Location of the Recipient (outside India), making it a 0% tax transaction (Export).

However, if the service is "Performance-based" (like repairing a machine sent from Japan), the Place of Supply is where the service is actually performed (India), meaning the exporter must charge 18% IGST.

Impact on IT Systems and E-Invoicing

In 2026, your E-invoicing software automatically validates the tax type based on your GSTIN and the "Pos" field. If your ERP's calculation of CGST/SGST doesn't match the portal's expectation for that specific Place of Supply, the Invoice Reference Number (IRN) will be rejected.

Common Mistakes with Place of Supply

1. Misinterpreting Hotel Stay GST: A business in Mumbai sends employees to Bengaluru for a meeting. The hotel in Bengaluru will charge CGST + Karnataka SGST, not IGST. The Mumbai company cannot claim ITC on this SGST because they don't have a registration in Karnataka.
2. Misclassifying "Intermediary" Services: A freelancer in India providing sales support for a foreign client. If they are acting as an "Intermediary" (matching buyers and sellers), the PoS is the Location of the Supplier (India). They must charge 18% GST even though the client is abroad.
3. Bill-to Ship-to with Wrong State: Entering the shipping address of the factory as the "Place of Supply" rather than the billing address of the head office in the B2B invoice. This leads to a mismatch in the GSTR-2B of the recipient.

Conclusion

The Place of Supply is the compass of the GST system. For complex business models involving multi-state deliveries or international clients, getting this one field wrong can lead to significant tax leakage. Every business must ensure that their sales team and chartered accountants are perfectly aligned on the specific IGST Act rules governing their specific industry before issuing the first invoice of the financial year.