Place of supply: the field that decides IGST or CGST+SGST
Your customer's state decides which tax you charge. Get it wrong and the invoice is defective and your customer cannot claim credit. The rule, plainly.
4 min read
There is one field on a GST invoice that most service businesses fill in by habit, and it quietly decides everything else on the document: place of supply.
Get it right and your customer claims their input credit without thinking about it. Get it wrong and you have charged the wrong tax, under the wrong heads, on a defective invoice, and the fix is a credit note and a fresh invoice, not an edit.
It is not a complicated rule. It is just one most people never read.
The rule#
For services supplied within India, place of supply is governed by Section 12 of the IGST Act. Two cases cover almost everything a service business does:
Your customer is GST-registered. Place of supply is the location of that registered person. Their GSTIN tells you: the first two digits are the state code. 29 is Karnataka, 27 is Maharashtra, 07 is Delhi.
Your customer is not registered. Place of supply is their address on your records. If you don't hold an address, it falls back to your location, which is a real provision, Section 12(2)(b)(ii), not a loophole. But relying on it means you never collected your customer's address, and that is a problem of its own.
Then compare that state against yours:
| | | |---|---| | Same state | Intra-state supply → CGST 9% + SGST 9% | | Different state | Inter-state supply → IGST 18% |
That's it. Not where the work was done. Not where you delivered it. Not where the money came from. The recipient's state, as defined above.
Why people get it wrong#
They use the billing address on the payment instrument. A customer registered in Telangana might pay with a card issued in Mumbai. The card tells you nothing.
They use where the work happened. You flew to Pune for a workshop. Your client is registered in Bengaluru. For most services, place of supply follows the recipient, not your flight itinerary. (Some categories: immovable property, events, restaurant services: have their own rules under the later sub-sections of Section 12. If your work touches those, read them.)
They never asked. This is the common one. A signup form with name and email, a payment link, and an invoice generated from whatever happened to be in the record. If you never collected the state, you never had the information the invoice required.
They treat it as a display problem. CGST and SGST aren't a formatting choice. They are two different taxes going to two different governments. IGST is a third. Charging the wrong one isn't a typo on a document; it's tax collected under the wrong head.
The consequence, concretely#
Say you're in Karnataka and you invoice a Maharashtra client ₹1,00,000 plus GST. You charge CGST ₹9,000 and SGST ₹9,000, because that's what your template does.
Your client is in Maharashtra. Karnataka SGST is of no use to them: they cannot claim credit for another state's SGST. So they come back and ask for a corrected invoice. You issue a credit note, raise a fresh invoice with IGST ₹18,000, and your returns for that period now carry an adjustment you have to explain.
Nobody is going to jail. But you've spent a morning on it, your client has learned something about your back office, and at scale it compounds.
What to collect, and when#
Collect it before the money moves, not after. Once a payment has been taken, asking a customer where they're registered is a conversation you'd rather not have.
At minimum:
- Legal business name: the name the invoice is issued to
- State: a dropdown, not a free-text field
- GSTIN, optional, but ask for it, because registered customers want it on the invoice to claim credit, and it gives you the state for free
If you take the GSTIN, validate it. The format is fixed: two digits of state code, then a ten-character PAN, then an entity number, then Z, then a check digit. The state code in positions one and two should match the state they selected. If it doesn't, one of the two is wrong and it's better to find out at signup than at filing.
Collect the full address from everyone. Rule 46 only makes the recipient's name and address mandatory for unregistered customers once the invoice value reaches ₹50,000. But having two different data-collection paths depending on invoice value is a conditional you will eventually get wrong at the boundary. Ask everyone. It costs one more field.
If you sell outside India#
Then you are not under Section 12 at all. Export of services falls under Section 13, and it is zero-rated, but the mechanism matters. With a valid Letter of Undertaking you invoice without paying IGST, and the invoice must carry the declaration that the supply is meant for export without payment of integrated tax. Without an LUT you must charge IGST and claim it back later.
If you have published prices to overseas customers without tax on the assumption that exports are zero-rated, confirm the LUT actually exists before you take the first payment. It's a single filing, and the time to discover it's missing is not after the money has arrived.
The short version#
Ask your customer which state they're in, before you charge them. Store it. Compare it with yours. Everything else on the invoice follows from that one field.
Siddarth Reddy Desai is the founder of TarkHQ LLP, Bengaluru, and builds MantriCEM: connected CRM, ERP and marketing for businesses, freelancers and agencies.
This is general information, not tax advice. Place of supply has category-specific rules beyond the general case described here. Check your own position with your CA.