Goods and Services Tax (GST) is a comprehensive indirect tax implemented in India on July 1, 2017. It replaced multiple taxes levied by the central and state governments, unifying them into a single tax structure. GST aims to simplify the tax regime, promote ease of doing business, and reduce tax evasion. It is based on the principle of “One Nation, One Tax.” GST has a multi-tiered structure comprising different tax rates for various goods and services. While GST has faced initial challenges, it has streamlined tax compliance, improved transparency, and facilitated inter-state trade. The implementation of GST on export marks a significant milestone in India’s taxation system.
How does GST apply to the goods to be exported from India?
In India, the Goods and Services Tax (GST) is a comprehensive indirect tax levied on the country’s supply of goods and services. When it comes to exports, the application of GST on export follows a specific set of rules and regulations. Let’s delve into how GST is applied to exports from India. The export of goods or services is considered a zero-rated supply under the GST regime. Zero-rated supplies refer to those supplies on which the tax rate is set at 0%. This implies that exporters are not liable to pay any GST on their export activities.
Under the GST framework, exporters have two options for treating their exports: export under bond or export on payment of Integrated Goods and Services Tax (IGST) and claiming a refund later. GST on export under bond refers to the process where exporters can export goods or services without paying any GST upfront.
They can furnish a bond or letter of undertaking (LUT) to the authorities, stating that they will fulfill all the export requirements and provide necessary documentation within a specified time frame. By submitting the bond/LUT, exporters can avoid the payment of GST on exports and save on working capital requirements.
On the other hand, exporters also have the option to export on payment of IGST and subsequently claim a refund for the tax paid. This method is suitable for those exporters who prefer to pay the tax and then claim it back through a refund mechanism. The IGST paid at the time of export can be claimed as a refund after the export has been completed and the necessary documentation has been submitted to the tax authorities.
To facilitate the smooth application of GST on export, the government has introduced various measures, such as the e-way bill system, which enables the seamless movement of goods across state borders. Additionally, the GST on export portal provides exporters with an interface to submit required documents and claim refunds.
Exporters need to comply with the documentation requirements and adhere to the timelines specified by the GST authorities to ensure a hassle-free export process. They should maintain proper records of invoices, shipping bills, and other relevant documents to support their claim for a GST refund.
Terminologies related to GST on export in India
Here is a breakdown of some of the terms and terminologies used in GST that are used in the export industry. These terms and their definition have been explained below:
- Zero-rated Supply: Exports are treated as zero-rated supplies under the GST regime. This means that exports are not subject to GST, ensuring that Indian goods and services remain competitive in the international market.
- Input Tax Credit (ITC): Exporters can claim Input Tax Credit on inputs used in the manufacturing or provision of exported goods or services. This helps reduce the overall production cost and makes Indian exports more cost-effective.
- Export with Payment of Tax: In certain cases, the exporters may choose to pay GST on export on their exports instead of claiming zero-rated supplies. This allows them to retain the ITC on inputs used for exports, avoiding any blockage of working capital.
- Bond or Letter of Undertaking (LUT): To avail of zero-rated supplies without payment of tax, exporters need to furnish a bond or LUT with the authorities. This serves as a guarantee that the exporter will fulfill all export-related obligations and claim proper refunds.
- Refund Mechanism: Exporters can claim a refund of the GST paid on inputs or accumulated ITC within a specified period. The refund process aims to provide timely reimbursements to exporters, preventing any blockage of funds.
- Export of Services: GST provisions also apply to the export of services. Service exporters can enjoy the benefit of zero-rated supplies and claim refunds on the GST paid on inputs used in providing the exported services.
- Export Promotion Schemes: There are various export promotion schemes, such as the Export Promotion Capital Goods (EPCG) scheme and the Duty-Free Import Authorization (DFIA) scheme, which continue to operate under the GST on the export regime. These schemes offer additional incentives and exemptions to exporters.
- Integrated Goods and Services Tax (IGST): Several taxes are levied on the goods to be exported. For exports, IGST is levied, which is a combination of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). The tax revenue is divided between the exporting state and the center. However, the exporter is eligible to claim a refund for the entire IGST paid.
- E-Way Bill: Under GST on export, an electronic waybill (E-Way Bill) is required for the movement of goods during exports. This document helps track the movement of goods and ensure compliance with tax regulations.
- Export Promotion Councils: The government has set up Export Promotion Councils (EPCs) to support and promote exports from specific industries. These councils assist exporters in resolving issues, provide market intelligence, and facilitate export-related activities.
GST on export in India follows a zero-rated supply principle. Exporters can choose to export under the bond or pay IGST and claim a refund. The implementation of GST has streamlined the export process and brought transparency and efficiency to the taxation system, benefitting exporters in the country.