GST Advisory

Export Services under GST: Taxation Policy

India stands among some of the largest exporting countries around the world. Increased number of people are setting up export businesses which is helping our economy also. Taxation also applies in case of export services under GST, and in this article, we shall discuss the same.

Export Services under GST

Export of services under Goods and Services Tax is defined as the supply of service when:

• The supplier of service is located in India;
• The recipient of service is located outside India;
• The place of supply of service is located outside India;
• The payment for the service is received by the supplier of service in convertible foreign exchange or in Indian rupees as allowed by the RBI;
• The supplier of the services and the recipient of service are not just establishments of a distinct person.

It may be noted that distinct persons have different GSTINs that belongs to an entity (single PAN) located within the same state or in 2 states, or in a different country.

Receipt of Payments for Exports

The export contracts and invoices will be denominated in freely convertible currency or INR, but the proceeds of exports are realized in freely convertible currency.

The export proceeds against specific exports can be realized in INR if funds are obtained through freely convertible Vostro account (an account held by a foreign bank with a domestic bank in domestic currency) of non-resident bank in a country apart from member of Asian currency union, Nepal or Bhutan.

If an assessee receives consideration from an overseas client and foreign inward remittance certificate issued by the recipient bank in India reflecting the currency of remittance as INR, then the remittance can be treated as receipt of foreign exchange according to the instructions/circulars of the Reserve Bank if the amount is obtained through a freely convertible Vostro account of a non-resident bank located in any country.

Hence the exporter is advised to obtain the consideration in only convertible foreign currency, which means in a currency other than INR, which is convertible in India.

Export Services under GST: Refund under GST (Exports)

There are two methods to export under GST:

• Through a bond or letter of undertaking and without the payment of IGST;
• Through payment of IGST, refundable at a later date.

Export through Letter of Undertaking or bond

Taxable persons should file a Letter of Undertaking or an export bond in order to export goods or services without paying IGST. Exporting through Letter of Undertaking or bond is beneficial as it saves the time and effort to seek tax refund and it also prevents blocking of funds.

It is worth mentioning here that a Letter of Undertaking is valid for 1 financial year, and it can be applied for if an exporter of goods/services furnishes GST registration and where a taxable person has not been prosecuted for tax evasion of more than 2.5 crore rupees or for any other offence under the CGST Act, IGST Act or any other law.

In case where the conditions for Letter of Undertaking is not met, still, the exporter can export without paying IGST by producing a bond on a non-judicial stamp paper. It must cover the tax liability on the export. The bond should be furnished along with a bank guarantee (not exceeding 15% of the bond amount). A bond doesn’t have any fixed validity, unlike Letter of Undertaking.

Export Services under GST: Export with Payment of GST

The GST refund process in case of exports and refund application in RFD-01 and 11 shall remain the same under the new GST return system. The exporter may pay GST and claim the refund later. So, the exporter is required to file a separate refund application in RFD-01.

The process is as follows:

• Login to the GST portal^[1].
• Select Services > Refunds > Application for Refund > Export of Services with tax payment > RFD-01.
• The details about the export of services should be uploaded through the offline utility.
• Provide the amount to be refunded, and the bank account number wherein refund is to be credited.
• On successful filing, an ARN will be generated through which the status of the refund application can be tracked.

Documents required by a exporter of services to get GST refund

Documents such as a covering letter, bank realization certificates/Foreign Inward Remittance Certificates, Export Invoices, Form GSTR 3B and GSTR 1, Application for refund, a cancelled cheque, if GST refund claims is more than 2 lakh rupees per quarter, then a certificate from a Chartered Accountant or a Cost Accountant will be required.

Conclusion

A novice exporter should be aware of the regulations associated with export services under GST, such as registration procedure, compliances in respect of current taxation policy and refund of taxes etc. In case where these regulations are not followed, it may result in difficulty in exports or refusal of precious export incentives.

Read our article:FEMA Guidelines for Export of Goods and Services (Amendment) Regulations, 2021