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GST on Export of Goods and Services

In India, exports and the goods and services tax are closely interwoven. India’s imports and exports are subject to the IGST. In India, exports do not count as supply, which means they are zero-rated supplies. Every aspect of an export activity is tax-free when exports are zero-rated. This indicates that neither tax on inbound nor tax on outbound supply is required. Furthermore, there are no limitations on claiming credit for taxes paid on inputs used to provide such supplies under the Goods and Services Tax. But if GST is ever necessary to be collected for the export of goods or services, it can be later refunded, or the goods can be exported under a bond or LUT to avoid paying tax.

Meaning of exports under GST

• Section 2(5) of the Integrated Goods and Service Tax defines exports of goods as taking goods outside India to a place outside India’s boundaries when the goods are supplied or traded outside the country’s territory.
• Section 2(6) of the Integrated Goods and Service Tax defines the exports of services as a supply of any services when the supplier is in India, while the recipient and the place of supply are outside India, the provider of the service has been paid in foreign currency for the service, the supplier of service and the recipient of service are not merely establishments of a distinct person.

What does zero-rated supply mean?

The government strives to boost exports as significantly as it can in any economy. This aids the government in preserving the nation’s economic expansion, employment, and financial balance. The government offers specific incentives and reliefs to business entities in order to increase exports. Zero Rated Supplies in GST is one such tax break the GST system offers. In simple terms, zero rate supply means there are zero GST taxes on the exports.

Essential documents required for exports

The following documents are necessary when export is carried out for GST:

1. Service agreement or order of purchase
2. Invoice
3. Import-Export code
4. Bill of shipping the goods
5. When IGST is not paid – Bond or LUT
6. BRC (Bank realization certificate)

Refund of GST on Exports

A GST refund can be claimed through 2 options:

Option 1:

When the tax that is paid on inputs exceeds the output tax liability, an input tax credit is accrued. Such accrued credit can be utilized throughout the following fiscal year. Under GST, a return of unused credit is allowed in several circumstances.

Deliver goods or services, or both, in accordance with a bond or letter of undertaking without paying integrated tax, and then request reimbursement of any unused input tax credits. The Assistant Commissioner or jurisdictional deputy in charge of the exporter’s primary place of business must receive a bond or letter of undertaking from the exporter. The exporter must submit a request for a refund via the common site.

Under the Customs Act, an application for a refund must be submitted prior to filing an export manifest or report. The LOU/Bond format can be found on the CBEC website under the name FORM GST RFD-11, and information on the export invoice is included in FORM GSTR-1, which must be provided on the common portal.

A bond must be executed in place of the LOU if an exporter is not qualified to execute one. The bond must be delivered on non-judicial stamp paper with a value that corresponds to the requirements in the state where the bond is being delivered. A bank guarantee is requested from the exporter.

Option 2:

A refund can be requested after IGST has been paid. A shipping bill is needed in order to request this reimbursement. Form GSTR-3 must be completed and submitted by the exporter via the GST portal. The customs office processes a refund claim after receiving the form. The exporter’s bank account is credited with the IGST payment made on each shipping bill. The applicant must submit his or her request for a refund in accordance with the criteria listed in section 54 of the CGST Act. The shipping cost is regarded in this instance as a deemed claim for a refund of the IGST paid.

Essential documents required for input tax credit on exports

Following is the list of documents which is required for claiming input tax credit on export:

1. Invoice copy ( in accordance with section 31 provision of the Goods and Service Tax Act)
2. Return filed copy, which will prove that the payment has been made duly
3. Any document which will act as a proof that the tax burden is not passed
4. Any other additional document required according to the government

Deemed Exports

The following would be considered exports for the purposes of GST when providing products or services to them.

• Provision of commodities by someone who is registered with authorization in advance
• Supply is given to a
  • Hardware Technology Park unit,
  • Software Technology Park unit,
  • Biotechnology Park unit, or
  • Export Oriented Undertaking
• Provision of capital goods under an Export Promotion Capital Goods¹ Authorization by a registered person
• Gold supplied by a banking institution or public sector organization without prior authorization in accordance with customs legislation

The normal processes for export under GST must be followed when filing returns for the considered export.

Duty Drawback schemes

Inputs used in the production of goods for export are exempt from taxes and duties such as service taxes, excise taxes, and customs under the Duty Drawback initiative. With GST implementation, the duty drawback would only be applicable to the customs tax paid on imported inputs or the central excise tax paid on some of the petroleum or tobacco goods used as inputs or for fuels for captive power production.

Positive impact of GST on exports

• The tax structure is made simple and easy to understand

The GST’s streamlined tax structure is one of its foremost benefits. Prior to GST, exporters had to adhere to a complicated and onerous tax system that included several levies, including excise taxes, service taxes, and VAT. As a result, compliance costs have decreased, and transportation service efficiency has enhanced.

• Ease in carrying out business.

GST has increased India’s business accessibility, which has benefited exports. The integrated tax structure has offered a transparent tax administration, reduced compliance costs, and streamlined the tax system. This has enhanced India’s business landscape and made it simpler for exporters to conduct business.

• Increase in competitiveness in the market.

GST has increased the business competitiveness of Indian exports on the world market. The cascading impact of taxes has been eliminated by the unified tax structure, which has reduced the cost of production. Due to the enhanced price competitiveness of Indian exports on the international market, demand for Indian products and services has surged.

• Increase in export of services in the service sector

India has a huge service sector in the country. The services industry has benefited a lot from the introduction of GST, which greatly increased India’s exports. Several taxes, including service tax, VAT, and excise duty, were levied on the services sector before GST was implemented. These taxes have been combined under GST, which offers a single tax rate on services and lowers compliance expenses for the services industry. Indian service exports are now more effective and competitive.

Negative impact of GST on exports

• Preliminary instability

The early economic disruption brought on by the introduction of GST had a detrimental effect on exports. The new tax structure presented difficulties for many exporters, which caused delays and higher expenses. Due to the fact that many exporters needed additional time to complete orders, the initial disturbance when there was a sudden introduction of a new tax system after decades of using the simpler process had a detrimental effect on exports.

• Complicated refunding procedure

Exports have suffered because of how difficult and time-consuming the GST refund process can be. Exporters must claim back taxes paid on inputs and raw materials. Refunds have been delayed as a result of the convoluted refund process, raising the working capital needs of exporters.

Conclusion

In conclusion, goods and services exports are regarded as zero-rated supply under the GST, and companies must meet the eligibility requirements to submit claims for ITC refunds. The advantages of zero-rated supply for export-oriented enterprises are substantial, and they support export promotion and the growth of the Indian economy.

Frequently Asked Questions

1. https://www.dgft.gov.in/CP/?opt=epcg