GST on Export and Import
GST on Export and Import
Global trade has become an indispensable avenue for businesses looking to expand beyond the confines of their domestic markets. All the supplies made to the international markets are “zero-rated” under India’s GST regime, and all the imports are charged GST at par with any other purchases inside the country. This has made it possible for export-oriented businesses to claim either a refund or exemption from GST and has reduced the tax incidence on exports and encouraged them and discouraged imports. GST on exports and imports can be very cumbersome unless a person knows the processes of claiming refunds, using a Letter of Undertaking, and GST implications on imports and high-seas sales.
1. GST on Exports: Refunds and Exemptions
Under GST, the export of both goods and services falls in the category of zero-rated supplies. This means that no GST is payable on these supplies. A trader may opt for exporting goods or services without paying GST or may pay the tax levied and subsequently claim a refund.
Zero-Rated Export Supplies
- Export of Goods
Zero-rating applies to goods shipped outside India. This will, therefore include direct exports (sell directly to foreign buyers) and deemed exports where goods are supplied to Export-Oriented Units or SEZ units within India.
- Export of Services
The service must be provided to a recipient located outside India and payment received in convertible foreign exchange or as permitted by RBI regulations to qualify as zero-rated.
Options for Exporters Under GST
- Exports with Payment of IGST
This includes opting to pay IGST on exports and then claiming the tax paid as a refund. Such is usually opted for by exporters where they have input tax credits that they would wish to use.
- Exports Without Payment of IGST Using LUT
The exporters have also been exempted from exporting goods or services without payment of IGST with the provision of furnishing a Letter of Undertaking (LUT). This way, immediate tax outflow is avoided and working capital remains unscathed.
Example
A company exports machinery valued at Rs 1,00,000 and decides to pay IGST of 18%. It will recover the IGST of Rs 18,000 later, or it can export under LUT without paying the IGST in advance.
2. LUT for Zero-Rated Exports
A Letter of Undertaking (LUT) is the undertaking, an exporter submits to the GST department, agreeing to certain conditions for exporting his goods or services without payment of IGST. This way, the export process is simplified and the liquidity of the exporter is increased.
Eligibility and Conditions for LUT
- Who Can Furnish an LUT?
Persons are liable to furnish a LUT Under GST, any registered person supplying zero-rated goods or services can file a LUT, subject to such a person not having been prosecuted for any tax offense under GST or any other law for amounts exceeding INR 2.5 crores in the previous financial year.
- Duration
The validity of an LUT is for a single financial year. Exporters need to renew the same at the beginning of each financial year so that such exporters continue to export without paying IGST.
- Conditions of Compliance
Through LUT, an exporter has to fulfill certain conditions. First of all, an exporter must ensure that his exports are completed within three months from the date of issue of the export invoice. Any default shall attract IGST.
Procedure for Furnishing LUT
- Application on GST Portal
Log in to the GST portal, click on “Services” and then “User Services” and follow the same to access the option of “Furnish Letter of Undertaking (LUT)”. Fill in the details and upload the LUT.
- Approval and Processing
The LUT is auto-approved in case no discrepancies arise with the submission. Exporters can proceed to download the approved LUT.
Keep a digital copy of the letter of LUT approval, which is always required in case of any customs or GST authority inquiries regarding such during audits.
3. Provisions Regarding Recovery of GST Credit Paid on Exports
Exporters who pay IGST on exports can seek a refund upon export. This will enable them to recover the tax paid on zero-rated supplies. Here is how one can claim GST refunds on exports step by step.
Eligibility for Refund
- Refund on Zero-Rated Supplies
An exporter of goods or services, be it paying IGST or choosing an LUT, is eligible for a GST refund. The refund could be against the taxes paid on input materials and services, IGST on export supplies, and unutilized input tax credits.
- Ineligible Refund Claims
There is no tax paid on supplies that could not be classified as zero-rated or when input credits get blocked under GST law, on buying motor vehicles, employees benefits, personal expenses, etc.
How to Claim Refund
- Fill and Submit GST Refund Application Form RFD-01.
Go to the GST portal Select Refund Option Select an application type “Application for refund” There would be three options with different labels of Refund types for example: Refund of IGST on export of goods and services And provide necessary details.
- Uploading supporting documents
Attach relevant documents such as export invoices, Bills of Lading for goods, and Foreign Inward Remittance Certificate for services. For goods, details in Form GSTR-1 and GSTR-3B should match shipping details for verification.
- Submit Application
Apply online. After verification, the refund is processed. For IGST-paid exports, refunds are generally processed faster through automated checks with the customs system.
- Refund Processing Time-Line
In general, IGST paid export refunds take about 15 days of submission provided all the details are correct. LUT does not carry any IGST. Hence for such exports, refund processing time will take a little more time, usually around 2-3 months.
Refund Processing Time Common Issues
1. Mismatched Data
GSTR-1, GSTR-3B, and customs data differ due to which processing would face a delay. Periodical reconciliation has to be made so as not to face mismatch cases.
2. Processing delay on Filing of Incomplete Supporting Documents; Supporting documents that are either incomplete or missing would be delayed in processing. Clear records have to be kept by the exporter to allow easy recovery and filing
Procedure for Filing Returns by E-Commerce Sellers
- Consolidation of Monthly Sales Data
Reconcile data from the reports given by the e-commerce platform and internal records. Check each transaction for the GSTIN, amount of tax, and HSN/SAC code.
- TCS Credits under GSTR
2A is to be verified and claimed at the time of filing GSTR-3B.
- Timely Return Filing
The return of GSTR-1 and GSTR-3B will have to be filed on the due date to avoid late fees and penalties; in the case of non-filing, ITC can be blocked, which means blockage of cash flow.
- Return Filed
Keep filing returns and acknowledgment copies safe for future use or audit reference.
4. GST on Imports and Sales on High Seas
Imports bring in GST under the reverse charge mechanism, and it takes care of the fact that things imported into India should be taxed in the same way as domestic supplies. The tax implications should be known to importers to manage costs and compliance effectively.
GST on Imported Goods and Services
- IGST on Imported Goods
In case it is imported to India, IGST is collected on entry. The rate of IGST would depend on the HSN classification of the product and would be charged as a percentage of the assessable value, which in turn means the customs value along with customs duty.
- Reverse Charge on Imported Services
A reverse charge mechanism, in which the recipient of services from any foreign provider has to pay tax upon imported services he receives, can be adopted. The foreign service providers may not be required to be registered here in India.
- Allowing Input Tax Credits to Imports
The importers can set off ITC against the IGST paid by them on imports subject to the condition that they are using such imported goods or services for business purposes. Documentation is required to set off ITC, like a Bill of Entry.
GST on Sales on High Seas
- Sale on High Seas GST is not leviable on sale on high seas. IGST at the applicable rate on the value of imported goods assessable is payable by the buyer along with clearance of goods through a Bill of Entry.
- Documentation for Sale on High Seas
Preceding the sale, concerning consignment, high-seas sales transactions are required to be recorded by high-seas sale agreements, invoices, and endorsement on the Bill of Lading. These records are necessary for customs clearance.
- Problems in High-Seas Sales.
ITC is not available to the intermediary, but it is available to the buyer who clears the goods at customs.
Conclusion
Import-export trade is a wide field in which companies engage in much cross-border trade with dependence on exports and imports and a deep understanding of this GST is highly relevant here to enhance the liquidity of all business organizations by claiming reverses and availing LUT while importers’ requirement to understand IGST involved with import and reverse charges levied on services. An exceptional mode of trade or mode of sale is often offered under high-sea sales that are tax efficient. Compliance with GST laws, organized books of accounts, and choosing the right export method are sure bets for adherence to tax obligations in international trade.
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