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Published on:

September 28, 2024

Alankar Mishra

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Explore GST

Basics of GST

Import and Export under GST

Importing and exporting goods and services has significant fiscal implications due to the embedded nature of the Goods and Services Tax (GST) in India's taxation system. As India aligns with global trade norms, Import and Export under GST provisions have become critical. While both imports and exports fall under GST, exports are governed by different rules regarding computation, refunds, and tax exemptions. Understanding Import and Export under GST is essential for businesses engaged in cross-border trade to ensure compliance and optimize tax benefits.

This guide explores the place and processes of fiduciary mobilization of imports and exports under GST, taxes that are levied on those goods and services, the meaning of Integrated Goods and Services Tax and the processes involved for both goods and services.

Import under GST

Imports are defined as goods and services transported into India from outside the country. For GST, the import of any kind of good or service is an inter-state transaction in essence and therefore attracts IGST. In addition to IGST, imported items may also be liable to customs duties and other imposts.

GST on the Import of Goods

‍IGST on Imports: As far as goods are concerned, when they are imported into India, they are levied with IGST at the same rate of tax as is charged in the supply of those goods in the country. So, in this case, it is imposed at the time of clearance of goods from customs and this tax paid is available for claiming the Input Tax Credit.

‍Other Taxes: Further to IGST, imports are subject to Basic Customs Duties (BCD), and other taxing or levying customs charges.

‍Cost of the goods: The value of goods used for computing IGST on imports is defined Ist by the Customs Act which includes the price or value under contract, insurance, freight, and any other relevant duty.

‍For example:

Where the imported goods are valued at 1,00,000 Ca and the GST chargeable is 18% in that act, Then IGST will come upto 18,000. This amount, as already indicated must be settled at the writes of customs clearance but this amount ought to be recovered by the importer from the department as ITC.

GST on Import of Services

IGST is also applied to the import of certain services. Such service levies of the GST are payable by the person receiving the service through the reverse charge treatment. The crucial conditions for taxation on the import of services are:

The provider should be a non-resident of India.

The receiver should be a resident of India.

Services should be rendered in India.

Export under GST

As per the provisions of the GST regime, the supply of goods and services being consumed outside the borders of the country is treated as a zero-rated supply and therefore no GST is imposed on such goods or services. Nevertheless, the cost of production or purchase of goods and services to be exported can be refunded or offset by the exporters in the input tax paid.

GST on the Export of Goods

‍Export of Goods: Goods exported from India are regarded Zero rated supply under the GST law. This implies that even though the dealer is not liable to levy any sales tax in respect of exports, the exporter is entitled to seek credit for sales tax incurred on making those exports.

‍Two Options for Exporters:

‍Export with Payment of IGST: The exporters of the exported goods can pay the IGST and thereafter seek a refund of the IGST that they have paid.

‍Export without Payment of IGST: Exporters are accustomed to providing a Letter of Undertaking (LUT) which enables the exporters to export their goods without paying the IGST and afterwards seek a refund of the IGST which they have accumulated.

‍GST on Export of Services

_‍Similar to that of goods, exports of services are also exported with absolute zero-rated supplies under GST. For services to be rendered as exported, it has to be demonstrated that the conditions outlined below must be fulfilled:

The service provider must be resident in India.

The service recipient should not be present within the Indian territory.

The place of supply of goods or services or both is located outside the territory of India.

Foreign or INR currency must be brought in and used to pay for the services provided or offered to the person.

Key Procedures for Import and Export under GST

Bill of Entry for Imports

To bring goods under India, the importers are required to file a bill of entry with the participating customs authorities. This document carries information about the goods being imported, their value, and available duties or taxes. Foremost, the duty estimates, and the IGST, if any, are determined based on the Bill of Entry.

Export Documentation

While exporting goods, the basic documents to be prepared include an Export Invoice and the Shipping Bill. There is a need for exporters to declare what goods are being shipped, in what quantity, and which tax treatment (IGST paid, LUT provided or none) applies.

Refunds for Exporters

Exporters can reclaim the Input Tax Credit (ITC) with the help of:

Filing an RFD-01 refund application on the GST live portal rather than on paper,

Seeking a refund of the IGST paid on export goods/ services.

Letter of Undertaking (LUT)

Exporters who are in the centre and willing to make the exports without paying the IGST may submit an LUT to the GST Portal. An LUT does not mean that an exporter sells goods and services without the payment of GST on exported goods.

Refund of GST on Exports

A refund on the input tax can be claimed by the exporters on the goods or services’ input tax credits incurred in the manufacture of goods or the procurement of services or goods for export purposes. Such refund can be done in two ways:

‍Refund of IGST Paid on Exports: An exporter can file a refund on the IGST Amount paid on exports of goods or services through the GST Refund Application. This involves bills of exports against GSTN after the respective tax and customs duty have been verified with customs and GSTN data.

‍Refund of Unutilised ITC: Exporters availing of LUT for Exports without payment of IGST are entitled to seek a refund of the unutilized credit on purchases of goods and services exported.

Reverse Charge Mechanism (RCM) on Imports

For certain imported services in India, the Reverse Charge Mechanism (RCM) is applicable. RCM entails the service recipient deducting tax when the services are rendered to them instead of the service provider. This is the case in situations where a service is imported from a foreign service provider who is not registered under GST.

Important Points to Remember

Zero-Rated Supply: Under GST, exports are considered to be zero-rated supply which means that no GST is charged but the input tax credit can be availed.

‍IGST on Imports: The import of goods and services into India is subject to the provisions of IGST and IGST shall be paid by the importer at the time of clearance for customs if applicable.

‍LUT/Bond for Exports: In case of exporting the goods, at the so-called "place of supply," the GST shall be paid or the goods are exported without payment of IGST by providing a LUT.

‍RCM on Imports: Certain types of services brought into India are also chargeable to GST under the Reverse Charge Mechanism, therefore the service recipient is liable to pay a GST.

‍Customs Duty: Besides IGST and other related duties imposed on imported goods, customs levy applies.

‍Conclusion

In terms of GST, there are fundamental rules still applicable to imports and goods leaving the country that businesses need to adhere to. Imports such as IGST and other customs duties are charged on commodities imports, while goods exports are zero-rated and recoveries on input taxes are permitted.

To facilitate imports and exports of goods and services, it is indispensable to maintain appropriate levels of records and all procedures applicable to GST in such activities. Exporters should take full advantage of frequent use of LUT and payment of tax claims to improve and control cash flow during activities, on the other hand, importers should always be mindful of how much IGST they owe.

FAQs

1. How does GST apply to import and export transactions in India?

Under GST, both import and export transactions are subject to specific tax regulations. While imports attract GST similar to domestic supplies, exports are treated as "zero-rated" supplies, meaning no tax is charged on export sales, and exporters can claim a refund of Input Tax Credit (ITC) or use a Letter of Undertaking (LUT) to avoid payment of taxes upfront.

2. How are export sales treated under GST?

Export sales under GST are considered zero-rated, meaning no GST is charged on the goods or services exported. Exporters can claim a refund of the input tax credit (ITC) used in producing the exported goods, ensuring no tax burden on the final export product.

3. Is GST applicable on imported goods?

Yes, GST on imported goods is applicable in the form of Integrated Goods and Services Tax (IGST). When goods are imported into India, the importer is required to pay IGST at the applicable rate along with customs duties. The IGST paid can later be claimed as an input tax credit (ITC).

4. What is the GST rate for import and export?

The GST rate for import and export depends on the nature of the goods or services. While imports are taxed at the same rate as domestic supplies, typically ranging from 5% to 28%, exports are zero-rated, meaning no GST is charged on export sales.

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