Understanding Goods and Services Tax Implications for Exports
The Indian Goods and Services Tax (GST) framework significantly simplifies the export process by categorizing exports as zero-rated supplies, allowing businesses to reclaim input taxes while not charging GST on sales. This approach enhances competitiveness and financial efficiency for exporters. The article outlines two key methods for claiming refunds on zero-rated supplies: either by supplying under a bond/Letter of Undertaking and later claiming Input Tax Credit (ITC), or by seeking a refund of Integrated GST (IGST) paid on supplies. Additionally, it defines various 'deemed export' scenarios and lists essential documentation required for processing export refund claims.
The Goods and Services Tax (GST) framework has significantly streamlined the process for Indian exporters, fostering a more equitable and straightforward tax environment. Exports are categorized as zero-rated supplies under GST, meaning businesses are not required to levy tax on their outward supplies. Crucially, they can still reclaim input taxes paid on goods and services utilized in the export process. This mechanism boosts financial savings, accelerates operational procedures, and enhances India's competitiveness in international markets, ultimately simplifying and improving profitability for exporting firms.
GST Application to Export Transactions
The export of goods and services is classified as a zero-rated supply, meaning no GST is imposed on these outward supplies. Under the previous tax regime, a duty drawback system existed for taxes paid on inputs used in exporting exempt goods, which was often complex to process. With the introduction of GST, duty drawback provisions are now restricted to customs duties on imported inputs or central excise duties on specific petroleum or tobacco products, as well as fuel for captive power generation. While there was initial uncertainty regarding input tax refunds for exporters, the GST framework offers clear mechanisms.
Exporters dealing with zero-rated supplies can claim refunds using two primary methods:
Method 1: Supply Under Bond or Letter of Undertaking (LUT)
Businesses exporting goods or services can do so without paying Integrated Goods and Services Tax (IGST) by furnishing a bond or a Letter of Undertaking (LUT). Subsequently, they can claim a refund for any accumulated, unutilized Input Tax Credit (ITC). The refund application must be submitted via the official GST portal, either directly or through a designated facilitation center. A crucial prerequisite for this refund application is the prior submission of an export manifest or report under the Customs Act.
Method 2: Claiming Refund of IGST Paid
Exporters, along with entities like the United Nations, foreign embassies, and other specified organizations, are eligible to claim a refund of IGST paid on goods or services supplied, provided they meet the stipulated conditions and adhere to the prescribed procedures. Refund applications must align with the provisions of Section 54 of the CGST Act. For exports, the submission of a shipping bill is considered an automatic application for an IGST refund. However, this application gains validity only after the person responsible for the shipment files the export manifest or report, which must include the shipping bill's date and number.
Categorization of Deemed Exports
Under the GST regime, certain supplies of goods or services are designated as "deemed exports." These include:
- Provision of goods by a registered individual or entity against an Advance Authorisation.
- Deliveries made to units classified as Export Oriented Undertakings (EOU), Hardware Technology Park (HTP) units, Software Technology Park (STP) units, or Biotechnology Park (BTP) units.
- Provision of capital goods by a registered entity against an Export Promotion Capital Goods (EPCG) Authorisation.
- Supply of gold by a recognized bank or a Public Sector Undertaking in accordance with Customs law against an Advance Authorisation.
The process for filing GST returns for these deemed export transactions follows the standard procedures applicable to regular exports under GST.
Essential Documentation for Export Refund Claims
To successfully claim a refund for export-related taxes, the following documents are typically required:
- A copy of the tax return that verifies the duty payment.
- A copy of the relevant invoice.
- Proof confirming that the tax burden has not been passed on to another party, which can be a certification from a Chartered Accountant or a self-certification.
- Any additional documentation that the government may specify.
The implementation of GST has enabled the Indian export sector to offer more competitive prices on the global stage. This is largely attributed to the streamlined process for claiming Input Tax Credit (ITC) and the expanded eligibility of ITC for services.