GST on Exports in India – A Complete Guide for Exporters
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The government of India implemented the Goods and Services Tax law on 1st July 2017, and with the implementation of the Goods and Services Tax (GST), the country’s indirect tax system underwent a revolutionary change. For exporters, GST brought clarity, consistency, streamlined compliance, and some new challenges. This guide explores the extensive impact of GST on exports, detailing zero-rating mechanisms, refund options, schemes, and special provisions for SEZs, EOUs, and more.
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What is GST?
Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax that replaced various indirect taxes like excise duty, VAT, Sales Tax, and service tax. As per the GST Law in India Intra intra-state transactions attract CGST and SGST, while interstate transactions attract IGST. The major objective of introducing the Goods and Services Tax is to eliminate the cascading effect and ensure uniformity in the taxation system across the country.
Impact of GST on Exports: The Basics
In General parlance Exports means supply of goods or service outside India. Section 2(5) of IGST Act 2017 define the export as “taking goods or service out of India to a place outside India”. As per Section 7 of the IGST Act, Export or import of Goods or services are considered Interstate supplies.
Key Requirement for Export and Import:
Import Export Code (IEC code): Section 7 of THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 mandates Import Export Code (IEC Code) for the purpose of Import and Export of any goods or services. Import Export Code granted by Director General of Foreign Trade.
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GST Rate on Export of Goods or Services: zero-rated supplies.
GST will not be levied on export of any goods or services as Export of goods or services classified as Zero Rated supply under GST Law but exporters can still claim Input Tax Credit (ITC) on inputs used to produce the exports. Exporter has two option to export of goods or service
Option 1: Export under Letter of Undertaking (LUT) or Bond without Payment of GST
In this option, the exporter applies for a Letter of Undertaking (LUT) on the GST portal. Once the LUT is approved, the exporter can export goods or services without paying GST. However, GST paid on purchases (input tax) can be claimed as a refund by filling RFD-01. This helps exporters avoid paying GST on outward supplies while still recovering the GST paid on inputs.
Option 2: Export with Payment of IGST and Claim Refund
In this case, the exporter pays Integrated GST (IGST) on the exported goods or services. The input tax credit (ITC) is used to offset the tax liability. After the export is completed, the exporter can claim a refund of the IGST paid by filling form RFD-01 on the exported goods or services.
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Concept of Merchant Exporters
A merchant exporter means the exporter who does not manufacture goods but procures goods from the open market in India and sells such goods overseas market. Provision related to merchant exporter explained in “Notification no 41/2017 Integrated Tax Rate”. As per this Notification following conditions should be satisfied
- Merchant Exporter should be registered with the Export Promotion Council or a Commodity Board recognized by the Department of Commerce.
- Merchant Exporter can purchase goods at a 0.1% concessional rate from the supplier.
- The merchant exporter should export Goods within 90 days from the Invoice date issued at a concessional rate.
- Merchant exporter shall indicate the invoice number and GST number of all supplier in shipping bill or bill of export.
However where Merchant exporter purchase goods from supplier at a regular GST rate instead of concessional rate, In that case merchant exporter can opt both the option as explained earlier.
Duty Drawback under GST
A Duty drawback is provided under the earlier law for the tax paid on input for the export of goods. Under GST, duty drawback would only be available on the customs duty paid on the import of goods that are used in the export of goods, or excise duty paid on petroleum products or tobacco products used as input or fuel in the export of goods.
Deemed Exports under GST
Foreign Trade Policy defines Deemed export to a transaction in which goods supplied do not leave India and payment realized either in indian currency or free foreign exchange, but are still treated like exports under GST for refund purposes. Notification number 48/2017 – Central Tax dated 18.10.2017 declared the following supply of goods as Deemed export.
- Supply of goods by a registered person against an Advance Authorisation
- Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
- Supply of goods by a registered person to an Export Oriented Unit
- Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.
Note: Deemed exports are not considered zero-rated supplies, unlike regular exports. Therefore, they cannot be made under a Bond or Letter of Undertaking (LUT). Deemed exports must be made with payment of IGST, and the exporter can then claim a refund of the tax paid.
Exports to SEZs
Meaning of Special Economic Zone: SEZ is a zone that is located in Indian territory, but for tax purposes, it is treated as foreign territory. As per the IGST Act 2017, Supply of goods or services to Special Economic Zones (SEZs) is also treated as a zero-rated supply hence, Suppliers can:
- Export without tax under LUT/Bond and claim ITC refund.
- Export on IGST payment and claim a refund.
Supplies from the Special Economic Zone (SEZ) to DTA (Domestic Tariff Area) are treated as imports and attract duties.
Conclusion
GST simplifies exports by zero-rating them, allowing credit refunds, and improving logistics with e-way bills. Exporters must carefully choose between LUT/Bond and IGST refund routes based on their cash flow needs. Additionally, compliance and proper documentation are essential to claim refunds smoothly.
Why Choose E Accountax Manager?
When it comes to GST on exports, proper compliance and timely refunds matter the most. At E Accountax Manager, we offer expert support for exporters, from IEC code registration to GST filing and refund claims. Our experienced team ensures smooth documentation, quick responses, and complete guidance, helping you focus on growing your export business stress-free.
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