Impact of GST on Export of Goods and Services

The introduction of GST has transformed the way exports are handled in India by creating a more transparent and simplified tax structure. Under GST, exports are categorized as zero-rated supplies, meaning no tax is charged on export sales, while exporters are entitled to claim refunds on the taxes paid for inputs and services. This mechanism reduces costs, streamlines operations, and enhances the global competitiveness of Indian exporters. In essence, GST has made exporting more efficient and profitable.

GST on Exports: How Is It Levied?

Exports of goods or services are treated as zero-rated supplies under GST. As a result, no GST is imposed on the export of goods or services of any type.

In the earlier tax regime, exporters could claim duty drawback for taxes paid on inputs used in exempted exports, but the process was often lengthy and complex. Under GST, duty drawback is restricted to customs duty on imported inputs or central excise duty paid on specific petroleum or tobacco products used as raw materials or fuel for captive power generation. Initially, there was some uncertainty about the refund mechanism for taxes paid on inputs, but GST provides a clearer process.

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Refund Options for Zero-Rated Supplies

Exporters can claim GST refunds in two ways:

Option 1:
Goods or services can be exported under a bond or Letter of Undertaking (LUT) without paying IGST. In this case, exporters can later apply for a refund of unutilized input tax credit (ITC). Refund applications must be filed on the GST portal directly or through a facilitation centre notified by the GST Commissioner. Before applying, an export manifest or report must be submitted under the Customs Act.

Option 2:
Exporters, along with entities like the United Nations, embassies, and specified agencies, can export goods or services on payment of IGST and then claim a refund of the tax paid, subject to certain conditions and procedures. Refund applications must comply with Section 54 of the CGST Act. In such cases, the shipping bill filed for exports is considered a deemed refund application for IGST. However, this application becomes valid only after the export manifest or report is filed, containing the relevant shipping bill details.

Deemed Exports under GST

Certain supplies of goods are considered deemed exports under GST. These transactions are treated similarly to exports, even though the goods do not leave the country. The following supplies qualify as deemed exports:

Supply of goods by a registered person against an Advance Authorisation.
Supply made to an Export Oriented Unit (EOU), or units located in Hardware Technology Parks, Software Technology Parks, or Biotechnology Parks.
Supply of capital goods by a registered person against an Export Promotion Capital Goods (EPCG) Authorisation.
Supply of gold by a bank or Public Sector Undertaking (PSU) against Advance Authorisation as per Customs regulations.

The filing of returns for deemed exports must be carried out in accordance with the general procedures prescribed under GST for export transactions.

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Documents Required for Claiming Refund on Exports

To claim a refund under GST for export or deemed export supplies, the following documents are required:

Copy of the return showing payment of duty.
Copy of the tax invoice.
Proof that the burden of tax has not been passed on (either a CA certificate or a self-declaration).
Any additional documents as specified by the government.

Conclusion

The GST framework simplifies the refund process, enabling exporters to efficiently claim input tax credit (ITC) and refunds. This ensures that Indian exporters can offer goods and services at competitive prices in international markets, enhancing their global reach and profitability.

FAQs on GST and Export of Services

1. What is the GST turnover limit for export of services?
If a business is engaged solely in the export of services and its aggregate turnover is below ₹20 lakhs (₹10 lakhs for Special Category States), GST registration is not mandatory. However, businesses may opt for voluntary registration to avail input tax credit and claim refunds.

2. Is GST applicable to the export of services?
No, exports of services are treated as zero-rated supplies under GST. This means GST is not levied on such transactions. Exporters can, however, claim a refund of the unutilised Input Tax Credit (ITC) paid on goods and services used in providing the exported services.

3. Can you give examples of the export of services?
Yes, here are some examples:

An Indian IT company providing software development to a client in the United States.
A financial consultancy in India offering advisory services to a business in Singapore.

4. Is GST registration mandatory for exporters of services?
While registration is not required if turnover is below the threshold, exporters often register under GST to claim refunds and ITC benefits. Without registration, refund claims cannot be processed.

5. How can exporters claim a refund of GST on services?
Exporters can either:

Export services under a Letter of Undertaking (LUT) or bond without paying IGST and claim a refund of accumulated ITC, OR
Pay IGST on exports and later claim a refund of the tax paid.

6. What documents are required to claim GST refund on export of services?
The commonly required documents include:

GST returns (GSTR-1 and GSTR-3B).
Copy of invoices issued for exported services.
Bank Realisation Certificate (BRC) or Foreign Inward Remittance Certificate (FIRC) as proof of receipt of payment in foreign currency.
LUT or bond, if applicable.

7. What conditions must be met for a supply to qualify as an export of services?
For a service to be considered an export:

The supplier must be located in India.
The recipient must be located outside India.
The service must be provided outside India.
Payment must be received in convertible foreign exchange or in Indian rupees wherever permitted.
The supplier and recipient must not be merely establishments of the same person.

8. Are exports of services eligible for GST exemptions or benefits?
Yes, since exports are zero-rated, businesses benefit by not charging GST on exports while also being eligible for ITC refunds, which reduces the overall tax burden and improves cash flow.