Understanding GST and Its Application in Export of Goods

In recent years, the Goods and Services Tax (GST) system has revolutionized India's tax landscape, simplifying the tax structure and making it more efficient. A key question that often arises is: is GST applicable on the export of goods?

Inter-State vs. International Transactions

Inter-country transactions within the Indian context are treated as inter-state transactions. Therefore, the Goods and Services Tax Act, 2017 (IGST Act) governs the export procedure with regard to goods and services. This act provides a framework under which goods and services can be either exported on payment of IGST with a claim for a refund or exported under bond/Limited Use Tax (LUT) without payment of IGST but can claim a refund of inputs and services used in exported goods and services.

Is GST Applicable on Export of Goods?

Formally, IGST is applicable on the export of goods. However, it is important to note that any IGST paid on exports is ultimately refunded to the exporter. This means that there is no tax burden on the exporter in terms of encouraging the export of goods and services. The objective behind this is to promote exports and support the growth of the Indian economy on the global stage.

Procedure for Refund of Tax on Inputs Used in Exports

In cases where GST is paid on input goods or services used in exported goods or services provided outside India, the GST paid can be refunded. The process of claiming this refund involves the following steps:

Make an application for refund Acknowledgement will be issued within 15 days from the application date Provisional refund of 90% will be granted within seven days of the acknowledgement The remaining 10% will be paid within a maximum of 60 days from the receipt of the complete application

It is also important to note that if the full refund is not granted within 60 days, interest at a rate of 6% is payable.

Key Considerations and Clarifications

The higher initial query may arise regarding whether GST is applicable to the export of goods. The answer is generally no; GST is not applicable to the export of goods. However, the government seeks to ensure that taxpayers will pay taxes if the exported products are returned or if there is any reason for them not to leave the country. Therefore, though GST is not applicable, if IGST has been paid during the purchase of goods, it can be refunded by the government post-export.

It is essential to understand the zero-rated supply concept. In this context, the export is not exempt under GST but is considered a zero-rated supply. This means that no Output Tax Liability will arise in cases of exports, as the Exporter can claim Input Tax Credit (ITC) on inputs used in the manufacturing of goods intended for future export.

Best Practices and Tips for Exporters

For exporters, ensuring the correct documentation is crucial. Providing a guarantee to the purchase being for export purposes is an effective way to avoid paying taxes. This ensures that the goods are indeed exported and that the government's refunds occur in a timely manner.

Furthermore, exporters should stay updated with the latest regulations and procedures. This will help in the smooth implementation of export procedures and maximize the benefits of ITC claims, leading to cost savings and efficient international trade operations.

By understanding these nuances, Indian exporters can better navigate the GST regime and reap the benefits of export-oriented policies, fostering a healthier and more competitive global market presence.