Exports are the biggest point of the Indian economy. This is not only to generate additional revenue for domestic manufacturers but also because foreign exchange provides essential fuel for India’s economic growth. Considering these benefits exports under GST is zero-rated.
What does export tax mean?
An export tax is a tax on goods or services that is paid when goods leave the economy or when services are provided to non-residents. They include export taxes, profits from export monopolies, and taxes arising from multiple exchange rates.
What is export under GST?
Section 2 (5) of IGST Act, 2017 defines – Export of Goods, with its grammatical variations and related expressions, means taking out of India to a place outside India.
Export of services within the meaning of Section 2(6) of the IGST Act 2017 means the provision of services where:
1. If the Service Provider is located in India.
2. Recipient resides outside India.
3. The place of supply is outside India.
4. Payment for this service was received from the service provider in convertible foreign exchange; and
5. Service providers and service recipients are not merely branches of a particular person within the meaning of clarification 1 of article 8.
6. Clarification 1.—For the purposes of this Act, a person—
- Indian establishments and other establishments outside India.
- establishments within a Union territory or state and other establishments outside such states; or
- In the case of Union territory or state establishments and other establishments which are vertical companies registered in that union territory or state, these establishments are treated as establishments of different persons.
How are exports treated under the GST Law?
Under the GST Law, the exports of goods or services are treated as
- inter-State supply covered under the IGST Act.
- zero rated supply i.e. Exported goods or services are exempt from GST charged on them either at the input stage or at the finished product stage.
What is proof of export under GST?
The documents required to export services under GST are:
- GST registration certificate
- IEC code
- A copy of the DVAT or service tax return for the previous financial year
- If the export was done without paying IGST, furnish a bond or LUT
- Issue a tax invoice with the following information:
➤Verification of whether supplies are intended for export with or without payment of integrated tax
➤Supplier name, address and GSTIN
➤Invoice number and date
➤Recipient name and address
➤HSN service code and associated description
➤Total value for services with a tiered breakdown if any
➤Signature of Supplier’s Authorized Signatory
What is zero rated and nil rated in GST?
Nil-Rated Supply
Supply of goods and/or services with a 0% GST rate is a nil-rated supply.
This falls under Schedule I of the GST Act and includes goods such as select food and human blood.
Tax credits are not available for tax-free supplies and/or inputs made through tax-free supplies. Simply put, GST credit is not available to registered merchants.
GST is not applicable on nil-rated supplies, therefore cannot be claimed.
Examples: Salt, jaggery, and grain are examples of items included in the nil-rated supply.
Zero-Rated Supply
All supplies of goods and/or services intended for exports, Special Economic Zone (SEZ) developers, or Special Economic Zone (SEZ) Entities are Zero-rated supply.
The zero-rated tax will make Indian goods and services available in international markets at competitive prices, ensuring that additional taxes are not included in export costs.
ITC can be claimed on zero-rated supply. There are two ways GST is applied to zero-rated supplies;
- Using an LOU (Letter of Undertaking) to request a refund of unused GST for goods and services without paying GST.
- Pay IGST for the supply of goods or services and subsequently claim reimbursement of IGST paid for the supply.
Why are exports zero-rated?
Since exports are made outside India, they are not taxable on a basic principle. It should be zero-rated, i.e. a GST rate of zero, and all input tax credits are payable to the exporter.
The government’s intent for zero-rated exports is not to tax the exports. This can be achieved by ensuring that the export of goods/services is not taxed and requiring a refund of the input tax credit of the tax paid on the imported goods or by allowing a refund of the tax imposed on the export.
What are the three types of export?
Export channels can take many forms, but three main types can be identified.
Indirect export:
In this case, the manufacturing company does not directly process the export activity. Instead, another domestic company. ie. Export agents or trading companies, these activities often do not involve the manufacturer in the overseas sale of their products.
Direct export:
This usually occurs when a manufacturing company is responsible for export activities and has direct contracts with customers in foreign target markets. The company is typically involved in handing documentation, physical delivery, and pricing policies when products are sold to end customers.
Cooperative export:
It is a cooperation agreement with another company (export marketing organization) regarding the performance of export functions.
Has the GST regime simplified procedures related to exports by exporters?
Yes. Export procedures have been simplified, eliminating the need for paperwork and departmental intervention at various stages of the export.
The main features of the export scheme under the GST regime are:
- Goods and services can be exported under payment from IGST (which can be claimed as a refund after the goods have been exported) or under a bond or letter of undertaking (LUT) without payment from IGST.
- For goods and services exported under Bond or LUT, the exporter may request a refund of the ITC accumulated for the export.
- For goods, the bill of lading is the only document that must be presented to customs for export.
- The supplies intended for export are conducted under self-sealing and self-certification without the intervention of department personnel.
- A shipping bill submitted to Customs will be treated as an application for a refund from IGST and will be considered submitted after the applicant has submitted the General Export Manifest and furnished a valid return in Form GSTR3 by the applicant.
Frequently Asked Questions (FAQ)
How does GST affect the zero-rated tax on the export of goods?
This will increase the competitiveness of Indian exports in the international market.
Is export zero-rated or exempt?
The export of goods or services is zero-rated supply.
Is export taxable under GST?
No GST will be levied on the export of any goods or services. All GST-registered exporters can export goods or services without paying IGST.
Is a tax on export a direct tax?
Export taxes are indirect taxes. Customs duty is a kind of indirect tax. This applies to some goods exported from the country.
Wrapping Up
GST includes significant central and state taxes, leading to higher quality and quality production. This will boost the competitiveness of Indian goods and services in the international market and increase exports from India.
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