The Goods and Services Tax (GST) is one of India’s most significant tax reforms. A myriad of indirect taxes collected by the central and state governments were transferred into a single tax structure. The primary goals of GST are to simplify the indirect tax regime, stop revenue tapping, and increase money for development. Boosting India’s export competitiveness has been a focal point of the GST reform.
Exports are central to India’s economic growth strategy. Under GST, the government has introduced several measures to promote exports and export-oriented industries. Such procedures include simplifying procedures, exemption from taxes, and incentives for production to export goods.
The following article discusses the GST framework on goods and services exports and its effect on India’s export competitiveness. It also examines GST’s role in promoting exports through various policy measures and schemes.
GST on the Export of Goods
The export of goods outside India is treated as a zero-rated supply under GST, which means that goods exported from India will not be charged any GST. Moreover, the exporter can claim a refund of GST on inputs and input services used to produce exported goods. This is a crucial provision to make Indian goods competitive globally.
As per the GST law, the supply of goods is treated as an export only if goods move from India to a place outside India by transfer of documents of title before or after the movement of goods. The location of the service provider and home of supply do not matter. Exports of goods can be made in the following ways:
- Export under Bond/Letter of Undertaking: No GST is charged on exported goods, and no input tax credit is claimed.
- Export on payment of Integrated GST (IGST): IGST is paid on exported goods, but the exporter can claim a refund of the IGST paid.
- The option to export under Bond/LUT is preferred since no funds get blocked as IGST. Exporters are given the flexibility to operate under both options. To claim GST refunds on exports, exporters must file shipping bills, export invoices, and GST returns such as GSTR-1 and GSTR-3B. Refunds are available in the exporter’s bank account within 7–10 days to ensure liquidity.
Some other notable aspects of GST on the export of goods are:
- Exports qualify for duty drawback (DBK) rates and other benefits like refunds of state levies and taxes to improve competitiveness.
- Merchant exporters can claim a GST refund of taxes paid by the actual manufacturers on inputs.
- Supplies to SEZ units or developers qualify as zero-rated and are eligible for refunds.
Thus, the GST framework aims to provide maximum benefits and liquidity relief to India’s exporters of goods while simplifying procedures and documentation.
Also read: How Has GST Made It Easier For Businesses To Export Their Goods And Services?
GST on Export of Services
In addition to goods, India also exports various services to the world, with rising demand in areas like IT, tourism, and business services. The export of services under GST follows the same zero rating principle, allowing service providers to claim a refund of GST paid on inputs and input services.
According to GST law, the supply of any service is treated as an export if:
(a) The supplier is located in India.
(b) The recipient is located outside India.
(c) The payment for service is received in convertible foreign exchange, and
(d) The service is not provided in India.
Several services, such as software, architecture, tour operators, etc., qualify as exports if the above conditions are met. Service exporters can export services under Bond/LUT without paying GST or IGST and claim refunds like goods. The procedures for filing bonds and LUTs, shipping bills, invoices, and returns remain the same as those for goods export. Banks provide IGST paid as a pre-export advance to exporters to improve liquidity.
Some other aspects of GST on the export of services:
- Exports are treated as “zero-rated supplies” under GST, meaning exporters can claim input tax credits on inputs and input services.
- A specific scheme known as SEIS (Service Exports from India Scheme) provides added incentives to service exporters with duty scrips.
Therefore, on the services side, the GST framework offers tangible benefits by allowing a seamless flow of credit and funds for service exporters.
GST on Import of Goods and Services
While exports are zero-rated under GST, imports of goods and services into India constitute taxable supplies attracting GST in addition to Basic Customs Duty (BCD). IGST and cess (where applicable) are levied on such imports. The IGST paid on the importance of goods and services qualifies as an input tax credit and can be utilized by businesses to offset their GST liability.
The key aspects of the GST treatment of imports are:
Imported Goods:
- IGST and cess are levied on the value of imported goods, including BCD.
- The importer must pay IGST on a reverse charge basis and customs duties.
- IGST paid on imports is available as credit for payment of GST dues.
- High-speed sales enable the optimization of import cash flows, although the ultimate importer claims credit.
Imported Services:
- Imports of services on which SGST cannot be levied are taxed with IGST.
- IGST is levied on a reverse charge basis from the service importer.
- The place of supply determines whether a service acquires the character of import.
- The availability of input tax credits ensures the avoidance of cost cascading.
Thus, while imposing GST on importing goods and services, mechanisms for allowing input tax credits balance the impact.
Also Read: Import of Goods and Services and Applicability of Integrated Goods and Services Tax (IGST)
Impact of GST on Export Competitiveness
While GST export provisions envision several long-term gains, exporters faced some transitional challenges during the initial phase. These included issues like time lags in refunds, procedural delays, and infrastructure constraints in special economic zones. However, trade facilitation measures in customs and banking and targeted government interventions helped overcome the initial hurdles over time.
Analysis of India’s export figures reveals that introducing GST has positively impacted overall. Here is an assessment of GST’s effect on critical aspects affecting export performance:
Pricing and competitiveness:
- By subsuming central indirect taxes into one tax, GST has helped reduce tax cascading effects, which earlier inflated the cost of production.
- A simplified tax structure has reduced the compliance burden, optimizing costs on this count.
- The availability of input tax credits has helped reduce production costs for export production.
- GST refunds available on exports have improved liquidity and allowed competitive export pricing.
Technology and Innovation:
- Investment in technology solutions has increased to automate and integrate compliance procedures under GST. This is helping exporters become more efficient.
- With upgraded ERP models encompassing GST modules integrated with customs and banks, credit flow and vendor management have improved.
- Exporters are deploying analytics and business intelligence systems for informed decision-making, leveraging GST data.
Export Infrastructure:
- Special economic zones have upgraded infrastructure post-GST to offer exporters efficient common facilities and clearances at lower costs.
- Port authorities and customs have increased capacity, modernized procedures, and improved inter-agency coordination to expedite export cargo movement.
- Testing labs and certification bodies have increased their capacity to provide international product certifications and quality inspections critical for exports.
While the GST regime has facilitated exports on multiple fronts, some areas still require further streamlining. These include simplifying documentation needs under different export promotional schemes, further easing SEZ procedures for domestic procurement and inter-state movement, expanding drawback rate coverage to more export products, and reducing processing time for tax refunds.
GST Role in Export Promotion
While GST provisions have positively supported export capabilities from a structural perspective, the government has also introduced several export promotion measures using GST levers to provide targeted benefits. Some of the key initiatives are:
- Merchandise Exports from India Scheme (MEIS): This scheme provides exporters with duty scrips at fixed rates, which can be used to offset customs duty payments, bringing down import costs. Additional incentives were given in 2018–20, covering over 8,000 export items.
- Service Exports from India Scheme (SEIS): This incentivizes service exporters with duty credit scrips similar to MEIS, and higher rates have been notified to boost service exports.
- Export Promotion Capital Goods (EPCG) enables import/domestic procurement of capital goods for export production at zero customs duty with export obligations.
- Advance Authorization (AA) Scheme: This allows duty-free import of inputs for export production and domestic sourcing of GST-paid materials without payments.
- Export-Oriented Units (EOU): This scheme provides various benefits to units undertaking exports, such as duty-free import and domestic procurement, waiver from export obligations, fast GST refunds, etc.
In addition to expanding existing schemes, new initiatives have also been taken:
- Transport and Marketing Assistance (TMA) Scheme: A new scheme for specified agriculture export products, covering freight and marketing costs.
- Agri-Export Policy: This provides exporters with incentives covering costs across the export value chain, focusing on cluster-based production planning.
Apart from tax and duty-related incentives, the government has undertaken massive upgrades of trade infrastructure and logistics support systems to promote exports.
- Export logistics are being strengthened by improving connectivity to ports and border trade posts and enabling last-mile connectivity.
- District-level Export Hubs are being developed by linking production clusters with export hubs to provide fully integrated support.
- Twelve significant ports are being modernized along with boosting customs clearance capacities.
- Testing and certification labs at key export clusters are being upgraded to international standards.
Thus, GST is catalyzing a holistic export promotion strategy spanning incentives, infrastructure support, and process facilitation with positive results already visible.
Also Read: GST Number Benefits For Exporters
Conclusion
The GST regime in India is still evolving but holds enormous promise in bolstering India’s export capabilities and improving export competitiveness. GST provisions empower India’s exports by treating exports as zero-rated supplies, providing upfront refunds, enabling seamless input tax credits, and facilitating trade infrastructure around crucial export industries.
This progressive tax framework is supplemented by synchronized policy initiatives across trade, fiscal, and monetary areas, providing focused impetus to export-oriented sectors. Export promotion is getting incorporated into production planning itself through cluster development approaches. While intensive efforts are underway to streamline procedures further under GST and expedite the resolution of transitional issues, the positive impact on exports is already apparent.
With solid policy momentum, extensive support infrastructure, and renewed enterprise views around exports, GST is pivotal in propelling Indian exports to realize their trillion-dollar potential and drive the next phase of economic growth. In the future, continuous improvements in the GST design and operation coupled with out-of-the-box policy ideas promise to confer long-term export competitiveness to Indian goods and services.
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FAQ’s
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What is the GST tax treatment for the export of goods and services from India?
Exports are treated as zero-rated supplies under GST, which means export goods/services will not be charged any GST. The exporter can claim a refund of taxes on inputs and services used.
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What options do exporters have under GST to claim tax refunds?
Exporters can export goods/services by paying Integrated GST (IGST) or under Bond/Letter of Undertaking (LUT) without paying IGST. For both options, a refund of accumulated input taxes can be claimed.
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How are refund processing and disbursal handled in GST to improve liquidity for exporters?
A seamless tax refund mechanism has been introduced with automated IGST payments and fast processing of refunds within 7-10 days, improving liquidity for exporters.
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Are exports eligible for any export incentives or benefits under GST?
Yes, exports qualify for benefits like duty drawback (DBK) and refunds of taxes/levies imposed by States in addition to promised incentives under schemes like MEIS (Merchandise Exports from India Scheme) and SEIS (Service Exports from India Scheme).
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How are imports treated under GST, and what benefits accrue to importers?
Imports attract integrated tax (IGST) over and above essential customs duty. IGST paid on inputs imported for business can be claimed as input tax credit for offsetting output GST.
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How does GST impact India’s export competitiveness?
GST has reduced tax/compliance burden, removed bottlenecks, and increased process efficiency, improving the competitiveness of Indian exports across sectors like agriculture, engineering goods, technology, and services.
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Has GST accelerated the growth of exports from India after its implementation?
GST has catalyzed export growth in most sectors through rising export volumes with a simplified tax structure, reduced production costs, and adequate liquidity for exporters under the GST regime.
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What are some recent export promotion measures related to GST?
Recent measures include expanded tax incentives under MEIS & SEIS, new schemes like Transport & Marketing Assistance to cover freight costs, integrated export hubs, and lower utility costs in Special Economic Zones.
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How has GST helped in improving the export infrastructure in India?
Upgradation projects underway in significant ports, customs clearance processes, testing facilities, and export logistics connectivity to production clusters helped boost export infrastructure post-GST.
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What is the outlook for Indian exports under GST in the next three years?
Indian exports seem poised for robust growth in coming years as incremental benefits of GST for existing sectors combine with significant opportunities in areas like agriculture exports, engineering products, and technology services exports.
