GST ensures that the tax revenue is collected at the point of consumption rather than at the point of origin. This approach helps avoid the distortion of the tax base and prevents the leakage of tax revenue.
One of the key features of GST is that it follows the destination principle. The tax authorities impose the tax where the goods or services are consumed, not where they are produced or supplied.
This principle has important implications for the export sector, contributing significantly to the Indian economy.
Exporters enjoy various benefits and incentives under the GST regime. These benefits include zero-rating export supplies. Additionally, they are eligible for a refund of the input tax credit or integrated tax. Moreover, the GST regime offers concessional GST rates for specific stores to merchant exporters.
This blog will discuss the applicable tax rates for export transactions. We will also look into the GST rates for export supplies and how they impact both exporters and the economy.
Meaning of Export of Services under GST
Import of Services” is a term defined in sub-section 11 of section 7 of the IGST Act, 2017. It signifies the provision of any service under specific conditions.
Place of Supply in India:
The first condition for a service to be categorised as an import is that the place of supply must be within the geographical boundaries of India. This, in turn, emphasises that the service’s utilisation or consumption occurs within India’s territory. Moreover, determining the place of supply is crucial in identifying whether a service qualifies as an import.
Service Provider’s Location Outside India:
Another essential criterion is that the service provider, i.e., the entity offering the service, should be physically situated outside the sovereign borders of India. This condition ensures that the service originates from a foreign jurisdiction, highlighting the cross-border nature of the transaction.
Recipient of the Service in India:
The third condition emphasises that the service recipient must be present in India. This, in turn, signifies that the beneficiary or the party availing the service is in the Indian territory. Furthermore, it highlights the significance of realizing the impact and benefits of the service within the country, thereby reinforcing the concept of importing services into India.
Supplies that are not considered as exports of goods or services
- When a service provider in India offers a service to a person outside India, such as renting a property in Delhi to someone residing in New York or when an agent in India provides services to a person in Dubai who is exporting goods to China.
- Additionally, if the service provider receives payment in Indian currency or any other non-convertible currency, the transaction does not qualify as an export. For example, when a consulting firm in India provides consultancy services to an entity outside India, and the Indian branch of the overseas entity pays in Indian rupees, the service does not qualify as an export.
- Services supplied to a foreign branch may not qualify as an export of services due to specific exclusions falling under the “export of service.” Consequently, this may require reverting input credits, treating such services as non-taxable rather than zero-rated.
Understanding GST rates on export supplies
Under the regulations stipulated in the Integrated Goods and Services Tax (IGST) law, the export of goods, services, or both categorizes as “zero-rated supplies.” A registered taxable person who exports such goods and services can claim a refund of the Goods and Services Tax (GST) paid.
Categories of GST rates for exports
Export under Bond :
- Businesses can export goods, services, or both without paying Integrated Tax by furnishing a bond or Letter of Undertaking.
- The person who is exporting eligible to claim a refund of unutilised input credit.
- This option is subject to specific rules, procedures, and safeguards as prescribed.
Export with Payment of Integrated Tax:
- Goods and services, or both, can be exported with the payment of Integrated Tax.
- The exporter can claim a refund for the GST on the exported goods and services.
- The rules, procedures, and safeguards prescribed govern the process for these refunds.
Applicable tax rates for export transactions
The Goods and Services Tax (GST) law framework zero-rates export supplies. Zero-rated supply under GST refers to the following categories of supplies involving goods or services or both:
- Export of goods or services or both.
- Supplying goods or services to a Special Economic Zone developer or a Special Economic Zone.
Notably, zero-rated supply does not imply that the goods and services carry a tariff rate of ‘0%’. Instead, it signifies that the recipient of the supply must pay ‘0%’ GST to the supplier. This distinction is crucial because, according to section 17(2) of the CGST Act, the recipient cannot claim input tax credit for supplies with a ‘0%’ tax rate. However, this restriction does not apply to zero-rated supplies covered by the specified categories mentioned in this section.
Also Read: How Is The Place Of Supply Determined For Export Supplies?
Conclusion
In this blog, we have discussed the GST rates for export supplies, the tax rate structure for export transactions, and the export supply and corresponding GST rates. These provisions aim to boost the export sector, which is vital for India’s economic growth and development. By reducing the tax burden on the exporters, GST enhances their competitiveness in the global market and encourages them to explore new opportunities and markets. GST collects the tax revenue at the point of consumption, not at the point of origin. This approach helps avoid the distortion of the tax base and prevents the leakage of tax revenue.
Frequently Asked Questions(FAQs)
Are there any specific conditions for goods and services to be eligible for zero-rated export supplies?
Generally, all export supplies of goods or services are eligible for zero-rated status. However, businesses must meet specific conditions, provide documentation, and comply with GST regulations to qualify for this benefit.
Can businesses claim a refund on the input tax credit for goods or services exported under zero-rated supplies?
Yes, businesses involved in zero-rated exports can claim a refund of the unused ITC or input tax credit. They have the option to either export under a bond or letter of undertaking (LUT) without paying integrated tax and claim the refund or export on payment of integrated tax and subsequently claim a refund.
Are there any safeguards and procedures to be followed for claiming a refund on exported goods and services?
Yes, GST authorities prescribe specific rules, procedures, and safeguards that businesses must follow when claiming a refund for exported goods or services. These guidelines are essential for a smooth refund process.
