The Good and Services Tax in India - Impact on International Trade

The introduction of Goods and Services Tax (GST) has made a significant impact on international trade in India as it brought about changes in the structure of import and export taxation and withdrew various indirect taxes and exemptions.

We sit down with our GST expert Ishtaa Jain, Senior Associate with Dezan Shira & Associates’ Corporate Accounting Services team to understand the impact of GST on import and export of goods and services.

What are some of the key GST considerations that should be kept in mind while exporting goods and services from India?

It is very important to stay aware of export related regulations in order to conduct trade in a hassle-free manner and to avail export incentives on a timely basis.

Registration under the GST Act is mandatory in case of inter-state supply of goods.

However, the provisions for inter-state supply of services are relaxed. In case of export of services, an exporter can avail the input tax credit or claim the refund of output taxes paid, only if they are registered under the GST Act.

Moreover, as per the provisions under the Integrated Goods & Services Tax (IGST) law, export of goods and/ or services is regarded as zero-rated supply and an exporter is allowed to claim refund of GST in such a scenario.

You mentioned the term zero rated supply, what is the concept behind this term and how does it impact exporters?    

Zero rated supply means any of the following supplies of goods and/ or services:

• Export of goods and/ or services; or
• Supply of goods and/ or services to a Special Economic Zone (SEZ) developer or a Special Economic Zone unit.

In this concept, not only is the output exempt from payment of tax, there is no bar on availing credit of taxes paid on the input side.

An exporter working in zero-rated supplies can engage in exports with/ without payment of tax. The exporter can pay the IGST amount first and then claim a refund for same. Exporter can also submit a Letter of Undertaking without payment of IGST and can then claim the refund on input tax credit.

It is of utmost importance to fill the refund forms correctly as jurisdiction officer may reject the claim on account of lack of clarity/ minor errors.

If a company has a unit inside an SEZ and another unit outside an SEZ then can they take a common GST registration?

A company having a unit in an SEZ and another one outside an SEZ (may it be in the same state) is required to make a separate application for registration for SEZ unit as a business vertical distinct from the other unit located outside the SEZ.

How to generally determine if a service provided by a company constitutes export of service?

Supply of a service is considered to be an export when the following conditions are met:

1. Supplier of service is located in India;
2. Recipient of service is located outside India;
3. Place of supply of service is outside India;
4. Payment for such service has been received by the supplier of service in convertible foreign exchange; and
5. Supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with the IGST Act, 2017.

Is GST applicable on imported goods?

Imports under GST are treated as inter-state supply and are subject to tax accordingly. When goods are imported into India, IGST is applied on the value of the goods along with customs duty. Harmonised System of Nomenclature (HSN) is used for categorizing the goods and calculating IGST and customs duty under the GST regime.