Export of services under GST
An overview of the export of services under GST
In this post, we’ll go over the Export of services under GST, the need for it, procedure, benefits etc.
We will cover the following topics:
What is Export of services under GST?
According to Section 2(5) of the IGST, “export of goods” refers to taking goods out of India for trade or supply outside of the country.
Section 2(6) of the IGST defines “export of services under GST” as any service that meets the following conditions:
- The service provider and recipient are located outside of India.
- One of them is not located in India.
- The service is not related to entities in Bhutan or Nepal, unless payment is made in Indian currency.
- Convertible foreign exchange is the only acceptable form of payment for the service.
Benefits of Exporting Services under GST
Boosting Competitiveness: The final price is tax-free by zero-rating exports, making Indian service providers more competitive globally.
Simplified Refunds: GST makes it easier to claim refunds on input tax credits for taxes paid on inputs and services used in exports, reducing the load on exporters’ working capital.
Increase in Exports: GST’s focus on export promotion makes doing business easier, potentially increasing India’s service exports.
India’s service exports were USD 210 billion in 2022-23, highlighting the sector’s expanding importance.The main categories are:
- Information Technology (IT) and Business Process Outsourcing (BPO)
- Telecommunications
- Financial Services
- Professional Services (accounting, legal, etc).
Need for GST registration for export of services
Since exports are considered interstate supplies, you must register for Goods and Services Tax (GST). Manufacturers pay IGST or CGST along with any applicable SGST or UTGST. To export goods under a bond or LUT, you must first claim input tax credit on the taxes paid for goods and services.
- According to Section 24(i) of the Central Goods and Services Tax Act, 2017 (CGST Act), anyone making an interstate taxable supply must register for GST, regardless of the provisions in Section 22(1).
- Notification No.10/2017 – Integrated Tax, dated October 13, 2017, states that GST registration is not required for individuals making interstate taxable supplies up to Rs. 20 lakhs (Rs. 10 lakhs in some states) in a financial year.
- The CGST and IGST Acts do not explicitly define “Interstate Taxable Supply”. However, the definition can be inferred from the definitions of “Interstate supply” and “Taxable Supply” provided in these Acts.
- Section 7(5) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), defines “Inter-State supply” concerning services as:
- a. Provision of goods or services, or both,
- b. When the supplier is in India, and the place of supply is outside India,
- c. Treated as a provision of goods or services in interstate trade or commerce.
- Section 2(108) of the CGST Act defines “taxable supply” as the supply of goods or services subject to tax under this Act.
- “Exempt Supply” under the CGST Act means the supply of goods or services attracting a nil rate of tax or fully exempt from tax under Section 11 of the IGST Act, including non-taxable supplies.
- Export of goods or services is not exempt under Section 16 of the IGST Act, and no government exemption applies.
- If Export were tax-exempt, there wouldn’t be two categories: exports with IGST and Export without IGST. This indicates that Exports are taxable supplies, but exporters may export without IGST if certain conditions are met. Compliance with Section 24 of the CGST Act is still required.
Document required for the export services under GST
- Services Agreement or Purchase Order: Buyers provide these official documents to exporters to confirm payment conditions, product description, delivery terms, and other details.
- Import-Export Code (IEC): The DGFT issued this 10-digit identification code for importing or exporting goods and services.
- Export Invoice: A billing document produced by the exporter, similar to a GST invoice but containing additional information.
- Shipping Bill: A document issued by the exporter to the customer and used to transport products out of the country.
- Bond or LUT for Export without Payment of IGST: A letter of undertaking submitted by an exporter to obtain an exemption from IGST payment on exports.
- Foreign Inward Remittance or Bank Realization Certificate (BRC): The bank issues a confirmation letter stating that the exporter will receive payment for the export.
Procedure for export of service under GST
The steps for exporters to comply with GST regulations are as follows:
- Obtain a valid GST registration: Exporters must get a valid GST registration regardless of the value of goods and services.
- File a shipping bill: Submit the shipment bill to customs officials, verifying that it complies with regulations.
- Declare exports in GST returns:Exporters must declare exports on their GST returns, including the value of goods and services, invoice number, and destination country. This information helps us process refunds.
- Claim refund and pay IGST: Exporters should use forms RFD-01A or GSTR-3B to complete the refund application and related paperwork.
- Generate an e-way bill: An e-way bill documenting the quantity, value, and destination is required for all consignments. You can generate this e-way bill through the GST portal or a mobile app.
How will GST on the export of services be levied?
Previous laws allowed for a duty refund on taxes paid on inputs used to export exempted goods, but the refund process was time-consuming. The GST tax refund now excludes customs charges on imported inputs and federal excise on some petroleum or tobacco products used for inputs or captive power generation. Exporters faced significant issues with getting back the tax paid on inputs.
The Indian government released a guideline paper clarifying the input tax credit claim on zero-rated exports. Under GST, exporters of zero-rated goods can claim a refund in two ways:
- Supply goods or services without paying integrated tax, utilizing a bond or Letter of Undertaking, and then request a refund of the unused input tax credit.
- After meeting certain conditions and paying IGST, any exporter, UN, Embassy, or other specified entities may request a refund of the tax paid on the supplied goods or services.
The department has updated both the electronic and manual shipping bill formats to include GSTIN and IGST information. The new forms are available on the department’s official website. To support Indian exports under GST, the Department is also simplifying the factory filling process and granting necessary approvals.
Important Points to Remember
Exporters should keep accurate records of exports, shipping bills, LUTs, and ITC claims for GST audits. The government may set specific documentation requirements for ITC refund claims related to exports. To ensure compliance with the most recent GST requirements for exporting services, speak with a tax professional.
That brings us to the end of this post on the Export of services under GST. If you have any questions or queries, please leave a comment in the section below.
FAQs
1. Is GST applicable to the export of services?
Ans: Exporting services or goods is considered a zero-rated supply. No GST is levied on this.
2. Can export services qualify for ITC under the GST regime?
Ans: Yes, exporters can get a refund on ITC for inputs and input services utilised in exported services.
3. How can exporters get refunds on ITC?
Ans: The exporter can file for a refund of ITC using Form GST RFD-01 and the supporting papers through the GST portal.
4. Where can I learn more about the GST on service exports?
Ans: The Central Board of Indirect Taxes and Customs (CBIC) website provides a useful guide to sector-specific FAQs, including exports.
