Export Of Services In GST

What is Export of Services in GST

What Is The Export Of Services In GST India?

Goods and Services Tax, or GST, is a tax the Indian government introduced to replace all other taxes like the Services tax, sales tax, etc. It is levied on all goods and services and is applicable all over India. Regarding the tax regime, all domains and players in the market, from consumers to manufacturers, have to pay GST when they partake in a buy-and-sell activity. The manufacturer pays GST on raw materials, and the retailer who purchases these products pays it, as does the customer who buys them. Since its inception, GST laws have been updated to fine-tune them. One such example is the export of services under GST. Read below to learn more about it.

Meaning Of Export And Export Of Services Under GST

By definition, International Trade export means services or goods manufactured in one country and sold to purchasers in another. However, by nature, services are intangible and hence different from goods exported. Once they reach the recipient country’s borders, goods are considered to be exported; the same is not the case when it comes to the export of services.

Section 2(6) of the IGST export of services under GST states that the export of services under GST means the supply of services when:

  • The service supplier is located in India
  • The recipient of the service is located outside of India
  • The location of the service supply is outside of India
  • The service supplier has received non-convertible payment in foreign exchange for such a service.
  • The service provider and the service recipient are not just separate entities.

To summarise, the GST Act provisions for a service supply to be deemed export under GST; the service supplier and the recipient should be in India, and if the recipient is outside India, the supplier should be from India. The payment for such services need not be in foreign exchange but can be in INR, Indian Rupees. However, transactions should be conducted as per RBI norms. A point to note here is that if the above conditions are satisfied, export through e-commerce under GST also falls under this category.

As per GST, the export of goods or services under GST is treated as:

  • An interstate supply comes under Section 7(5) of the IGST Act. The export of services or goods is considered under GST as inter-state supply, and IGST is levied on export.
  • As per IGST Section 16(1), Zero-rated supply, the exported services or goods shall be relieved but will be charged at the input or final stage of product delivery.
  • Zero-rated supply means that supplies will have no tax under GST and include services supplied to SEZs (Special Economic Zones). However, per the conditions for the export of goods under GST, if the services provided are for countries like Bhutan and Nepal, it will still be deemed an export under GST even if the transaction is made in INR. It will be a zero-rated supply with all its benefits under GST.
  • Zero-rated supply does not mean 0% tax under GST. According to the CGST Act, there cannot be any claims with no input credit for supplies with 0% tax, but zero-rated supply does not mean 0% tax. All exporters must have a GST registration; an unregistered person cannot do zero-rated supplies.
  • IGST Act Section 16(1) does not apply to exports. A registered taxpayer can supply services under the ‘zero-rated supply’ classification. That means a GST refund or negative GST.

How Are Exports Under GST Levied?

The export of services or goods is called zero-rated supply, and GST does not apply to the export of any services or any kind of supply of goods. Before the implementation of GST, a duty drawback was given for the payment of tax on inputs for exempted goods exported. The process of claiming the drawback was very challenging. However, under GST, the duty is available when paying customs duty on imported inputs or paying central excise on specific products used in tobacco or petroleum products. Also, a merchant exporting under GST doing business in zero-rated supplies can get a refund for its supplies using the following options.

Option 1: Supply of any service or goods, or both, using a Letter of Undertaking or bond. This is subject to procedures, safeguards, and conditions. This can be used to get a refund of unused ITC or input tax credit. The exporter must file an application for a refund on the portal directly or through the GST commissioner's facilitation. A report or export manifest has to be filed.

Option 2: Any agency, embassy, or exporter that is specified in Section 55 and who supplies services or goods or both after satisfying specific procedures, safeguards, and conditions as prescribed and after IGST payment can get a refund of the tax paid on services, goods, or both. The exporter must file a refund application per the specifics mentioned in the CGST Act, Section 54. The exporter has to submit the bills for the export of the supply of service outside India. This shipment bill received by the supplier is considered an IGST payment and an application for a refund. This can only be filed when the exporter has the export report or manifest, shipment files, and other documents. The file should also contain the date and number of the shipping bill.

The department revises the manual and electronic shipping bill formats to include the IGST and GSTIN. These modified forms can be downloaded from the official website. The department is relaxing many procedures and permissions to boost the export industry.

Export of Services: FEMA

The Foreign Exchange Management Act and the existing Foreign Trade Policy provide guidelines for performing trade exports from India. For export sales under GST, IEC (Import Export Code) is only needed when claiming benefits from the FTP (Foreign Trade Policy). For example, an exporter has to have IEC as a pre-requisite to apply for SEIS (Service Exports from India Scheme), without which none of the other declarations and forms are used. An exporter can give services to buyers overseas without any declarations or forms but is liable to pay the due foreign exchange to India and adhere to all the export conditions under GST guidelines.

Documents For Export Refund Under GST

Below are the documents the exporter needs to file for a refund of export services under GST.

  • A covering letter
  • Export invoices
  • GSTR 1 and GSTR 3B
  • Foreign Inward Remittance or Bank Realisation Certificates
  • Form GST RFD 01, which is an application for a refund,
  • Cancelled cheque
  • If the GST refund is more than Rs. 2 lakh every quarter, then a certificate from a cost accountant or chartered accountant is required.

The above are mandatory documents for a claim for refund of deemed export under GST and cannot be made without them.

Points to Remember

  • Zero-rated supply does not necessarily mean that the services or the goods are 0%; it means that the exporter or manufacturer can claim a refund on GST. Or has to pay 0% GST on the LUT and get a refund on the unused ITC.
  • Zero-rated supplies under GST were introduced using the then-prevalent service tax and central excise laws. It was introduced under GST to keep the tax input-output chain intact. It was brought in to promote international trade and reduce the challenges faced by suppliers for the export of goods.
  • When the services or goods are supplied to a foreign branch that is not part of the export of services, the ITC will be reversed, and the goods will be non-taxable.
  • If an unregistered person supplies services or goods to a registered person under GST, the registered person is liable for GST. This is done to discourage exporters from doing business with unregistered suppliers. When such a business is done, the reverse charge must be paid, and a refund claim is made.
  • The previous exemption of export freight under GST has expired, and new rates have come up that may cost the exporter more than before.

Frequently Asked Questions

Is GST applicable for the export of services?

The export of services or goods is deemed a zero-rated supply. GST is not levied on the export of any services or goods.

What is the limit for export services for GST?

As of September 2021, there is no specific limit for the export of services under India's Goods and Services Tax (GST). Exported services are considered "zero-rated," meaning no GST is levied, and suppliers can claim a refund of GST paid on inputs. Always check for the latest updates and consult with tax professionals for current information.

Is the export of services exempt from income tax?

No. But under the IT Return, the businesses that do export have several deductions that they can avail of. SEZ business units get a 100% exemption for five years on their export income.

What is the export of services under GST Section 2 6?

Section 2 6 of the IGST act states that export of services means the supply of services when the supplier is in India, the recipient is outside India, and the place of service supply is out of India; the supplier receives the payment for service in foreign exchange or INR that RBI permits; the supplier and the recipient are not simply establishments.

Is the export of services taxable in India?

Under GST, the export of services or goods is zero-rated. Exporters can get a refund on their ITC for input services or inputs used while export of services or goods if they fulfil the stipulated conditions.

What is the tax benefit of the export of services?

Services considered an export of services do not have to pay service tax if they meet the criteria laid out by the Sales Tax rules. Also, they are eligible for duty credit scrips of up to 5% under the SEIS, Service Exports From India Scheme.