Globally, it is a general norm that exports should be zero rated, i.e., only the real value of goods/ services should be exported and not the taxes. In line with this objective to make Indian exports competitive in the international markets, The Government of India has implemented various policies/ laws to ensure that exports are not burdened with excessive taxes or duties and various options have been provided to the exporters to make their exports tax-free.
On similar lines, GST also provides for certain conditions where Export of services would be zero rated. Under GST regime, money is refunded under the zero-rating principle to promote exports. It has been ensured that the tax refunds are done at the earliest so that the rhythm in export growth is maintained.
Refund in case of exports is possible under two scenarios:
- Exports of goods and services without payment of tax (filing LUT)
- Exports of goods and services with payment of tax (payment of IGST)
Refund under the GST law may arise under different circumstances as under. Below are the types of refund under GST.
- Exports of goods or services
- Domestic supplies
- Supplies to SEZs units and developers
- Deemed exports
- Inverted Duty structure
- Purchases by specified persons
- United Nations or embassies of foreign countries in India
- International tourists at the time of their departure from India
- Administration and compliance
- Judgement, decree, order, Direction etc. of any appellate authorities or courts
- Advance tax payments
- Excess payments
- Provisional assessments
Letter of Undertaking is an undertaking given to the GST authorities for export of goods and services without any payment of taxes. The LUT shall have a validity period till the end of the relevant financial year and a fresh LUT has to be filed and applied every financial year. In this connection, the exporter agrees to fulfil certain conditions and agrees to be bound by the declaration given in the LUT.
Conditions for LUT
- Goods are should be exported outside India within 3 months from the issuance of export invoice
- Services equivalent to the amount invoice should be actually rendered
- Realisation of export proceeds in convertible foreign exchange should be received within one year from the date of invoice
In case of failure to realise the amount in convertible foreign exchange or failure to export goods/ services as applicable, applicable Integrated Goods and Services Tax (‘IGST’) computed along with interest at 18% per annum shall become payable
Upon realisation of export proceeds in convertible foreign exchange, the taxpayers would be eligible to file a refund application by furnishing the required details in the GST portal. The refund of the Input Tax Credit (‘ITC’) standing to the credit of the taxpayer shall be eligible for refund.
Export of goods and services could be undertaken based on payment of applicable taxes at the time of export. In this connection, the existing ITC in the books of the taxpayers could be utilised for payment of applicable IGST arising on the value of exports.
Upon export of services and subsequent realisation of the export proceeds, the taxpayers would be eligible to file a refund application by furnishing the required details in the GST portal. The applicable taxes paid on export shall be eligible for refund.
In case of export of goods via ship or air, the Shipping Bill/ the Airway Bill would itself act as a refund application and shall follow due course of law for grant of refund of the IGST paid on exports.