The Goods and Services Tax, known as GST is an indirect tax in India. It replaced several indirect taxes, including excise duty and VAT. The GST Act was passed on March 29, 2017, and took effect on July 1, 2017. Under GST on export of services, businesses must meet specific criteria to get their services qualified as an export. While these services are zero-rated—meaning no GST is charged—this framework not only bolsters our appeal on the global stage but also facilitates refunds on input taxes.

To qualify under GST on export of services, several criteria must be met, as follows:

1. Supplier Location:

   The service provider must operate from India. This is a foundational requirement as only services originating from India can benefit from GST's zero-rated supply provisions. This rule excludes offshore service providers from claiming export benefits under India's GST framework.

2. Recipient Location:

   The recipient must be located outside India. The essence of export under GST is cross-border service delivery, and the recipient's location is critical to determine whether the supply qualifies for zero-rating. If the recipient is based in India, the supply would not qualify as an export, even if payment is received in foreign currency.

3. Place of Supply:

   The place of supply must be outside India. This rule ensures that services consumed abroad, such as consultancy or software exports, are treated as exports. The place of supply rules under Section 13 of the IGST Act play a vital role in determining the eligibility of services for export status, particularly in cases involving intangibles like digital or professional services.

4. Payment Method:

   Exporters must receive payment in convertible foreign exchange or Indian rupees where allowed by the Reserve Bank of India (RBI). This regulation ensures that the transactions contribute to India's foreign exchange reserves. The flexibility of accepting Indian rupees in specific circumstances, as approved by the RBI, broadens the scope for businesses dealing in exports.

5. Distinct Persons Rule:

   The supplier and the recipient must not be distinct persons or part of the same legal entity, i.e., they cannot be branches or offices of the same company. This rule prevents companies from claiming export benefits on transactions between their own branches located in different countries, ensuring that benefits of GST on the export of services are applicable to genuine third-party international transactions.

These conditions collectively ensure that the supply of services meets the definition of exports. Thus, it exempts transactions from GST on the export of services, allowing businesses to claim refunds on input taxes.

Now that we know various criteria that must be met to be qualified for GST export services, let's understand the terms; Zero-Rated Supply and Interstate Supply:

Zero-Rated Supply and Interstate Supply

GST legislation treats the export of services and goods as zero-rated supplies. This classification means no GST is levied on exported goods or services, providing significant relief to exporters. Additionally, under Section 7(5) of the IGST Act, exports are treated as interstate supplies, further clarifying their treatment under the tax regime.

Options for Claiming Refund for Zero-Rated Supplies

For businesses exporting services, GST provides two key options for claiming refunds on zero-rated supplies:

1. LUT/Bond Supply:

   Services can be exported under a Letter of Undertaking (LUT) or bond without the payment of integrated tax (IGST).

2. Refund of Input Tax Credit (ITC):

   Exporters can claim a refund for the unutilized input tax credit, providing relief on the taxes paid for procuring goods or services used in the export process.

Alternatively, some exporters may choose to:

1. Pay IGST on their supplies and then claim a refund of the tax paid.
2. Submit the necessary documentation and file GSTR 1 & GSTR 3B to complete the refund process.

The government has streamlined the refund procedures, making them faster and more efficient, benefiting businesses of all sizes.

Also Read: LUT Certificate: How to Download and Furnish on GST Portal

Determining the place of supply for services is crucial in the GST framework, particularly for exports:

Place of Supply Rules under Section 13 of IGST Act

Under GST, the place of supply rules are crucial for determining whether a service qualifies as an export and how it should be taxed. These rules vary based on the nature of the service, as outlined in Section 13 of the IGST Act.

1. General Rule (Section 13(2)):

   For most services, the place of supply is where the recipient is located. This is the default rule, meaning that if the service recipient is outside India, the service qualifies as an export. This rule typically applies to services like consultancy, software development, and financial services, which are consumed at the recipient's location rather than where they are provided.

2. Goods-Related Services (Section 13(3)(a)):

   When services are directly related to goods—such as repair, maintenance, or any work performed on physical items—the place of supply depends on the location of the goods at the time the service is performed. For example, if the goods are located in India when the service is rendered, it is not considered an export, even if the recipient is abroad.

3. Individual-Related Services (Section 13(3)(b)):

   Services provided to individuals, such as personal care, medical services, or training, are determined based on where the individual is physically present when receiving the service. This rule applies to situations where the service is tied to the person rather than a business or object. If the individual is outside India at the time of service, the transaction qualifies as an export.

4. Immovable Property Services (Section 13(4)):

   Services related to immovable property, such as construction, real estate consultancy, or property management, are taxed based on the location of the property. Even if the recipient of the service is located outside India, if the property is in India, the place of supply is considered within India, making it ineligible for export benefits.

5. Event-Related Services (Section 13(5)):

   For services tied to events, such as cultural, artistic, educational, or sporting events, the place of supply is determined by where the event is physically held. This means that if the event is conducted outside India, the service qualifies as an export. This rule ensures that the location of the event takes precedence over the location of the recipient when determining the place of supply.

In certain cases, services are taxed based on the supplier's location under Section 13(8), providing more clarity for businesses when determining tax liabilities.

Also Read: Mastering Exports: A Complete Guide to Letters of Undertaking (LUT) for Indian Exporters

We have understood various place of supply rules imposed under Indian Law as GST on export of services. Now, let us look into the mandatory regulations exporters must abide by:

Regulatory and Compliance Requirements

To export services under GST, businesses must comply with certain regulatory requirements:

1. Document Submission

   Exporters must provide critical documents such as the shipping bill, export invoices, and GST RFD 01 to claim tax refunds. These documents act as proof of export and ensure that the goods or services have been delivered to an overseas client, making them eligible for zero-rated treatment under GST.

2. Furnishing Letter of Undertaking (LUT)

   To avoid paying IGST on exported goods or services, exporters are required to submit an LUT on the GST portal. This declaration ensures compliance and allows the exporter to carry out the transaction without upfront IGST payments, streamlining the cash flow and reducing financial burden.

3. Compliance with FEMA and Foreign Trade Policy

   Exporters must follow the guidelines set by the Foreign Exchange Management Act (FEMA) and India's Foreign Trade Policy. This includes ensuring that all payments for exports are received in convertible foreign exchange (or Indian rupees where allowed). Adherence to these regulations is crucial for both smooth trade operations and maintaining eligibility for tax exemptions and refunds.

4. Refund Filing Deadlines

   Filing for refunds within the stipulated time frame is critical to avoid rejection of claims. Exporters must be vigilant about these deadlines, as late submissions could lead to the loss of tax benefits or delayed processing, affecting cash flow.

5. Bank Realization Certificates and Accountant's Certification

   For refund claims exceeding Rs. 2 lakh on a quarterly basis, exporters need to submit a Bank Realization Certificate (BRC) along with an accountant's certification. The BRC serves as proof that payment for the export has been realized in foreign exchange, which is necessary to validate refund eligibility.

NOTE: The GST Compliance Rating is a score introduced to evaluate how well the registered taxpayers adhere to GST provisions, rated on a scale from 1 to 10, with 10 being the highest. It assesses compliance history, filing accuracy, and timely payments, promoting transparency and accountability. This system helps both taxpayers and tax authorities identify compliant entities and potential risks.

Also Read: E-Invoicing Under GST: Everything You Need to Know.

While compliance helps businesses maximize GST benefits and avoid penalties, did you know some services qualify as deemed exports? Let's explore this:

Deemed Exports

Certain supplies are treated as deemed exports, where the recipient, although located in India, is considered an exporter for the purpose of GST. These include:

1. Supplies Against Advance Authorization

   Supplies to registered persons under an Advance Authorization scheme are treated as deemed exports. This means that the supplies are considered exports even though they are delivered within India, offering the same tax benefits as international exports.

2. Supplies to Export-Oriented Units (EOUs) or Technology Parks

   Products or services supplied to Export-Oriented Units (EOUs) or units in Technology Parks also qualify as deemed exports. These units focus on export promotion, and the supplies are treated as exports to boost international trade competitiveness.

3. Supplies Against Export Promotion Capital Goods Authorization (EPCG)

   Under the EPCG scheme, businesses supplying capital goods to exporters can treat these supplies as deemed exports. This scheme supports the modernization of India's export sector by allowing the import of capital goods at zero duty, provided the exporter fulfills the export obligations.

4. Gold Supply by Banks or PSUs under Advance Authorization

   Banks or Public Sector Undertakings (PSUs) can supply gold under an Advance Authorization, which is treated as a deemed export. This supply mechanism supports exporters of gold-related products by giving them access to necessary raw materials under favorable tax conditions.

Now that you have understood what are deemed exports, let us look into some common misconceptions about GST on the export of services:

Common Misconceptions about Export of Services under GST

Here's a list of misconceptions surrounding the export of services under GST:

1. Payment in Foreign Currency:

   Simply providing a service to a foreign national and receiving payment in foreign exchange does not automatically qualify as an export.

2. Place of Supply Misunderstandings:

   The place of supply must be outside India for the transaction to be considered an export.

3. Distinct Person's Clause:

   The supplier and recipient must be independent entities, ensuring that the export is genuine and not an internal transaction between branches of the same company.

Also Read: International Payments - The Challenges and Solutions of Cross border Payments.

Conclusion

In today's fiercely competitive global market, understanding GST on the export of services is essential for businesses. India's GST framework enables exporters to benefit from zero-rated supplies and tax exemptions. These advantages make services more appealing internationally. Refund claims on input taxes and simplified compliance boost efficiency. Businesses can confidently secure cost savings while thriving in global trade.

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Frequently Asked Questions

1. What does GST mean? When was GST introduced in India?

   GST stands for Goods and Services Tax. The GST Act was passed on March 29, 2017, and implemented on July 1, 2017.

2. What is a GST number, and how do I check it? How many types of GST are there?

   The GST number (GSTIN) is a 15-digit PAN-based identification for registered persons. Check it on the GST portal at www.gst.gov.in using the 'Search Taxpayer' option. There are three types: CGST, SGST/UTGST, and IGST.

3. What is the GST rate in India? How is GST calculated? How many GST slabs are there in India?

   GST rates vary by transaction type, with CGST and SGST rates for intrastate and IGST for interstate transactions. GST is calculated by multiplying the applicable rate by the assessable value of the supply. The main GST slabs are 0%, 5%, 12%, 18%, and 28%, with a few lesser rates like 3% and 0.25%.

4. What governs the GST act and rules?

   GST is governed by four main acts: CGST, IGST, SGST, and UTGST, along with additional rules for smooth implementation.

Resources:

1. Goods and Services Tax: What is GST in India? Indirect Tax Law Explained
2. Section 16. Zero rated supply.
3. GST Compliance Rating.
4. GST-India.

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