Before the goods and services tax regime in India, exporting could get complicated for small businesses. Each shipment called for piles of paperwork to be done and confusing levies to be paid. The GST has done away with all of that — and as a bonus, it has added several exciting benefits that can help you build your exporting business.
Are Exports Taxed Under GST?
As part of the GST regime, the government wants to make it easier for Indian companies to export products to customers around the world. To support this goal, the GST regime considers exports a zero-rated supply. That means that you can claim input tax credit for your exported product, and you don’t need to pay GST on the sale.
Tax Options for Exporters
Though there is no GST on exports, the government still needs a guarantee that you’ll pay the taxes if the products are returned or if they end up not leaving the country for some reason. When you export, you have three options. You can simply pay tax on your exports and claim that amount as a tax refund later on. If you export frequently, this requires you to have a great deal of cash on hand — something that’s not always possible for small businesses. If you can’t pay taxes up front, the government also allows you to export with a bond. In this case, the bond holder guarantees export tax payment if necessary. However, this option often requires collateral that you simply don’t have.
Because both of these solutions are challenging for smaller companies, the government added a third option. If you cannot pay GST or get a bond, you can secure a letter of undertaking from your bank. Letters of undertaking also guarantee a tax payment, but they’re easier to get.
How to Claim Refunds on GST for Exports
To encourage growth in the export industry, the government is trying to make it easier to claim refunds. If you choose to pay GST up front on your exported products, there are a few things you need to do. First, fill out form GSTR-3B and Table 6A on form GSTR-1. Then, check Table 3.1(b) on your GSTR-3B and make sure that the amount of tax you paid is equal to or more than the tax that appears in Tables 6A and 6B of form GSTR-1. After you submit the forms, Customs processes your refund claim, and automatically deposits the money into your bank account.
Can Exporters Use the ITC?
For exporters, one of the most exciting parts of the GST regime is the Input Tax Credit (ITC). Even though you do not need to pay GST on your exports, you can still claim this credit. It offsets the GST you pay on your company’s inputs and reduces your overall tax liability.
Since you probably don’t have a high tax bill as an exporter, the ITC is likely to build up in your account. In that case, you can claim a refund on the unutilised credit. After you file, the government acknowledges your refund and deposits 90% of the amount within seven days. Then, you get the remaining 10% in 60 days or less. If the government does not deposit the balance in that time, you begin to earn interest at a rate of 6%.
Overall, the GST regime has big benefits for your exporting business. By taking advantage of cash-free guarantees and claiming your refunds correctly, you can improve your company’s bottom line.