GST or Goods and Service Tax is the comprehensive tax that is brought into effect in order to replace all the other indirect taxes imposed by the state and central government. It is levied on manufacture, sale and use of the goods and services. The amount collected after levying GST will be used to propel the economic growth of the country. Through this article, we will discuss the levy of GST on Export of Services.
Exports are classified as zero-rated supply.
In layman terms, zero-rated supply refers to items that are:
- Taxable, but the rate of tax is nil on their supplies and
- Input tax relating to them can be availed
Meaning of Export of Services
Section 2(6) of IGST Act defines Export of Services as ‘the supply of any service when –
- the supplier of service is located in India;
- the recipient of service is located outside India;
- the place of supply of service is outside India;
- the payment for such service has been received by the supplier of service in convertible foreign exchange; and
- the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8
As per Section 7(5) of the IGST Act, in such a scenario, the supply is ‘inter-state’ supply and accordingly shall be classified as ‘inter-state’ sale. Section 24 of the CGST Act specifies that any person engaging in ‘inter-state’ sale is required to be registered under GST law irrespective of threshold.
Also, as per section 22 of the CGST act, every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees: Provided that where such person makes taxable supplies of goods or services or both from any of the special category states, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees. However, the limit of 20 lakhs is not applicable where inter-state supplies are made. Since export has been deemed to be an inter-state supply, all exporters of services would mandatorily be required to take registration under GST.
Are Exports Taxable?
Section 16 of IGST act defines zero rated supply as:
- “zero rated supply” means any of the following supplies of goods or services or both, namely:–
a.) export of goods or services or both; or
b.) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit
- Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies; notwithstanding that such supply may be an exempt supply.
- A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:–
a.)he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
b.) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.
How to Claim Refund?
Section 54 of CGST Act deals with refund of tax
- Section 54 (1): Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed
- Section 54 (6): Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed,excluding the amount of input tax credit provisionally accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant
In the Conclusion
Though export of services continues to be exempt, as per GST experts, exporter will either have to take a bond for making exports or deposit GST on exports and then claim refund. This has lead to lot of hardship to service providers, Start ups and freelancers.
For any further enquiry regarding the export of services under GST, you can contact Starters’ CFO.