Foreign trade is one of the major factors that determine a country’s economic growth. Exim policies are often a matter of priority for new governments as they try to recalibrate the political and economic narratives. Today, India is the fastest growing major economy in the world with a popular government, that is generally perceived as business-friendly, at the centre. Financial year 2016-17 saw a 4.7% jump in total exports by Indian companies. However, at the same time India also has a trade deficit of $105.7 billion, which means the imports still exceed its exports. Hence, the rollout of Goods and Services Tax in 2017 created anxiety and apprehension among business analysts who are already concerned with the rising import bill.
Under the previous system, imported goods were subject to import duties such as custom duty, countervailing duty, and special additional duty. The latter two duties are comparable to excise duty and value added tax respectively. On the other hand, imported services were subject to service tax.
Under the new system, the Integrated Goods and Services Tax (IGST) replaces all indirect taxes levied on imported goods and services. But there are certain exceptions to the rules as well. For example, petroleum products and pan masala imports are still liable to countervailing duties. Moreover, customs duty, education cess and other protective taxes are still being levied on certain goods. Imported services, however, only attract IGST now.
What is IGST?
Under GST, imports are treated as inter-state supply. So, as GST is a destination-based tax, the IGST is levied at state level, i.e. where the goods are being consumed or services being utilized.
Companies can pay IGST by using input tax credits of both Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST), along with input tax credits received for IGST itself.
What is input tax credit under GST?
Input tax credit (ITC) is the tax paid by a business when purchasing inventory or raw materials. ITC can be used by companies to reduce their tax burden by claiming relief up to the value of GST paid on purchases.
Import of services under GST
GST provisions put services under IGST when,
- The supplier of a service is located outside Indian territory.
- The receiver of service is located within Indian territory.
- The place of supply of service is located in India.
- The supplier and recipient are not merely the establishments of a distinct person.
Imports of services on or after 1st July 2017 are chargeable under IGST even if the actual transaction was dated earlier than the date GST came into effect. Also, if a partial payment of applicable taxes has been made under the previous system, the rest of the tax has to be paid under the GST law.
Filing Tax Returns
GST requires monthly tax filings as opposed to the previous system where importers filed returns under State Taxation Laws for import of goods and under Central Taxation Laws for claiming countervailing duties. Now, while filing monthly GST returns, importers have to declare the imported goods in Table-5 and imported services in Table-6, respectively, of the GSTR-2 form.
Transportation of goods by aircraft and inbound shipments were not liable to service tax under the previous system. However, under GST, such goods are no longer excluded from taxation.
Impact of GST on Export
Exports are considered ‘zero-rated supplies’ under GST. In case of Zero-rated supplies, the entire supply chain is tax-free. So, no tax is levied on input tax side or the output side. If GST is paid for exports from India at any point in the supply chain, the trader can either export without paying IGST or can pay the IGST and claim refund later.
We hope this article helped you in better understanding the provisions for import and export of goods and services under the ‘one nation, one tax’ i.e. GST. At Lendingkart Finance, we are always looking for ways to create value for our customers and blog readers. Our financial products and services are especially designed for Small and Medium Enterprises looking for quick finance in form of business loans and working capital loans. Create a Lendingkart account now for a free loan assessment. We offer small business loans up to ₹ 1 crore for a period of 1 to 12 months, to help you expand nationally and internationally.