Mastering GST Refunds for Export Transactions

When it comes to exporting goods and services out of India, GST treats these transactions in a special way. The main goal is to ensure that Indian exporters remain competitive in the global market by avoiding extra tax burdens. This article will break down everything you need to know about export transactions under the Goods and Services Tax (GST) system in India in a simple and easy-to-understand way.

What are export transactions?

Export transactions involve sending goods or providing services from India to destinations outside the country. Under CGST Act:

• Export of Goods [Section 2(5)]: Sending goods from India to abroad.
• Export of Services [Section 2(6)]: Where a service is provided by a provider based in India to a recipient located outside India. The service must be utilized outside India, and the payment for the service is made in foreign currency.

Both are classified as “zero-rated supplies” under the IGST law, meaning they are taxed at 0%. This allows businesses to claim a refund on the Input Tax Credit (ITC) for GST paid on inputs used in the export process, effectively reducing costs and improving cash flow.

GST Refund Eligibility Criteria

To qualify for GST refunds on export transactions, businesses must:

• Be GST-Registered: Ensure you are a registered taxpayer under GST.
• Have Valid ITCs: Maintain valid Input Tax Credits (ITC) for GST paid on inputs or services used in the export process.

See also: Can Arrests / Detention provisions be invoked when appearing for summons under GST?​

Method for Claiming Export Tax Refunds

There is two ways of claiming refund under GST on Exports:

1. Export without payment of IGST under Bond & LUT
2. Export with payment of IGST

As per Notification No. 01/2023, there are specified goods which can only exported without payment of GST.

Method 1: LUT & Bond

Two critical options for handling GST on exports are the Letter of Undertaking (LUT) and the Bond.

What is an LUT?

Letter of Undertaking (LUT) is a simpler document that essentially acts as a promise to the tax authorities that you’ll adhere to export regulations without paying GST upfront.

• Eligibility: Available to exporters with no significant tax evasion history.
•  Validity: Once granted, valid for the entire financial year.
• Requirements: Export goods within three months or services within one year from the invoice date. If not met, GST plus interest must be paid.
• Restoration: If the LUT facility is withdrawn due to non-compliance, it can be reinstated upon settling any dues.

What is a Bond?

Bond is a more formal and stringent option, often used by exporters with a history of GST issues. Think of the Bond as a security deposit you leave with the tax authorities. If you fail to meet the export criteria, you will lose your deposit.

• Requirement: Needed if there have been GST or tax evasion issues exceeding ₹2.5 crore.
• Function: Acts as a security deposit with tax authorities; failure to meet requirements may result in losing this deposit.
• Conditions: Similar to the LUT, goods must be exported within three months, or services must receive payment in convertible foreign exchange within one year.

Filing Process

To opt for either LUT or Bond, you’ll need to complete the following steps:

1.  LUT/Bond Filing: File Form GST RFD-11 with the tax authorities. For a Bond, draft it on stamp paper and submit it along with the required documents to the tax office.
2.  Claim Refund of ITC: If you choose the LUT/Bond route, you can claim a refund of the unutilized input tax credit (ITC) using Form GST RFD-01. Provide necessary details, upload supporting documents, and submit the form. An ARN (Application Reference Number) will be generated for tracking your application.

Obligations Under Rule 96A

1. Goods Exported: Goods must be exported within three months from the invoice date. If not, GST and interest must be paid within fifteen days after the three-month period, or as extended by the Commissioner.
2. Services Payment: Payment for services must be received in convertible foreign exchange or Indian Rupees within one year from the invoice date. If delayed, GST and interest must be paid within fifteen days of the one-year expiry, or as extended by the Commissioner.
3. Refund Mechanism: Refunds for unutilized ITC are based on the formula in Rule 89(4) of the CGST Rules, 2017, considering turnover and adjusted total turnover.

Method 2: EXPORT OF GOODS WITH PAYMENT

GST Refund Process for with payment of taxes:

1. File Shipping Bill/Bill of Export: Submit to Customs via ICEGATE, including a departure manifest or export report.
2. Submit GSTR-3B: File an accurate GSTR-3B return for the specified period.
3. Report Export Invoices: Enter export invoices in Form GSTR-1, which transmits data to Customs.
4. Customs Confirmation: Customs verifies that goods have been exported based on the Shipping Bill/Bill of Export.
5. Refund Process:

a) Goods: No separate application needed; refunds are processed automatically using data from GSTR-1 and ICEGATE.

b) Services: File Form GST RFD-01 on the GST portal, providing details and documents. An ARN will be generated for tracking.

6. Receive Refund: Once Customs confirms and GSTR-3B is validated, the IGST refund is credited directly to your bank account.

Pro-Tips

• Always keep a backup of all export documentation for GST refunds.
• Regularly update yourself on GST notifications and amendments affecting export transactions.
• Seek GST Consultancy Services to ensure GST export compliance

Effectively managing GST refunds for export transactions can greatly enhance your business’s cash flow and global competitiveness. Reach out to Master Brains today to streamline your export operations and gain valuable insights into how to sail through the complex GST landscape.