How are Imports and Exports Treated in GST

Last updated on July 26th, 2017 at 01:34 pm

Taxation laws have laid down the taxes applicable on import and export of goods and services. In the current tax regime, laws of Customs duty, Excise, Service Tax and VAT lay down the tax treatment of imports and exports. In the GST regime, Excise, Service Tax and VAT will be subsumed into GST and customs duty will continue to be levied separately. Let us understand the tax implication on imports and exports under GST in comparison to the current regime.

Current Regime

Import of goods

In the current regime, a person who imports goods has to pay customs duty, countervailing duty (CVD), and special additional duty (SAD). CVD is levied at a rate equivalent to the rate of Excise on such goods, if they had been manufactured in India. SAD is equivalent to VAT on the goods in India. CVD and SAD are imposed to bring the imported product’s price to its true market price in India. If the importer uses the imported goods to manufacture dutiable goods in India or provide taxable services, CVD paid on inputs is available as tax credit. If the importer is just a trader, CVD on imports is not available as credit. SAD paid on import is eligible for refund, subject to conditions. However, no credit is given on customs duty paid and it becomes a cost for the importer.

Let us see an example to understand the levy of import duties in case of import of goods in the current regime.

Example: Manoj Apparel in Bangalore, Karnataka purchases apparel from a supplier, Oz Designs, in Sydney, Australia.

Tax calculation

Particulars Nos. Price per no. (Rs.) Amount(Rs.)
Women’s T-shirts 200 2,500 (51.68 AUD) * 5,00,000
Men’s T-shirts 100 5,000 (103.37 AUD) * 5,00,000
Total 300 10,00,000
Customs duty @ 10%       1,00,000
Customs education cess @ 3% on customs duty (1,00,000*3%)             3,000
Sub total     11, 03,000
CVD @ 12.5%       1,37,875
Sub total     12,40,875
SAD @ 4%          49,635
Total cost of import     12,90,510

* Exchange rate taken is 0.021 AUD = 1 Rupee

Import of services

A person who imports services has to pay Service Tax on the imported service at the Service tax rate applicable in India. The importer can claim tax credit of the Service Tax paid on imports.

For example: Rajesh Apparels in Hyderabad, Telengana, avails fashion designing services of Rs. 50,00,000 from Kaushi Designs in Colombo, Sri Lanka.

Tax calculation

Particulars Amount (Rs.)
Fashion designing services   50,00,000
Service Tax @14%     7,00,000
Krishi Kalyan Cess @0.5%        25,000
Swachh Bharat Cess @0.5%        25,000
Total cost of import  57,50,000
Exports

In the current regime, export of goods and services is zero rated, i.e. rate of tax on exports is 0%. An exporter can also claim refund of the tax paid on inputs used to manufacture/purchase/provide the exported goods or services.

GST Regime

Import of goods

In the GST regime, a person who imports goods has to pay customs duty and IGST. The difference here is that CVD and SAD levied on imports in the current regime will be replaced by IGST under GST. IGST will be levied at the rate applicable to the imported goods in India. An importer can claim full tax credit of IGST paid on imports. Hence, importers who were unable to claim credit of CVD or SAD in the current regime can now claim full tax credit of the IGST paid on imports. However, no tax credit will be given on customs duty paid and it remains a cost for the importer under GST also.

Let us take an example to understand the levy of import duties in case of import of goods in the GST regime.

Example: Manoj Apparel in Bangalore, Karnataka purchases apparel from a supplier, Oz Designs, in Sydney, Australia.

Tax calculation

Particulars Nos. Price per no. (Rs.) Total Price (Rs.)
Women’s T-shirts 200 2,500    (51.68 AUD) *   5,00,000
Men’s T-shirts 100 5,000    (103.37 AUD) *   5,00,000
Total 300 10,00,000
Customs duty @ 10%        1,00,000
Education cess @ 3% on customs duty (10,000*3%)              3,000
Sub total     11,03,000
IGST @18% **       1,98,540
Total cost of import     13,01,540

* Exchange rate taken is 0.021 AUD = 1 Rupee
**Assuming GST rate of 18% on apparel.

Import of Services

Under GST, a supply will be considered as an import of service when-

  1. The supplier of the service is located outside India.
  2. The recipient of the service is located in India and
  3. The place of supply of the service is in India.

For example: Rajesh Apparels in Hyderabad, Telengana, avails fashion designing services of INR 50,00,000 from Kaushi Designs in Colombo, Sri Lanka

Location of supplier: Colombo, Sri Lanka

Location of recipient: Hyderabad, Telengana

Place of supply: Place of supply will be the location of the recipient, i.e. Hyderabad, Telengana.

Hence, this supply is an import.

Tax calculation

Particulars Amount (Rs.)
Fashion designing services   50,00,000
IGST @ 18%*     9,00,000
Total cost of import  59,00,000

* Assuming GST rate of 18% on fashion designing services

Exports

Under GST, exports will be zero rated, similar to the current regime. An exporter can also claim refund of the tax paid on inputs used to manufacture/purchase/provide the exported goods or services.

Export of services

Specific conditions have been laid down for a supply to be considered an export of service under GST. These are:

  1. The supplier of the service is located in India.
  2. The recipient of the service is located outside India.
  3. The place of supply of the service is outside India
  4. The payment for the service has been received by the supplier in convertible foreign exchange and
  5. The supplier and recipient are not establishments of the same person.

For example: Rohan Consultants in Mumbai, Maharashtra, provides business consultancy services to Abey’s Engineering in Singapore. The payment for the service has been received in Singapore Dollars.

Here,

Location of supplier: Mumbai, Maharashtra

Location of recipient: Singapore

Place of supply: Place of supply will be the location of the recipient, i.e. Singapore.

Payment for the service: Payment for the service has been received in convertible foreign exchange, i.e. Singapore Dollars.

Relationship between the supplier and recipient: The supplier and recipient are distinct persons.

Hence, this supply qualifies as an export of service. Rate of tax on the supply will be 0%.

Export of service under GST

The levy of taxes and treatment of taxes in case of imports and exports largely remain the same under GST in comparison with the existing laws. In case of an importer, full input credit will be available on the IGST paid on imports and additional input credit will be available on the GST paid on all types of inputs used or intended to be used in the course of or for the furtherance of business. Similarly, in the case of an exporter, refund will be given on the tax paid on all inputs used in the course of business. Overall, costs of import and export are expected to reduce under GST and compliance is expected to become easier with the convergence of multiple tax laws into one law.

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About the author

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95 Comments

  • The import purchase entry you have shown is based on unit price of goods. Which is incorrect as custom duty is calculated based on Unit Price of goods + Freight + Insurance. The complete value is known as Assessable Value. Custom duty is paid based on this value. Please confirm how to do entry of such import purchase.

  • usaually ,in case of INFORMATION TECHNOLOGY industries in India render services by sitting in their offices, thus it defeated the condition of provision of services outside India,, Does it qualifies for export ,please any one can explain

  • In case of Exports what Exchange rate is used for calculating the invoice value in rupees for payment of IGST for small exporter.

  • Small company having revenue from Exporter of Software services 1 Crores, requires to register under GST? It comes under zero rated sales, so no registration required? Please explain.

  • we do polishing of leather in india but import from abroad a country and after job work export to b country. How can I get refund of Igst 18%.

  • Good Afternoon Sir/Madam,

    We are Importers of Wet Dates in Maharashtra till Date No VAT on Wet Dates and No Excise and Service Tax on Wet Dates. Only SAD 4% Charges.

    So how we put Purchase entry in tally to avail input credit of IGST charged in Bill of Entry with Import Duty.

    • SIr, In the above blog it is mentioned that Export is NIL Rated. However in one of the tally webinars, an export of goods bill was raised with IGST Being charged. Please clarify

      • For export, there are 2 options: One is export under LUT/Bond where no tax is charged. The other is a case where the exporter can charge GST, in order to be able to claim input tax credit.

    • Get yourself GST-ready in just a few minutes – refer our help site HYPERLINK “https://t.co/heU904AwRJ”https://goo.gl/VXA5Jv  or watch HYPERLINK “https://www.youtube.com/watch?v=FkmkUS6dT1s&feature=youtu.be”this Video https://www.youtube.com/watch?v=FkmkUS6dT1s

  • Currently, we as manufacturer in Gujarat are exporting through Merchant Exporter located in Maharashtra with NIL Excise against ARE/CT1 and Nil VAT against Form-H. Is there any provision in GST regime to export through Merchant-Exporter without payment of GST?

  • Good Afternoon Sir/Madam,

    We are Importers of Wet Dates in Maharashtra till Date No VAT on Wet Dates and No Excise and Service Tax on Wet Dates. Only SAD 4% Charges.

    I want to to know How we make Sales Bills of Particular Products If GST will apply on this Products? suppose if GST Rate May 12% Apply then How much Rate we put in CGST and IGST for Intra state Sale.

    for Inter State Sales Directly we may to put 12% in IGST. Confusion is arising in Intra state sales.

  • Hi Tally,

    Can we Export the goods if we are having in COMPOSITE scheme.

    because we just planning to start new business, can we start without any registration even without the composite scheme in gst.

  • Thank you for the details. What happens in case of Free Trade Zone (FTWZ) ? Does the unit requires to charge GST to its customers for authorised operations inside the zone?

    • Yes Sir. The SEZ Unit or Developer receiving services or goods shall be eligible to claim refund of IGST paid by the Registered Taxable Person on such supply. Therefore, IGST shall be paid and then refund shall be taken. This presents a burden as well as an opportunity for the SEZ Units or Developers.

  • Thanks for the sharing Information
    My Query is regarding 5th Condition in case of export of Services of Zero rated that person should be be the establishment of Same person.

    In this case if any company incorporated in India supplies services to his 100% own subsidiary out of india then would they need to charge IGST or Zero rate because in this case indian company is shareholder of his Overseas Subsidiary

    Thanks

  • My query is (Like : Port is in Gujrat and Material will be used in Rajasthan)

    In the case of import do i have to open a depot in that state to bring the material to the consuming state.
    or I can bring that material directly to consuming state on the basis of Bill of entry and take IGST credit ???

    • No need to open a depot, you can bring your material directly to your consuming state and input credit of IGST shall be available.

  • Dear Sir

    Thanks sharing information.
    But one question in my mind in case we are import some material Importer will be send bill and Custom Duty
    and GST will be charged on Bill of Entry in that case how to pass the entry in Tally. Please share your view on this topic

      • Thanks for your reply
        Sir why should vendor credit this custom duty will be charge by Indian Government Vendor will be supplying material Please Help on this matter

  • Dear Sir Madam,

    Super thanks for your kind explanation on GST. I have one clarification after reading your article and looking into the examples. Does it mean that both importers of items and services total tax will be higher than before when GST is introduced ???

    I prefer to re-introduce what Singapore and Hong Long had practiced and became world leaders in finances plus economic hubs just having simple one 15 % taxation for both import, export and on investments. I am preparing an article on how to make it happen using latest IT and integrated card system for both India my Father Land and my Mother Land Myanmar and willing to share with who ever may be interest to review it.

    Your reply will be highly appreciated. Best wishes and regards, Dr Win

    • Under GST, the total tax on import will remain similar to the tax in the current regime. However, availability of full input credit of IGST on import will reduce the cost of import.

  • Thanks for the Updates

    This is reg. Export of Service. One of the condition is “The place of supply of the service is outside India”
    Obviously the Export will be to an Unregistered (under GST) entity, so as per Place of Supply rules the address of unregistered entity in the books of supplier will be considered to determine the Place of supply, which will be obviously outside India

    Now, what will happen when the Service is given to such Foreign entity within India. e.g Marketing of Foreign Co.’s Products in India on “Commission basis” receivable in Forex. Will this be treated as on Export of Service with 0% GST ?

    Pl. guide
    Regards

    • Marketing of Foreign Co.’s Products in India on “Commission basis” receivable in Forex.

      According to me this service shall probably attract GST under reverse charge. These services are not considered as export. since utilized in India.

      As per current regime also service tax is applicable (Intermediary service) – under reverse charged.

    • This is taxable as the rule for intermediary services continues under gst as well as place of supply will location of service provider. Even though money is received in forex, gst is applicable

  • Dear sir,

    At present we are having 1.3 Crores of CENVAT AMOUNT in Part-II, due to heavy exports in 206-17. This is amount is blocked in PART-II.

    SO, PLEASE ADVISE HOW WILL GET BACK THIS AMOUNT FROM DEPARTMENT

  • thanks, pl express more on :
    1. How to create Foreign Vendor, with reference to GST Registration number, as the vendor is of foreign origin and does’t have any identiry in India.
    2. High Sea Sales,
    3. Imports traded in transit
    4. commission agents arranging foreign trade.

  • Dear Sir,

    Import tax calculation will in below sequence

    CIF Value of Import
    Landing cost
    Assessable value
    BCD-10% on Assessable value
    CVD-12%*(Assessable value+BCD)
    Custom Cess -3%*(BCD+CVD)
    SAD-4%*(AV+BCD+CVD+Custom Cess)

  • We are trader importing goods in India & selling. When GST is implemented in 1-Jul, I will be having stock in hand (imported goods) on which CVD had been paid. Can I claim credit of CVD paid when goods are sold after GST is implemented. If there is no credit of CVD then persons old stock will be at disadvantage & their costing will be higher compared to traders who will import after GST is implemented.

    Is there any provision in GST to claim credit of CVD paid on Closing Stock as on 30-Jun.

    • yes .. if you have CVD paid stock as on 30.06.2017 with doccumentry proof and if you show in your return than you will get Credit of CVD in GST Regim …its become your CGST Credit in GST ..

      • If claimed in return than provision of section 140(1) shall be attracted

        Amount of CENVAT credit carried forward in a return to be allowed
        as input tax credit:
        Conditions:
        >> Person must be Registered taxable person other than composition dealer.
        >> Such credit must be eligible under earlier law and GST law
        >> Credit can be taken in the electronic credit ledger (CGST).
        >> the Amount C/f in the return filed under the earlier law relating to the period immediately preceding the appointed day.
        CENVAT Credit :
        >> In electronic credit ledger credit of the amt of CENVAT Credit to be carried forward in return for the period ending before appointed date – furnished by him under the earlier law as prescribed.

    • Yes there is provision to claim credit lying on closing stock under section 140(3). read with transition provision rule.

      Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations:
      A. Person eligible for input tax credit:
      >> 1. Person not liable to be registered under the earlier law.
      2. Person engaged in manufacture/ sale of exempted goods, provision of exempted services
      3. Person providing works contract service and availing abatement under notification no. 26/2012.
      4. First/ Second stage dealer, importer
      B. Credit available on:
      1. Inputs held in stock and
      2. inputs contained in semi-finished goods or finished goods held in stock as on appointed day.
      * Above benefit not available for input services
      Such credit can be taken in the electronic credit ledger
      C. Conditions:
      (i) Goods must be used or intended to be used for taxable supply
      (ii) The taxable person passes on the benefit of such credit to recipients by way of reduced prices.
      (iii) Eligible to take the credit under GST law
      (iv) Such person should be in possession of invoice or other prescribed document
      (v) Invoice or other document should be within 12 months from the appointed day

  • What is the tax implication, when Roshan consultants pvt ltd mumbai, exports to same Roshan consultants Pte Ltd singapore ? when Both directors are same

  • AT PRESENT AAS MERCHAT EXPORTERS WE HAVE FACILITY OF CT-1 FORM ( NIL EXCISE ) AND FORM H ( NIL VAT ) . HOW WILL THIS SYSTEM WORK IN A GST REGIME ?

    • If the person is registered, GST will be charged. You can avail input credit of the GST paid on inputs used in course of business or for furtherance of business.

  • Sir…..Thanks for the very nicely written article.

    Could you please let us know whether Royalty paid to company outside India for use of their brand name would be counted as import of service? if yes, will IGST be levied on it?

    Kindly guide.

    Thanks and kind regards

  • Till now Tally has covered lots of topic on GST. I request Tally to Provide information on ISD (Input Service Distributor) with examples.

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