GST is Goods and Service Tax, introduced by the Indian Government in 2017. IGST is Integrated Goods and Service Tax, which is a part of GST. There are many consultancies across India providing Import and Export Courses. In-depth knowledge of IGST is needed in Export Import Trade and many consultancies may provide such information.
The question that now arises is why was IGST levied?
The major reason for introducing IGST was to replace all other indirect taxes like VAT (Value Added Tax), and such others and merged them all under one name, IGST.
How Does IGST work?
Under GST, CGST is governed by the Central Government, which is levied on Intrastate supplies of goods and services. Similarly, SGST is also levied on Intrastate supply but the difference is SGST is not governed by the Central Government.
Whereas, IGST is levied and collected by the Central Government on the Interstate supply, abolishing CST Act,1956. IGST provides provisions like:
- Exports are zero-rated
- Sharing of collected Tax between Central and State Government.
The charging provision of IGST indiscriminately levies a ceiling rate of 40% on all goods. Some goods are exempted in terms of taxes levied, they are:
- Petroleum crude.
- High-speed diesel.
- Motor spirit (Petrol)
- Natural gas and.
- Aviation turbine fuel.
GST is a tax levied on the supply and not on the supplier. Hence, the IGST levied is the consuming state and not on the manufacturing state. The above-mentioned goods are zero-rated goods and hence a refund can be claimed on the zero-rated goods. There are two ways of claiming this refund.
- For the goods or services that are under a bond or Letter of Undertaking for the safeguard of payment of IGST, a refund of the unutilized input tax credit will be made. Hence an exporter can file a refund application on the GST portal or at the GST facilitation centre.
- For an agency of the UN or any embassy as specified under section 55 of GST, a refund can be claimed, under section 54 of GST. A shipping bill needs to be submitted along with the application to claim the refund.
What are the documents required to claim a refund of IGST for exported goods and services?
The following documents are required
- Copy of the payment of duty
- Copy of the invoice
- Documents to show that the tax burden has not been passed on
- Other documents as per government’s need
The exports trade done are levied with IGST based on their destination, a location being outside India, whether or not they qualify for zero-rated or not. The tax levied on the supply of goods and/or services are in three parts:
- In the hands of the supplier
- The receipt of goods/services under reverse charge mechanism
- In the case of specified services, in the hands of the electronic service operator.
Let’s discuss some of the advantages and disadvantages of implementing the IGST policy and how it has affected the export business.
ADVANTAGES:
- Maintain uninterrupted ITC chain on Interstate transaction.
- No upfront payment of tax or substantial blockage of funds for the interstate buyers or sellers.
- No refund claim in exporting State, as ITC is used up while paying the tax;
- Self-monitoring model;
- Ensures tax neutrality while keeping the tax regime simple;
- Simple accounting with no additional compliance burden on the taxpayer;
- Would facilitate in ensuring a high level of compliance and thus higher collection efficiency. A model can handle ‘Business to Business’ as well as ‘Business to Consumer’ transactions.
There are only a few disadvantages of the IGST levied on the Export Goods. To name a few of them:
- The refund process is sometimes long and tiresome.
- Even after applying for a refund, it takes more time than necessary
- If the sum requested for the refund is large, it takes more time and more formalities must be acknowledged.
Apart from some flaws, IGST has proved to be unhindering. There are some cases when an IGST is charged on the bill by a seller to the buyer.
Mentioned below are some of the scenarios:
- Supply of goods from one State or Union Territory to another State or Union Territory
- Supply of services from one State or Union Territory to another State or Union Territory
- Import of goods till they the cross customs frontier
- Supply of goods/services to/by SEZ
- Supplies to international tourists
- Any other supply in the taxable territory that is not intra-State – supply of goods or services within the State or Union Territory.
The impact of GST on export has been positive until now. This policy has enabled many Indian firms to emerge successfully in foreign trade. The smooth claiming and easy availability of Input Tax Credit on services have helped companies have competitive prices internationally. Amidst the ongoing pandemic crisis, several businesses have failed to file GST returns on time despite the GST audit extension. Not staying GST compliant can harm growing business to a greater depth. By following these rules and documentation, exporters and young entrepreneurs can be relieved of the new taxation policy. More trade-related blog topics are available on the link below. You can read ‘em here: https://digitalexim.com/blog/ You can also visit the page and know all about export import trade.
