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.
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: Shubham Apparel in Rajasthan purchases apparel from a supplier, Oz Designs, in Sydney, Australia.
|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|
|Customs duty @ 10%||–||–||1,00,000|
|Education cess @ 3% on customs duty (10,000*3%)||–||–||3,000|
|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-
- The supplier of the service is located outside India.
- The recipient of the service is located in India and
- The place of supply of the service is in India.
- The supplier of the service is located in India.
- The recipient of the service is located outside India.
- The place of supply of the service is outside India.
- The payment for the service has been received by the supplier in convertible foreign exchange and
- The supplier and recipient are not establishments of the same person.
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.
|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
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:
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.
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%.
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.