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Published on:

January 30, 2025

Alankar Mishra

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Basics of GST

Know About Merchant Export under GST

Merchant Exports are fundamental to the development of exports by Indian traders. It makes it easier for merchants to buy products in India and sell them outside India. Changes to the Goods and Service Tax (GST) have significantly impacted the export industry, and knowing how to advance utilize these provisions is crucial for merchants to enjoy the tax benefits and exemptions.

In this article, we will look at Merchant Export under GST, blanket coverage of benefits, key articles, points of compliance, and how merchants can optimize the usage of this provision.

What is Merchant Export Under GST?

A merchant exporter is someone who trades in goods with a motive to export them. Rather than create goods like industrialists, merchant exporters buy them from domestic sellers and then sell them abroad. The provisions of GST for merchant export are intended to make exportation smoother by offering tax privileges or even eliminating taxes.

The main point of merchant export under GST is a 0.1% concessional tax rate on supplies of goods made by domestic suppliers to merchant exporters in India, subject to some conditions being satisfied.

Benefits of Merchant Export Under GST

Let us look at the various advantages offered by Merchant Exports under the GST regime:

1. Lower Taxes: The exporters pay less tax because domestic suppliers sell goods to merchant exporters at a concessional rate of 0.1% on the goods and services tax (GST). This greatly reduces the tax liability of both suppliers and exporters.

2. Growth of Exports: The government motivates firms to increase their exports which, in turn, boosts the country’s economy. This can be done through simplifying tax compliance and giving lower taxes.

3. ITC Benefits: Merchant exporters can utilise Input Tax Credits to procure certain items locally to decrease their expenses.

4. Simplified Export Procedure: Merchant exporters do not have to worry about paying excess taxes because the GST framework promotes a single tax system. This makes consumer exporting easier.

5. Encouraging Trade Relations: Expanding domestic manufacturing and export base can be achieved by encouraging collaboration between manufacturers and merchant exporters.

Key Provisions for Merchant Export Under GST

Merchant Exporters need to satisfy some criteria to be eligible for the benefits under GST. Merchant Exporters are also obligated to comply with the requirements below:

1. Concessional GST Rate of 0.1%: In case certain terms and conditions are fulfilled, domestic suppliers are permitted to charge GST at 0.1% on supplies made to Merchant Exporters.

2. Supply Conditions: Merchant Exporters must:

Make sure that every item is sent out within the 3-month timeline from when the tax bill is raised,

Collect the merchandise from the vendor’s office or store.

3. Declaration and Documentation: Merchant Exporters should declare their intention to export goods with the respective supplier. Some of the required key documents are:

Export Invoice

Bill of Lading or Airway Bill

Shipping Bill

Letter of Undertaking (LUT)

4. Letter of Undertaking (LUT): Merchant Exporters need to submit an LUT to the GST department to export goods without paying IGST.

5. Compliance with GST rules: The other party, the suppliers and Merchant Exporters are expected to comply with GST rules including the filing of returns and compliance with document maintenance.

Eligibility Criteria for Merchant Export Under GST

Merchant Exporters and suppliers have to fulfil this criterion to qualify for lower rates and exemptions.

1. Goods must be exported within 90 days of the invoice issue date.

2. Domestic suppliers must be registered for GST.

3. The Merchant Exporter must have a GSTIN and an Export-Import Code (IEC).

4. Merchants Exporter's GSTIN and LUT details shall be part of the invoice.

Documents Required for Merchant Export Under GST

Correct documentation ensures smooth compliance. The necessary documents are the following:

1. Export Invoice: The details of the goods, supplier’s GSTIN, and Merchant Exporter along with the concessional GST rate must be clearly stated.

2. Shipping Bill: An export shipping bill is a vital document that is lodged with the customs office to clear the goods for shipment.

3. Bill of Lading or Airway Bill: Proof of the goods being sent by ship or plane.

4. Letter of Undertaking (LUT): Presented by the Merchant Exporters to not pay GST.

5. Declaration from the Merchant Exporter: A declaration needs to be made to the supplier to confirm that the goods are to be exported within 90 days.

Compliance Requirements for Merchant Exporters

Merchant Exporters are expected to also comply with the following requirements of the law concerning GST:

1. Timely Exports: Supplies received from local vendors should be exported within 90 days from the date of purchase for the dealer to be able to benefit from concessional GST.

2. Accurate Record-Keeping: Prepare and maintain documents and ff records including procurement, export invoices, and shipment for confirmatory audits.

3. Filing GST Returns: GSTR-1, GSTR-3B etc. should be filed without any delays. The Merchant Exporters are required to declare exports so that benefits can be claimed.

4. Reconciliation of Data: Data declared in GST returns should have a match with that filed with the customs department to avoid discrepancies.

5. Adherence to LUT Provisions: The LUT should be in force and submitted to the annual returns GST department.

How to Avail of a Concessional GST Rate of 0.1%

To get the lower GST rate, here are some steps to follow.

1. Obtain Valid GSTIN and IEC: For merchant exporters, registering under GST and possessing an Export-Import code is a prerequisite.

2. Declare and Submit LUT: Provide a declaration of intent to supply goods to exporters and submit an LUT to the GST department.

3. Issue Proper Documentation: The invoices should include the GSTIN of both parties with the concessional GST rate.

4. Export Goods Within 90 days: Supply the exported goods within the timeframe stipulated to avoid any breach in GST compliance.

5. File GST Returns Timely: Exports should be declared and GST returns should be filed accordingly to enjoy the tax benefits.

Conclusion

The goal of Merchant Export under GST is important in this regard. It is expected to enhance the overall trade of the country while making the export process as smooth as possible. Following the provisions of GST allows Merchant Exporters to enjoy a less complicated tax structure, easier compliance, and cleaner export procedures.

FAQs

What happens if goods are not exported within 90 days?

Not exporting goods within 90 days may attract penalties and may also lead to revocation of concessional GST benefit of 0.1%. In such a case, standard GST rates will apply.

What is an LUT, and why is it necessary?

Аn LUT (Letter of Undertaking) permits the MerchantExporters to carry out exports of goods without paying the IGST. It is a GST compliance document.

Who is eligible for Merchant Export under GST?

Any merchant exporter who is registered possesses a valid GSTIN and has an Export-Import Code (IEC) and is entitled to the benefits of merchant export under GST.

Do Merchant Exporters need to file GST returns?

Indeed, Merchant Exporters are required to submit regular GST returns (GSTR-1, GSTR-3B) as well as report export sales to claim the tax benefit.

Are there any exemptions for Merchant Exporters under GST?

Merchant Exporters can take advantage of decreased sales tax obligations (0.1% GST), input claim reimbursements, and the opportunity to deliver products without paying the IGST through the LUT.