Applicability of GST on overseas drop shipment transactions

Drop shipment transactions are a common occurrence in today’s globalized world of e-commerce. In a drop shipment transaction, the seller (located in one country) sells goods to a buyer (located in another country) who, in turn, directs the seller to deliver the goods to a third-party recipient (located in yet another country).

Drop shipment transactions can be a great way for small and medium-sized businesses to expand their customer base and increase their revenues. But when it comes to drop shipment transactions that involve overseas delivery, it’s important to understand the tax implications. In India, the Goods and Services Tax (GST) applies to all drop shipment transactions, including those involving overseas delivery.

Understanding GST on overseas drop shipment transactions

The GST is a destination-based tax. This means that it applies to the final destination of the goods, not the place of origin or the place where the transaction takes place. In the case of drop shipment transactions that involve overseas delivery, the GST applies to the final recipient of the goods, who is located in India.

If the seller is registered under the GST, they must charge GST on the value of the goods being sold to the buyer. The buyer, in turn, must pay the GST to the seller. When the goods are delivered to the final recipient in India, the recipient must pay the GST on the value of the goods.

It’s worth noting that the GST applies to the entire value of the goods being sold, including any customs duty, shipping charges, or other expenses involved in the delivery of the goods.

When is GST not applicable on overseas drop shipment transactions?

There are certain cases when the GST is not applicable on overseas drop shipment transactions:

1. Goods sold to an SEZ: If the final recipient of the goods is located in a Special Economic Zone (SEZ), the GST is not applicable. However, the seller must provide proof that the goods are being delivered to an SEZ.

2. Export of goods: If the final recipient of the goods is located outside India, the GST is not applicable. However, the seller must provide proof that the goods are being exported, such as an export invoice or a bill of lading.

3. Services provided to a person located outside India: If the transaction involves the provision of services to a person located outside India, the GST is not applicable. However, the seller must provide proof that the services are being provided to a person outside India.

Conclusion

Drop shipment transactions can be a great way for small and medium-sized businesses to expand their customer base and increase their revenues. However, when it comes to drop shipment transactions that involve overseas delivery, it’s important to understand the tax implications. In India, the GST applies to all drop shipment transactions, including those involving overseas delivery. It’s important for sellers to understand their obligations under the GST and to provide the necessary documentation to prove that the GST is not applicable in certain cases.