Is Exporting Goods Services upon payment of IGST a better option under GST?

The Goods and Services Tax (GST) is a comprehensive tax system that aims to simplify the process of taxation in India. Under the GST regime, businesses need to pay tax on the value addition at each stage of the supply chain. This results in a seamless transfer of tax credits, which ultimately benefits the end consumer.

One of the key features of the GST is the provision for exporting goods and services upon payment of Integrated Goods and Services Tax (IGST). This article analyses whether exporting goods and services after paying IGST is a better option under GST for small and medium business owners and startup founders in India.

What is IGST?

IGST is a tax that is levied on the supply of goods and services that take place across state borders. It is a single tax that is charged on the total value of the goods or services, including the central and state components of the GST.

IGST is collected by the central government and is then distributed among the states based on the consumption of goods and services in each state. This ensures that the state where the goods or services are consumed receives the appropriate share of the tax revenue.

Exporting Goods and Services under GST

Exporting goods and services under the GST regime is a simple process. Businesses that export goods or services need to pay IGST at the time of export. The IGST paid can then be claimed as a refund by the exporter.

Exporters can claim a refund of the IGST paid on exports either by filing a refund application or by applying for a provisional refund. The refund process is simple and can be completed online.

Exporters need to provide the necessary documentation to support their refund claim. The documents that need to be provided include the shipping bill or bill of export, GST invoice, and the bank certificate evidencing receipt of payment in foreign currency.

Advantages of Exporting Goods and Services under GST

Exporting goods and services under the GST regime provides several advantages for small and medium business owners and startup founders in India. Some of the key advantages include:

Tax Incentives: Exporters are eligible for tax incentives under the GST regime. Businesses that export goods or services can claim a refund of the IGST paid on exports. This reduces the cost of exports and makes them more competitive in the global market.
Reduced Compliance: The GST regime has simplified the process of taxation in India. Exporters need to pay IGST at the time of export, which can be claimed as a refund. This reduces the compliance burden on businesses and makes the process of exporting goods and services simpler.
Competitive Advantage: Exporting goods and services under the GST regime provides businesses with a competitive advantage in the global market. The tax incentives provided to exporters make their products more competitive and attractive to foreign buyers.

Drawbacks of Exporting Goods and Services under GST

While exporting goods and services under the GST regime provides several advantages, there are also some drawbacks that businesses need to be aware of. Some of the key drawbacks include:

Upfront Investment: Exporters need to pay IGST at the time of export, which can be a significant upfront investment for small and medium business owners and startup founders in India.
Compliance Requirements: Businesses need to comply with the documentation requirements for claiming a refund of the IGST paid on exports. This can be a time-consuming process for businesses that lack the necessary infrastructure and resources.
Exchange Rate Risk: Exporters are exposed to exchange rate risk when exporting goods and services. This risk can be mitigated by hedging strategies, but these strategies can be costly for small and medium business owners and startup founders in India.

Conclusion

Exporting goods and services under the GST regime provides several advantages for small and medium business owners and startup founders in India. The tax incentives provided to exporters make their products more competitive in the global market.

However, businesses need to be aware of the drawbacks of exporting goods and services under the GST regime. Exporters need to make a significant upfront investment, comply with the documentation requirements, and are exposed to exchange rate risk.

In conclusion, exporting goods and services after paying IGST is a better option under GST for small and medium business owners and startup founders in India as it provides several advantages and can help businesses expand their reach in the global market.