India has been a hub for trade for centuries due to its strategic location and resource abundance. The Goods and Services Tax (GST), which came into effect in 2017, simplified the taxation system surrounding imports and exports. It replaced a complex web of indirect taxes that businesses previously had to navigate. In this article, we will look at the basics of imports and exports under GST and what business owners and startup founders should know.
An import is a transaction where goods are brought into India from another country. Under the GST regime, imports are treated as inter-state supplies and are liable to Integrated Goods and Services Tax (IGST). IGST is a tax imposed on the supply of goods and services from one state to another, and it is equivalent to the sum of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST).
When an import takes place, a tax invoice is raised by the supplier in the foreign country (exporter) to the buyer in India (importer). The importer is required to pay IGST on the transaction and can claim it as input tax credit (ITC) against the IGST, CGST, and SGST payable on the sale of goods or services.
It is important to note that customs duty, which is a tax levied on imports by the central government, is not covered under GST.
Exports refer to the sale of goods or services from India to another country. Under GST, exports are zero-rated, which means that they are not subject to any GST. However, exporters can claim input tax credit on the tax paid on inputs and input services used in the manufacture of exported goods or services.
Exporters must file a shipping bill or bill of export with the customs authorities to indicate that the goods have left the country. This is necessary for claiming refunds of GST paid on inputs or input services used in the manufacture of exported goods.
Under the GST regime, imports and exports are simplified and streamlined, making it easier for businesses to operate across borders. It is important for business owners and startup founders to understand the basic framework of GST surrounding imports and exports to ensure compliance with the law and take advantage of the benefits offered by the system.