Hi Readers! Compliance with the world of indirect taxation can go complicated, particularly as far as your business deals with export of services under GST. As a freelancer who is engaged by some foreign clients, or as a budding startup that provides IT products and services to other countries around the world or whatever consultancy which is providing its services to customers abroad, it is exclusively crucial to know how the export of services under GST can be done so that you can maintain an exacting compliance to remain high-earning.
In this guide, we will take you through what constitutes export of services, the GST incentives, records, and refund mechanism in a tax-friendly language!
What is referred to as the Export of Services under GST?
Under the IGST Act (Section 2(6)), the export of services under GST has been defined as the supply of a service in a case where:
- The supplier is in India,
- The addressee is an offshore country,
- The location of supply is outside India,
- The amount of such service is paid in convertible foreign exchange or in Indian rupees at places where the RBI allows it.
- The seller and the customer are not only institutions of the same human being.
The five conditions should be fulfilled to render the supply as export of services under GST.
Why It Would Matter to Taxpayers
The good news is that export of services covered under GST will be considered as zero-rated supply.
That implies two huge advantages:
- Part of your services that are exported are not subject to GST payment
- You are also able to produce a claim for a refund on input tax credit (ITC) of goods and services utilized in the provision of the export
- Zero-rated status provides exporters with competitive advantage so that there is no cost value chain of a tax burden, and it allows for better cash flow.
Exporters have two Options
When you are involved in the export of services as per GST then you may consider any one of the following two options:
Export on IGST Not paid (Under Bond or LUT)
You are giving services to foreign customers, and you do not add IGST, and then avail of the refund over unused ITC on inputs such as office rent, laptops, utilities, etc.
Before export of services under gst you will be required to provide a Letter of Undertaking (LUT) or a bond.
Export On Deposit of IGST
You have to pay the IGST at the export of the service and get back the amount you have paid.
They both work and it is the fact that most small and mid-sized exporters adopt Option 1 in order to avoid tying up working capital.
Documents Required for Export of Services under GST
In order to establish that you have made a legitimate export of services under GST you must ensure that you maintain:
- Invoice (GST-valid)
- Reception of the payment in foreign money (or INR as allowed)
- Banks realization certificate (BRC) or FIRC
- Letter of Undertaking (in case of export without IGST)
- Agreements or contracts with foreign customers
Your refunds are easily affected by the fact that they have to be documented to be processed without delays.
Procedure of Export of Services under GST-Refund
One may claim refunds as exporters can file GST RFD-01 on the GST portal.
Step-by-step:
- Observe series returns (GSTR-1 and GSTR-3B)
- Submit supporting documentation on File RFD-01
- Wait on recognition (ARN create)
- After verification, refund is done
Once all the refund papers are complete and accurate, the refund process can take around one month or two.
GST vs Service Tax- The Big Shift
Even under the Services Tax, export of services under GST were exempted before the GST era. However, a more simplified way of accomplishing them was done under GST through:
- What is export?
- Harmonising input credit supply
- Refund application automation
This can assist freelancers, startups and large companies to be compliant with tax with minimal interference.
Examples of Export of Services in GST
Just to be closer to reality, we can set some real-life examples:
A Bengaluru based software company invents a mobile app on behalf of its client located in the US and has received payment in USD cash- qualifying export of service according to GST.
A freelance SEO offered by a customer in a place such as Mumbai to a customer in a country such as UK and paid using PayPal currency (INR as authorized under RBI) is a – regarded as export.
A CA in Delhi is giving advisory services to a client in Dubai- it falls under the export of service under GST, provided all the conditions are met.
Common Mistakes to Avoid
Missing LUT- It is the one main mistake that many new exporters make, and in the end, they pay sideline IGST.
Illegal Receipts of currency- Ascertain that the mode of payment is accepted by RBI.
Inter-state confusions- The terms, export and inter-state supplies are not inter-changeable under GST.
Refund claim delay– When you are delayed once the proofs or filing of claims are delayed, you have to lose out on your entitlement to ta timely refund.
Freelancer Pro Tip / Startup Pro Tip
Own a small business and you deal with International clients, or you are a freelancer and deal with International clients, you might be tempted to overlook GST just because you are receiving foreign currency. In case you have a GST registration, then you are required to report the same as exports. LUT can allow you to forego IGST payments, and here you can get your input credits back i.e., rent, internet, laptops, etc.
Even better? In case of turnover of less than 20 lakhs (or 10 lakhs in case of NE states) and you are not registered under GST, by definition, you will not be paying GST, but you will also miss out on the benefit of a refund.
FAQs
Q: Is services export-exempt or zero-rated under the GST?
A: It is zero-rated, i.e., there is no charge of GST, and a refund can be claimed.
Q: Is it possible to export services without LUT?
A: Yes, but with IGST deductio,n you will have to reclaim. When using LUT, you do not have to come out with money up front.
Q What frequency should I have in terms of claiming refunds?
A: Either on a monthly or a quarterly basis, depending on the number of export invoices that you have.
Also Read:
GST Certificate Download: A Guide for Small Businesses(Opens in a new browser tab)
