GST on export of services in India – A complete procedure to export services under GST regime with filing of LTU/Bond for export under GST
by Paras Mehra 22.2K
1.0 Introduction
From 1st July, 2017 a complete transformation of system has taken place and which has changed the way of doing business in India. From consumer to large manufacturers, everybody is being disturbed by this humongous taxation system.
Since, almost everybody is affected by the GST, the export procedure are no exception. With the advent of GST, the export procedure for both goods and services has been changed.
Earlier, in case of export of services, there was no procedure prescribed at all, but under GST the export of services has been taken up with the export of good other at par.
In other words, the procedure for export of goods and services is same with no procedural difference. Hence, it is better to understand the whole concept properly otherwise you shall fall under the trap of non compliance.
So, we shall explain the complete concept of export of goods and services along with
2.0 How to export services under GST
The provisions relating to export of services are covered under IGST act. As per IGST law, the export of services can happen only through two ways:
- Export without GST payment: He may supply goods or services under bond or letter of undertaking (LTU) without payment of GST and claim the refund on all the input taxes paid.
- Export with GST payment: He may supply goods or services on payment of GST and claim the refund of such taxes on goods and services or both supplied.
As said, there are only two ways possible to export the goods or services in India and if you do not follow the above routes then you shall not be eligible to claim the refund of input taxes and you shall be at non compliance of law.
2.1 Example to understand the two ways of export
Let us understand both the case by way of simple example and we shall understand how the benefit to exporter shall remain same in both the cases.
Example: Suppose Mr. A is a exporter of services and he just about to bill to one of his client for the services. The amount to be billed is $10,000. To provide the aforesaid services, he also has taken up some input services of Rs.200,000 on which 18% GST has been paid. Now, he wants to know, how he should bill under GST? Assume GST on output services at 18%.
A: Under GST, there are two options for Mr. A to follow to complete the export of services. Let us discuss both the options
-
Export of Services without payment of GST
Under this route, a bond or letter of undertaking is to be filed with the department online or offline as per the convenience. Suppose, Mr. A has filed the LTU/bond with the GST department, now he can bill to the client without charging GST and later on he may claim the refund of input tax paid.
Input tax amount is Rs.36,000/-
-
Export of Services with payment of GST
Under this route, the GST shall be paid first and then the refund shall be applied. Suppose, Mr. A has availed this route, now he shall calculate the total tax to be paid and then adjust the same with the input tax credit and then claim the complete refund.
Total output tax liability is Rs.117,000/- [($10000*65)*18%]
Total input tax amount is Rs.36,000/-
Total net liability or refund to be claim is Rs.81,000/- (Rs.117,000 – Rs.36,000).
3.0 What is the refund under GST and procedure to claim the refund under GST?
In simple words, refund includes every taxes either paid on exporting services or goods or input or input services used in goods or services which are exported out from India.
The procedure to claim the refund for export of services under GST is as follows:
- File GST RFD – 1 before expiry of two years from the date of export of goods or services.
- After submitting the FORM GST RFD – 1, the proper officer shall within 15 days scrutinize the application and submit an acknowledgment in form GST RFD – 2.
- Once the application is accepted, the proper officer shall issue the refund order within sixty days.
4.0 Grant of Provisional Refund within 7 days
Under GST law, any claim for refund on account of export of goods and/or services made by the registered taxable person, the proper officer may refund 90% of the total amount so claimed on provisional basis.
5.0 What is the meaning of LTU and Bond under GST?
Under GST, if you want to export the goods or services or both without payment of taxes, then you need to file the LTU or bond under GST either online or offline along with the other supporting documents. Let us understand both the terms and when these are needed:
- Letter of undertaking (LTU): Letter of undertaking is a document by which the exporter declares that he shall not default in any of the conditions for export of services and he further declares that the foreign exchange shall be received in the due time.
The LTU shall be valid of 12 months. Exports may be allowed under existing LUTs/Bonds till 31st July 2017. Exporters shall submit the LUTs/bond in the revised format latest by 31st July, 2017.
- Bond: Bond is generally required by small exporters or the category of exporters who fails to comply with the conditions mentioned in LTU. To furnish bond, a bank guarantee is required to be filed which shall generally not exceed 15% of the bond amount.
6.0 Where to file the LTU or Bond under GST
Ideally the bond or the LTU shall be filed online in the format GST RFD – 11. However, since the online system is not ready yet, the government has released a circular and allowed the manual filing of the LTU and bond under GST. The bond or LTU shall be accepted by the jurisdictional commissioner having jurisdiction over the principal place of business of the exporter.
Further, exporter is free to file the LTU or bond before central tax authority or state tax authority till the administrative mechanism is implemented.
7.0 Conclusion
We are firmly committed to help the business in the industry and hence, if you need any help from our side, please write to us at info@hubco.in and we shall help you to file the LTU and bond with the department.
Related Links: