Understanding GST on Export Products: A Guide for Both Producers and Exporters

Introduction

When exporting goods, whether as a producer, a shop owner, or an intermediary, it is crucial to understand the Goods and Services Tax (GST) implications. GST, or Goods and Services Tax, is a value-added tax levied on the supply of goods and services in India. This article provides a comprehensive guide on whether GST is mandatory for exporting products and the necessary procedures to comply with GST rules.

What Do You Need to Pay GST For?

1. The GST Liability on Exports

According to GST rules, every entity involved in the supply of goods or services that have changed hands is liable to pay GST. This includes producers, intermediaries, and directly exporting individuals. The rule states that the refund of GST can only be claimed by the final person who has actually exported the goods and paid the GST, not by any intermediary involved in the supply chain.

2. Steps to Register for GST for Exports

Obtain a GST Number:

Before you begin the export process, ensure that you have a GST registration number. This is mandatory for all businesses registered under the GST regime.

Apply for Online Letter of Undertaking (LuT):

Once you have your GST number, you can apply for a Letter of Undertaking (LuT) through the online GST portal. This LuT must be filed under Form RFD-11. To understand how to file this form, refer to the GSTN's guide.

Submit Form GSTR-1:

For claiming a refund of IGST (Integrated GST), you need to file Part 6A of Form GSTR-1. This form helps in determining the input tax and the applicable rates for IGST.

3. Export Procedures for Shop Owners Selling Through Intermediaries

When a shop owner sells goods through an intermediary, both parties have specific GST obligations:

The Shop Owner:

The shop owner must charge IGST/CGST (Central Goods and Services Tax) at the applicable rate to the intermediary based on the place of supply. For example, if the supply is from one state to another, CGST and SGST (State Goods and Services Tax) may be applicable.

The Intermediary:

The intermediary must then apply the appropriate provisions of GST for their exports. This could involve either paying IGST and seeking a refund, or applying for a LUT.

4. Export Options and GST Implications

Based on the information provided, there are two main options for exporting goods:

Option 1: Pay IGST and Claim Refund

Procedure:

Calculate the IGST on the value of the goods sold, add it to the invoice, and export the goods. Once exported, you can claim a refund of the IGST paid.

Benefits:

You incur a higher initial cost due to the payment of IGST but benefit from a full refund upon export.

Option 2: Apply for LUT and Seek Immediate Input Tax Credit

Procedure:

As an intermediary, you can apply for a Letter of Undertaking under Form RFD-11. This allows you to exclude the IGST on your sales, but you must pay the input tax credit (ITC) at the time of purchase.

Benefits:

You do not have to pay IGST on your sales, which can be a significant saving. However, you must pay the input tax credit immediately, which can be a disadvantage if cash flow is tight.

Conclusion

Exporting goods requires careful navigation of GST rules to ensure compliance and minimize costs. Understanding the different options available is crucial for both producers and intermediaries. By adhering to the prescribed procedures and considering the nuances of each option, you can streamline the export process and optimize your GST management.