GST Refunds & Export Incentives

GST Refunds & Export Incentives Under India's Goods and Services Tax (GST) framework, there are provisions for both GST refunds and export incentives to promote international trade and ensure that businesses do not face tax burdens on exported goods and services. Here’s a breakdown of these two key components

GST Refunds

GST refunds are issued to businesses when they have paid more tax than what is due, and they are eligible for a refund. Refunds are important to ensure that businesses do not face a liquidity crunch due to GST payment, especially for exporters.

Common Reasons for GST Refunds:

• Excess Input Tax Credit (ITC): If a business has accumulated excess credit on its purchases (input taxes paid) that exceeds its output tax liability, it can claim a refund for the unutilized credit.
• Export of Goods and Services: Goods and services exported out of India are considered "zero-rated supply," meaning they are subject to a 0% GST rate. Exporters can claim a refund of the taxes paid on inputs or input services related to exports.
• Refund for Tax Paid on Exports: In cases where the goods or services are exported, businesses can either claim a refund of the unutilized Input Tax Credit (ITC) or opt for a Refund of IGST paid on export (Integrated GST).
• Excess Payment of Taxes: Sometimes, taxpayers may end up paying more tax than required due to errors or under certain circumstances (like system issues). This excess amount can be refunded.

Types of Refunds:

• Refund of ITC: If the input credit is more than the output tax, it can be refunded.
• Refund of IGST paid on exports: Exporters can apply for refunds of IGST paid on goods and services exported out of India.

Process for GST Refunds:

The process for claiming a GST refund involves the following key steps:

Application Process:

Businesses need to file a refund claim through the GST portal (GST RFD-01 form). This includes providing details about the export, tax paid, and supporting documents.

Timeframe:

Refunds need to be processed within 60 days from the date of filing the application, failing which the tax authorities must pay interest.

Key Steps for Refund Claims:

• Ensure that all GST returns (GSTR-1, GSTR-3B) are filed.
• Submit the refund application along with necessary documents.
• The GST authorities will verify and process the claim.
• If approved, the refund is credited to the applicant's bank account.

2. Export Incentives

To encourage and boost the country's exports, the government offers various export incentives for businesses. These incentives help exporters mitigate the cost burden and increase their competitiveness in the global market.

Key Export Incentives Under GST:

Zero-rated Export of Goods and Services

• Zero-rated GST: Exports of goods and services are considered zero-rated under GST, meaning they are not subject to any domestic GST. However, the exporter is eligible to claim refunds for the taxes paid on inputs.
• This is one of the most significant incentives as it ensures that exports are not burdened by domestic taxes, helping businesses keep prices competitive in the international market.

Duty Drawback Scheme:

• This scheme provides a refund of customs duties paid on imported goods used in the production of exports. The drawback rate varies depending on the nature of the goods, and exporters can claim it after exporting the goods.

Merchandise Exports from India Scheme (MEIS):

• Although MEIS has been phased out, under the previous regime, this scheme provided incentives to exporters of specific goods. However, MEIS has been replaced by the Remission of Duties and Taxes on Export Products (RoDTEP) scheme.

Remission of Duties and Taxes on Export Products (RoDTEP):

• The RoDTEP scheme was introduced to replace MEIS. It provides exporters with refunds on certain taxes and duties that are not refunded under any other mechanism. This includes indirect taxes on raw materials and other costs embedded in exports, such as taxes on fuel or certain domestic duties.
• The aim is to make Indian exports more competitive by refunding the embedded taxes on exported products.

Export Promotion Capital Goods (EPCG) Scheme:

• This scheme allows exporters to import capital goods at a reduced customs duty (as low as 0%) for the purpose of producing goods for export. It requires the export of a certain percentage of the goods produced with the imported capital goods.

Advance Authorization Scheme:

• This scheme allows exporters to import goods required for production at concessional or zero customs duties, subject to export obligations. The goal is to incentivize value-added exports and boost competitiveness.

Special Economic Zones (SEZ):

• Goods and services exported from SEZs are exempt from most taxes, including GST, helping exporters reduce the cost of production. The SEZs also offer other incentives such as exemptions from customs duties and income tax holidays.

Interest Equalization Scheme:

• Under this scheme, exporters can get subsidized interest rates on pre- and post-shipment credit, helping reduce their financing costs.