Is your export-import business ready for the GST impact? Discover how this game-changing tax law can make or break you.
India's Goods and Services Tax (GST) is one of the most significant changes to the Indian tax regime in recent times, introduced on July 1, 2017. The implementation of GST replaced multiple taxes with a single tax and was designed to streamline and simplify the taxation system under one umbrella. However, the GST has impacted the export-import business in India, and this article will highlight the impact of GST on your export-import business.
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Changes in Taxation System
One of the significant changes the GST brought to the export-import business in India is the transition from multi-point taxation to a single-point taxation system. The GST replaced several indirect taxes such as Central Excise Duty, Service Tax, and Value Added Tax (VAT) with a single tax. Under the GST regime, the tax is levied on the value added at each stage of the supply chain.
The Input Tax Credit (ITC) mechanism was introduced under the GST to avoid cascading taxes and reduce the tax burden on companies. ITC meant that businesses could claim credit for the tax paid on inputs, leading to a reduction in the final GST liability. The reverse charge mechanism is another critical element of the GST compliance framework. Under reverse charge, the recipient of goods or services is liable to pay the tax instead of the supplier.
Impact on Exporting Business
The GST has had a considerable impact on exporting businesses. Under the GST, exports are treated as zero-rated supplies, meaning exports are taxed at 0%. This means GST is not charged on exported goods or services. Exporters are required to file for GST refunds, which means they can claim back the GST paid on inputs and supplies.
An essential change to the taxation system under the GST regime is the introduction of Integrated Goods and Services Tax (IGST). This tax structure ensures that the export of goods is not subject to multiple taxes by different states. Therefore, the IGST is levied on the export of goods, which is ultimately set off against other taxes, leading to no tax liability. IGST has significantly eliminated the difficulties caused by non-creditable taxes in the pre-GST regime that exporting businesses faced.
One of the significant advantages of GST for international exporters is that they only have to comply with one GST tax structure, leading to uniformity. Moreover, by incorporating Input Tax Credit and IGST, the GST ensures that exporting businesses benefit from the elimination of cascading tax effects. However, complying with GST regulations can be a complicated process for exporting businesses, making it challenging to manage the tax computation and refund processes effectively.
Also Read - Input Tax Credit: A Beginners Guide to GST Regulations
Impact on Importing Business
The GST has also impacted the importing business significantly. The GST regime requires businesses to pay taxes when importing goods. Previously, businesses were required to pay Central Sales Tax (CST) and State Sales Tax VAT separately. However, under the GST, Import of Goods and Services GST (IGST) is levied instead of the earlier taxes. IGST is a combination of Central GST (CGST) and State GST (SGST) and is levied on all imports made by businesses. Furthermore, the availability of Input Tax Credit on IGST paid on imports allows importers to claim ITC to adjust their final tax liability.
However, one of the disadvantages of the GST system for importing businesses is that IGST is also applicable to the goods imported for immediate consumption. Businesses have to pay the tax at the time of import, which adds more costs, making imported goods expensive in the Indian market.
Compliance and Tax Returns
GST compliance is particularly crucial in the context of export-import businesses, as non-compliance may lead to various tax disputes. To avoid these disputes, export-import businesses need to ensure all transactions comply with the GST regulations.
Under the GST regime, businesses must adhere to the provisions of the GST Act, GST Rules, and the rate schedules. The GST returns form an essential aspect of the compliance mechanism under the GST regime. Businesses have to file 3 monthly returns and one annual return. The monthly GSTR-3B return is required to be filed within 20 days from the end of each month, and GSTR-1 and GSTR-2 returns are due by the 10th and 15th days of the following month, respectively.
To ensure GST compliance in the export-import business, businesses need to maintain a proper invoice structure, maintain all records, and document all transactions of inputs, goods, and services. The compliance standards for the GST regime are strict, and non-compliance can lead to hefty penalties. Businesses need to be aware of the GST provisions and comply with the regulations to avoid legal issues and financial losses.
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Conclusion
The GST has brought significant changes to the Indian taxation system, impacting various businesses significantly. In the case of export-import businesses, the GST has brought several advantages and disadvantages. For international exporters, GST compliance ensures uniformity and the elimination of cascading tax effects. However, complying with the GST regulations can be overwhelming for exporting businesses. Importing businesses benefit from GST through the availability of Input Tax Credit on IGST, but this adds extra costs due to the taxation on goods imported for immediate consumption. The key to ensuring successful compliance with the GST lies in maintaining a proper invoicing structure and record-keeping and filing tax returns accurately and on time.
