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Procedures of GST on Exports

There are 3 option under GST for Exports

  1. Bond with Bank Guarantee
  2. Bond with LUT
  3. Pay IGST and claim refund

Export Process in GST

1.0 Introduction

 Export and import under GST are treated as interstate supply and hence governed mostly by the IGST act. As per the IGST act, there are only two ways possible to export goods or services in India which are as follows:

  • Export of goods and services without payment of IGST
  • Export of goods and services with payment of IGST.

In the case of second option, one need to pay IGST as usual as domestic trade, however one can claim the refund later on. However, if someone wants to export the goods or services from India without payment of IGST, then he needs to file/furnish a bond or letter of undertaking (LUT) with the department.

Hence, you can see the importance of LUT and bond in case of export of goods and services. Let us discuss the bond and LUT in details along with the complete procedure as how to file bond and LUT.

2.0 What is a bond/LUT? Is there any format prescribed for bond or LUT?

Bond or LUT is a document through which an exporter satisfies the department that the exporter shall obey all the rules and regulations relating to export. The bond or LUT is filed in the prescribed format of GST RFD – 11.

3.0 When to file a bond or LUT for new & existing exporters?

As per notification no.16/2017, the government specifies the conditions and safeguards for LUT and bond. As a general rules, the exporter is required to file the bond along with bank guarantee to the department for export of goods and services.

However, if the following conditions are satisfied, then only a letter of undertaking can be filed instead of a bond with bank guarantee.

  • Exporter should have received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year.
  • He has not been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws or in case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

Therefore, in both the conditions are satisfied, and then a letter of undertaking (LUT) can be filed.

4.0 How to calculate the bond amount for exports?

As per the government circular, the bond amount shall be equal to the tax amount on the previous year turnover or the expected export turnover. E.g. if my total expected turnover is Rs.2 crore and the tax rate on my item is 18%, then the bond amount shall be Rs.36 lakh.

5.0 Calculation of bank guarantee for bond filing for exports under GST

The government has prescribed that bank guarantee should not be less than 15% of the bond amount. Hence, if the bond amount is equal to Rs.10 lakh, then you need to get the bank guarantee of atleast 15%, i.e. Rs.1.50 Lakh.

6.0 Is it mandatory to file LUT/bond for export of services?

Yes, it is mandatory to file LUT or bond for export of services as well if you want to export without charging GST on the same. In case you do not file the LUT or bond, then you need to charge GST and then claim the refund later on.

 

Please contact us for any questions or clarifications

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