How Indian Exporters Should Handle GST on Exports to the Middle East

Under the GST regime, exports are treated as zero-rated supplies. This means that if you are exporting goods, services or both, you are not liable to pay GST on such supplies. Moreover, you can claim input tax credit on the same.

However, there are certain important points that you need to consider while dealing with exports under the GST regime. For instance, you are required to mention zero-rated supplies in GSTR-1 and GSTR-3B, among other compliances.

In this blog, we will discuss these considerations in detail.

How Indian exporters should handle GST on exports to the Middle East

While exporting supplies, you must comply with the provisions of Section 16(3) of the IGST Act. Under this section, there are two options for handling GST on exports:

1. Export without payment of GST.
2. Export with payment of GST.

If you choose the second option (export with payment of GST), 90% of the GST paid is refunded on a provisional basis, and the remaining amount is refunded after verification.

Either you choose option 1 or option 2, you must meet certain conditions to remain compliant.

In case of option 1, you have to meet the following condition to stay compliant: 

• Obtain a Bond or Letter of Undertaking (LUT) for the relevant financial year, either before the year begins or before making your first export.
• Export goods or services under the Bond or LUT by issuing a regular tax invoice and complying with the applicable export procedures.
• Use your GST software to report such zero-rated supplies, including shipping bill details, in GSTR-1 and GSTR-3B without payment of IGST.
• For export of services or supplies made to an SEZ, apply for a refund in Form RFD-01 at the end of the tax period to claim any unutilised input tax credit on inputs and input services used for such zero-rated supplies.

In case of option 2, you have to meet the following conditions to stay compliant:

• Supply goods or services by issuing a regular tax invoice and complying with the applicable export norms and procedures.
• Declare such zero-rated supplies, including shipping bill details, in GSTR-1 and GSTR-3B while paying IGST.
• In case of export of services or supplies made to an SEZ, apply for a refund of the IGST paid by filing Form RFD-01 at the end of the relevant tax period.

How to obtain and file an LUT in form RFD-11 on the GST portal

Here is how you can download and fill out your LUT form on the GST Portal:

Step 1: Log In

• Log in to the GST Portal using your credentials.

Step 2: Navigate to the LUT section

• Go to Services > User Services > Furnish Letter of Undertaking (LUT).

Step 3: Select financial year

• Choose the relevant financial year from the drop-down list for which the LUT is being filed.

Optional: If an LUT was furnished manually for any previous period, upload a copy using the Choose File option.

File Upload Guidelines:

• Accepted formats: PDF or JPEG
• Maximum file size: 2 MB

Step 4: Complete the LUT Form (Form GST RFD-11)

Self-declaration: Tick all three declarations confirming that:

• • Exports will be completed within three months from the date of the export invoice (or within the extended period allowed by the Commissioner, if any)
  • GST laws relating to exports will be complied with
  • IGST, along with interest, will be paid if export obligations are not met

(Interest rate: 18% from the date of the export invoice till the date of IGST payment)

• Witness Details: Provide the name, occupation, and address of two independent witnesses.
  
  • Witnesses should match those mentioned in the running bond or bank guarantee (if applicable).

Step 5: Review and Save

• Enter the place of filing.
• Click Save, then Preview the form to verify all details.

Step 6: Sign and Submit

Choose one of the following options:

• Using DSC (Digital Signature Certificate)
  • Click Sign and File with DSC
  • Submit using the registered DSC of the authorised signatory.

• Using EVC (Electronic Verification Code)
  • Click Sign and File with EVC
  • Enter the OTP received on your registered email ID and mobile number.
  • Proceed to submit.

After Submission:

• A unique Application Reference Number (ARN) will be generated.
• ARN will be communicated to you via registered email and mobile number.
• Download the acknowledgment for future reference.

Note: Companies and LLPs are required to file the LUT using DSC only.

How should exporters report exports in GSTR-1 and GSTR-3B?

Below is how you should report your exports in GSTR-1 and GSTR-3B:

• You must disclose details of zero-rated supplies in Table 6A of GSTR-1 for exports and in the relevant tables for supplies made to SEZs.
• Shipping bill details and invoice information should be accurately reported to avoid mismatches.
• In GSTR-3B, exporters need to report export turnover under the appropriate zero-rated supply table, with or without payment of IGST, as applicable.
• Proper reporting ensures seamless matching with the ICEGATE data and timely refund of IGST or unutilised input tax credit.

Conclusion

GST on exports to the Middle East can be highly beneficial for Indian exporters when handled correctly, as exports are treated as zero-rated supplies with eligibility for refunds of IGST or unutilised input tax credit. However, the real challenge lies in choosing the right option under the IGST Act, fulfilling conditions such as LUT filing, and ensuring accurate and timely reporting in GSTR-1 and GSTR-3B, as well as in refund applications. Any lapse in compliance or reporting can delay refunds and create unnecessary working capital pressure.

This is where having reliable GST software becomes crucial. A robust software like TallyPrime offers comprehensive benefits, including LUT-based export tracking, seamless record-keeping, and more.