Decoding GST On Imports In India: A Compliance Guide

The implementation of the Goods and Services Tax (GST) in India marked a significant shift in the tax framework for imports. Understanding the GST implications for imported goods is crucial for businesses to ensure compliance, optimize tax credits, and streamline operations.

Significance of Understanding GST on Imports:

Navigating the GST requirements on imports helps businesses avoid penalties, reduce costs, and ensure a smooth flow of goods into the country.

This blog will provide an in-depth look at how GST is calculated on imports, outline the compliance requirements, explain the eligibility and process for claiming input tax credit, and describe the necessary documentation and integration with customs procedures.

GST Rates on Imports

GST Calculation on Imports

Calculation Methods

GST on imports is calculated as the sum of the assessable value of goods, customs duty, and any other applicable taxes before GST. Here’s how it is typically broken down:

1. Assessable Value Determination: Start with the transaction value of the goods, including the cost of freight and insurance up to the point of entry into India.
2. Addition of Customs Duty: Apply the relevant Basic Customs Duty (BCD) depending on the product category.
3. Inclusion of Applicable Taxes: Add any applicable cess or other duty specified by the government.
4. Application of GST: Apply the appropriate GST rate on the cumulative amount (value + BCD + taxes).

Example:

• Product Value: INR 1,00,000
• Freight and Insurance: INR 10,000
• BCD (10%): INR 11,000
• Total Value for GST: INR 1,21,000
• GST Rate (18%): INR 21,780
• Total Cost after GST: INR 1,42,780

Compliance Requirements for GST on Imports

Registration Necessities

1. Determine if Registration is Necessary: All importers who are involved in taxable supply of goods or services (or both) and whose turnover exceeds the threshold limit are required to register for GST.
2. Obtain a GSTIN: Register on the GST portal to obtain a GST Identification Number (GSTIN), which must be quoted in all transactions and communications.

Filing Requirements

1. File Monthly Returns: Importers must file GSTR-1 (details of outward supplies) and GSTR-3B (summary return) monthly.

• GSTR-1 Due Date: 11th of the following month
• GSTR-3B Due Date: 20th of the following month

2. Annual Return: File GSTR-9 annually by December 31st of the following fiscal year.

Input Tax Credit Eligibility on Imports

1. Eligibility Assessment: Determine if the goods or services imported are used for the furtherance of business and are eligible for input tax credit.
2. Documentation for ITC Claims: Ensure that all necessary documents such as the Bill of Entry, import invoices, and payment receipts showing GST payment are in order.
3. Claiming ITC: Input the tax credit details in the monthly GSTR-3B under the relevant sections to claim the credit.

Documentation for GST Compliance on Imports

1. Bill of Entry: Mandatory for all imports, it is issued by customs showing the final assessment of duties and taxes.
2. Commercial Invoice: Issued by the overseas supplier, detailing the description, quantity, and value of goods.
3. Packing List: Accompanies the shipment and details the contents of the cargo.
4. Certificate of Origin: May be required for items imported under free trade agreements (FTAs) to avail lower duty.
5. Maintain Records: Keep all documents for at least six years as they may be needed for future audits or assessments.

Customs Integration with GST

1. GSTIN on Customs Documents: Ensure your GSTIN is declared in all customs documentation to facilitate the seamless credit of IGST paid on imports.
2. Automated Processes: The Indian customs integrated system (ICEGATE) automatically fetches GSTIN details, linking them with the importer’s GST portal to reflect the IGST paid, which is then available as credit.

Conclusion

Comprehensive understanding and meticulous adherence to GST regulations on imports are pivotal for maintaining compliance and optimizing business operations in India. By systematically following the guidelines outlined in this document, businesses can effectively manage their import-related tax obligations and benefit from the input tax credit system.

FAQs

1. What is GST on imports?

GST on imports is a tax levied on goods and services imported into India. It is equivalent to the Integrated Goods and Services Tax (IGST) and is applied to ensure that imported goods and services are taxed in the same manner as domestic goods and services.

2. How is GST calculated on imported goods?

GST on imported goods is calculated on the value of the goods, which includes the cost, insurance, and freight (CIF) value, along with any customs duty and other applicable charges. The formula is: GST=(CIF value+Customs duty)×GST rate\text{GST} = (\text{CIF value} + \text{Customs duty}) \times \text{GST rate}GST=(CIF value+Customs duty)×GST rate

3. What are the GST rates for different types of imported goods?

GST rates for imported goods vary based on the category of goods. Common rates include:

• Essential goods: 0% to 5%
• Consumer goods: 5% to 18%
• Luxury goods: 28%
• Industrial goods: 18%

4. Is Input Tax Credit (ITC) available on GST paid on imports?

Yes, businesses can claim Input Tax Credit (ITC) on the GST paid on imports, subject to the conditions and rules specified under the GST law. This helps in reducing the overall tax liability for businesses.

5. Do importers need to pay GST at the time of import?

Yes, importers are required to pay GST at the time of import along with the customs duty. The GST paid is classified as IGST.

6. Is GST applicable on the import of services?

Yes, GST is applicable on the import of services. The importer must pay IGST under the reverse charge mechanism (RCM).

7. How does GST on imports affect the price of imported goods?

GST on imports increases the overall cost of imported goods as it is levied on top of the customs duty and other charges. However, businesses can claim ITC on the GST paid, which can offset some of the cost increases.

8. Are there any exemptions from GST on imports?

Yes, certain goods and services are exempt from GST on imports, including essential goods such as food grains, books, and life-saving drugs. Exemptions are subject to the conditions specified by the government.

9. How are GST refunds handled for exporters who import goods?

Exporters who import goods and then export them may be eligible for a GST refund under the zero-rated supply provisions. They can claim a refund of the IGST paid on imports through the GST refund process.

10. What documents are required for claiming ITC on imported goods?

To claim ITC on imported goods, the following documents are typically required:

• Bill of Entry
• Invoice from the foreign supplier
• IGST payment challan
• Other relevant import documentation

11. Is GST applicable on imports under the Export Promotion Capital Goods (EPCG) scheme?

Yes, GST is applicable on imports under the EPCG scheme. However, businesses can claim ITC on the GST paid, and the EPCG scheme allows for the import of capital goods at reduced or zero customs duty rates.

12. How are imports handled under the GST Composition Scheme?

Businesses registered under the GST Composition Scheme are not eligible to claim ITC on imports. They must pay GST on imports at the applicable rates but cannot claim credit for the tax paid.

13. What is the role of the Harmonized System of Nomenclature (HSN) in GST on imports?

The HSN code is used to classify goods for taxation purposes under GST. Importers must declare the correct HSN code for their goods to determine the applicable GST rate.

14. Are there any special provisions for GST on imports by SEZ units?

Yes, Special Economic Zone (SEZ) units are exempt from paying GST on imports, provided the goods and services are used for authorized operations within the SEZ. They must furnish the necessary documentation to claim the exemption.

15. How does GST impact the import of software and digital products?

GST is applicable on the import of software and digital products. For software imported on physical media, GST is levied like any other goods. For digital downloads, the importer must pay IGST under the reverse charge mechanism.