India is a developing economy and like any other developing economy, the government’ aim is to bridge the trade deficit by expanding the country’s export base. Augmenting a country’s export base, in fact, has several advantages associated with it. A growth in export leads to creation of jobs, maintains the balance of payments and offers a solid thrust to a country’s economy. And you may be wondering what the government does to boost export and ramp up the economy.
An ideal way the government goes about its business of promoting export is by allowing certain incentives and concessions to exporters. The traders can reap the benefits of government’s relief and concessions to export more and thus contribute towards strengthening the nation’s economy. One of the ways in which government provides the traders with concession is through the GST.
Under GST regime, there are two options that are available to the exporters:
They can export under bond for which they do not have to pay taxes
They can export by paying taxes and claim the tax benefits later
In case you are wondering when to opt for bond and when option of LUT would be a more prudent decision, we are just going to provide an insight into that in the following paragraphs.
What Is Included In Our Package?
*Important update on LUT
Furnish fresh LUT for FY 2018-19
LUT will be valid only for a financial year. For example, if you have furnished LUT in FY 2017-18, then it will expire on 31st March 2018, and you will have to furnish fresh LUT for FY 2018-19.
Refund of IGST paid on Exports
Under GST laws, the exporter is provided the option by the government pay IGST and then claim refund at a later date. The government has been working hard to ease the entire process of claiming refund by exporters. Exporters who are exporting goods or services need not file refund application (GST RFD-01) separately. This is because the shipping that the exporter furnishes is treated as a claim for refund in itself.
- Input tax credits on goods and services which have not been utilized.
- IGST that has been paid by the trader while exporting goods or services.
However, as per the law the shipping bill can serve as a claim for refund only when it meets the following two conditions:
The person carrying export goods will have to first and foremost file an export manifest and
The applicant also needs to file the returns GSTR-3 or GSTR-3B in a proper manner. Also, the table 6A in Form GSTR-1 needs to be filled in order to, claim the refund.
The department will process the refunds after it checks all the documents and is satisfied that all the form shave been filled in a proper and appropriate manner with all the details properly mentioned.
What is Letter of Undertaking (LUT) and Bonds
Letter of Undertaking (LUT)
It is a type of bank guarantee, under which its customer is allowed to take a loan from another Indian bank’s foreign branch on a short term basis. The primary purpose of facilitating such an arrangement is to ensure that the owner of the ship or aircraft would:
Implement stringent security measures on the vehicle
Enter an appearance acknowledge ownership and
Pay a final decree on the vehicle irrespective of the fact whether it is lost or not
Bonds are financial instruments which serve as a form of borrowing. The people buying these bonds are, loaning money to the issuer of the bond for a fixed period of time. At the end of that period, the value of the bond is repaid as the issuer is obliged to pay the holders the principal. Bond holders also receive a pre-determined interest rate paid annually. Bonds unlike shares are highly secure and they are also highly liquid assets which are also negotiable. It means their ownership is easily transferable from one holder to another. Municipal bonds and corporate bonds are the more common types of bonds.
IB-1 Surety / Security (General Bond) is furnished in case of furnishing bonds for exports. A distinguishing feature of these bonds is that it has a guarantor who takes responsibility for the fulfillment of obligations on behalf of the person who has furnished the bond.
Who can use Letter of Undertaking (LUT) and Bonds for exports?
The facility of LUTs can be taken by any registered taxpayer who exports goods and services. However, it is very important to note here that any person who has faced prosecution for tax evasion amount to 2.5 crores and more is debarred from availing this facility. Such exporter will have to furnish a bond. Also to be noted is the fact that the validity of a LUT is for one financial year and you have to get a fresh LUT for next financial year i.e. an exporter has to furnish fresh LUT every year. Failure to meet the conditions specified within the given time frame will lead to revocation of privileges and under such circumstances, the exporter will be compelled to furnish a bond.
LUTs can be furnished and submitted online through the GST portal. The ways and means of doing it online is easily available on the Net. However, as far as bonds are concerned, they need to be furnished manually as the department requires a hardcopy of it.
Example of transactions for which permission to use LUT/Bonds is available
- Zero-rated supply to SEZ in which IGST is not paid
- Export of goods to a foreign country in which IGST is not paid
- Export of services to a foreign country in which IGST is not paid
What happens in an event of non-export of goods and services?
As per the specifications laid in Rule 96A of the CGST Rules,
An exporter will be compelled to pay taxes along with the requisite interest:
If the exporter fails to export the goods within three months of issuing the export invoice. Form GSTR-1 with details of invoices of export need to be filled to show that export has indeed taken place.
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