Exports are important for a country’s economy and GDP(Gross Domestic Product). This is why the government of India treats exports as zero-rated supplies under the goods and services tax (GST) export rules, meaning the GST on these supplies is zero. Exporters can claim input tax credits (ITC) based on the taxes that they paid on the raw materials/production of the particular export.
Exporters can claim input tax credits (ITC) based on the taxes that they paid on the raw materials/production of the particular export. In this blog, we will understand what Zero-rated GST in India is and the ITC refund process.
A zero-rated supply under GST refers to the output (exported goods or services) that is taxed at a 0% rate. However, unlike exempted supplies, the exporters can claim input tax credit (ITC) on the taxes they have paid on raw materials needed to make the zero-rated supply. Here’s what’s considered zero-rated supplies under Section 16 of the IGST Act:
Zero-rated GST in India on exports ensures that there is no incidence of tax either at the point of production or at the supply point. This is why GST is not paid on goods exported and can even be refunded for GST incurred on input services or raw materials.
If you’re exporting goods abroad or supplying to an SEZ, your supply qualifies as zero-rated. The GST export rules aim to promote exports by ensuring taxes do not inflate export prices. This helps Indian products stay competitive internationally.
According to the GST export rules, all goods or services that are sent or supplied to another country outside India are considered exports. These are always treated as inter-state supplies, which means Integrated Goods and Services Tax (IGST) is charged on exports. However, the exporters do not pay the tax on these supplies and can apply for an IGST refund export.
Here are some of the main refund options for exporters in India
1. Refund of IGST Paid on Exports
Under this system, exporters pay IGST on their export bills when supplying products. The paid IGST is refundable to the exporter once the goods are exported and shipping bills are filed. The GST portal and customs portal are integrated. Hence, when your export manifests and GST return match, you get a refund directly without even filing a form.
2. Refund of Unutilised ITC (Without Payment of IGST)
Exporters have an additional option not to pay IGST at all. However, for this, you need to file a Letter of Undertaking (LUT) before exporting products in a year. If you file a LUT and then export products, you can claim a refund of the unutilized ITC. This is the most suitable option for businesses that do not want to pay tax in the first place.
Both of these options make exports tax-free during the entire process, which fulfils the main goal of zero-rated GST in India.
Here are the steps you can follow for claiming a GST refund on exports:
For Exports where IGST Has Been Paid
For Exports on Payment of IGST (Under LUT)
In export refund GST procedures, exporters are also eligible to claim a provisional refund of 90% of the claimed amount within 7 days, and the remaining 10% after verification of documents.
Here is a list of documents you need to apply for the Export refund GST:
For Export of Goods:
For Export of Services
For Supply to SEZ
Exporters are one of the most important elements of foreign trade, and the GST system favours them with zero-rated GST in India. The system keeps goods or services for foreign trade tax-free to promote exports and encourage foreign exchange earnings. Whether you pay IGST and get a refund or submit a letter of undertaking, both procedures ensure that no GST cost is levied on your exported services or goods.
Although exports are zero-rated, the already paid IGST can lead to cash flow issues. If you are struggling to maintain cash flow, apply for a business loan with DMI Finance. You can get up to ₹25 lakh without providing any collateral.
1. What does zero-rated supply mean under GST?
Zero-rated supply means exports or supplies that are taxed at 0%, and exporters can claim input tax credit for GST paid on raw materials/production/ inter-state travel.
2. What are the options available for exporters under GST?
Exporters can either pay IGST and later claim an IGST refund export, or export under LUT without paying IGST.
3. Do I need to file a refund application for goods exported with IGST payment?
No, the shipping bill itself is treated as a refund application once your export manifest and GST returns are filed.
4. What is a Letter of Undertaking (LUT)?
An LUT is a declaration exporters submit to the GST department to export goods or services without paying IGST upfront.
5. Can I export without paying GST?
Yes, by filing an LUT or bond, you can export goods or services without paying IGST and later claim a refund for input tax credits.
6. How long does it take to receive the refund?
Usually, 90% of the refund is issued provisionally within 7 days, and the rest after document verification.
7. Is GST registration required to export goods?
Yes, GST registration is mandatory to claim input tax credit and apply for export-related refunds under the GST export rules.
8. What documents are needed to claim a refund for the export of services?
You’ll need export invoices, GSTR filings, and proof of foreign remittance like BRC or FIRC.
9. Can SEZ suppliers also claim GST refunds?
Yes, suppliers to SEZ units can claim a refund of IGST paid or a refund of unutilized ITC, just like exporters.
10. What happens if the refund is delayed?
If the refund is delayed beyond the prescribed time, the taxpayer is eligible for interest on the refund amount as per the GST law.
