How to Calculate GST rates for Import Export Business?

How to Calculate GST rates for Import Export Business?

Meaning

An import export business is a corporation wherein the goods are exchanged from one country for sale in another country and vice versa.

Import Export business license

In the U.S, the U.S Customs and Border Protection does not require a license for the purpose of export of goods from the U.S or to import goods to the U.S.

Types of import/export business

The Import/Export business is briefly divided into three kinds:

  • Export management company

An export management company provides support if a company in India wants to export goods to another country.

  • Import/export merchant

A merchant involved in import/export, also known as a free agent, buys merchandise from a producer of goods (both domestic and foreign) and resells It everywhere.

  • Export trading company

The purpose of an export trading company is to understand what the foreign buyers need, then find out what companies in the domestic country are selling it for the purpose of exporting them.

Start-up costs in the business

 In the initial stages of an import/export business, the cost can be minimal because unlike any other business that requires a stock of goods prior to selling, a warehouse, an office space, this type of business does not require to incur any of these costs.

Starting an import /export business in India

 The steps in the import /export business are:

  • Get a PAN card

 It is important to get a PAN card from the Income Tax Department and get registered before starting an export business.

  • Choose the type of business

The next step in the process is to select and register the type of company. The individuals or partners can choose from among Private Company, Public Company, Partnership firm or a Sole Proprietorship if he decides to start the business without any partner.

  • Company Registration

After selecting the type of business, the individual or the partners need to name the company and register it. The company is registered, based on the type selected.

  • Open A Current Account

A current account is a bank account specifically for the business persons. An account is necessary for all the smooth financial transactions

  • Get the IEC Code

An import Export Code is a unique 10-digit identification number provided by the Government of India’s Directorate General of Foreign Trade – Ministry of Commerce and Industries. An IEC code helps in the

 

  • Picking the right export product 

The product that fits your business plan is a must. Good market research, latest trends in the international market and the rules, regulations in that country are certain ways an individual can decide about the product he wants to engage in.

 

  • Choosing the right export market

The right product needs to reach the right consumers and the right way to do that is to reach the right market. After a good understanding of the market, the product should be sold in that market.

  • Shipping of the products 

Shipping the products intact at the accurate location and without any damage is very important.

 

Charges on the Import/Export

The import /export business charges are based on the commission:

  • Commission

In this case, the individual is paid a commission on the amount that he sells the product for.

  • Retainer model

Under this model, a monthly fee is paid to be available whenever the services are needed.

  • Alternative model

This model is the simplest. The individual who is involved in the buying and selling of the goods gets all the profit he earns from the selling.

Documents required 

  • Pan card
  • Firm Registration
  • Presence of a Current Bank Account
  • An Import Export Code (IEC)
  • Hiring an e-commerce shipping company

Federation of Indian Export Organization (FIEO)

 

FIEO was set up in 1965 with the purpose of the promotion of exports by providing services that include Export Promotion Councils, Commodity Boards, Chambers of Commerce, Trading Houses and many more.

Goods and Services Tax on the export/import

 

The supplies are categorized by GST as –

  • Interstate
  • Intrastate

All the imports into India are considered inter-state supplies which means they fall under IGST and hence the rates of IGST will be applied to the imports in addition to the duties.

GST will be charged on the individual receiving the service in case the service provider resides outside India.

 

Section 5 (1) of the IGST Act mentions the conditions under which IGST is applicable.

Taxes payable are calculated as –

Value of Imported Goods

 +

Basic Customs Duty

+

IGST Payable (Value of Imported Goods+ Basic Customs Duty*IGST Rate)

+

GST Cess Payable (Value of Imported Goods+ Basic Customs Duty * GST Cess Rate)

+

Any Other Duty Chargeable on the Goods

On the export of goods and services-

The exports on the goods and services are declared zero-rated supplies under GST, which means that the GST rates will not be applied to any kind of export of goods or services.

Ways to make zero-rated supplies

 

The exporters do not have to pay any tax, but they are provided with 2 options while exporting –

  • Without paying any IGST, they can send goods to other countries by issuing a bond or a Letter of Undertaking (LUT)

Section 96 A mentions the provisions for the exporters who choose to opt for this option. The exporters can file for LUT or bond in form GST RFD – 11 to the jurisdictional Commissioner. The validity of LUT is one financial year after the date when it is issued.

  • They can choose to pay IGST which can be claimed later

The amount paid by them can be refunded later in a lot of ways:

The exporters can claim the refund of Input Tax Credit (ITC) on the inputs that were used to produce goods. They can claim a refund on the IGST that they pay.

Ways to pay IGST 

  • Utilizing ITC available against IGST on inputs.
  • Utilizing ITC available against the SGST that is paid on inputs.
  • Paying the remaining IGST by cash.

As per Section 147 of the CGST Act, 2017, supplies are considered deemed exports if

  • They are produced in India or if they are not exported.
  • Payment of such supplies is received in Indian rupees.

Export-Import Code(EIC) Requirements

It is a necessity in the following kinds of situations –

  • When an importer wants his shipments from the customs.
  • When the importer wants to send mo mandatory ney through a bank
  • When an exporter has to send goods outside the country
  • When the exporter receives money in the foreign currency in his bank account.

GST Registration is compulsory for all the importers and exporters so that the export and import of goods take place in an efficient manner.

The importers need PAN and an Import-Export code (EIC), also for the purpose of filling Bill of Entry, GSTIN (GST Identification Number) as IGST is supposed to be paid and Input Tax Credit will be claimed only on the IGST paid. Thus, if they fail to register under GST, ITC will not be applicable.

As mentioned previously, the exports are subject to NO GST, but they need to provide all the shipping bills detail to receive a refund under GST for which they need to file GST Returns.

Thus, GST Registration is mandatory in both cases.

Import / Export Facts

India’s top 10 exports

According to worldstopexports.com, India’s top 10 exports in 2018 included:

  • Mineral fuels including oil: US$48.3 billion (14.9% of total exports)
  • Gems, precious metals: $40.1 billion (12.4%)
  • Machinery including computers: $20.4 billion (6.3%)
  • Vehicles: $18.2 billion (5.6%)
  • Organic chemicals: $17.7 billion (5.5%)
  • Pharmaceuticals: $14.3 billion (4.4%)
  • Electrical machinery, equipment: $11.8 billion (3.6%)
  • Iron, steel: $10 billion (3.1%)
  • Cotton: $8.1 billion (2.5%)
  • Clothing, accessories (not knit or crochet): $8.1 billion (2.5%)

India’s top 10 imports

According to worldstopexports.com, India’s top 10 imports in 2018 included:

  • Mineral fuels including oil: US$168.6 billion (33.2% of total imports)
  • Gems, precious metals: $65 billion (12.8%)
  • Electrical machinery, equipment: $52.4 billion (10.3%)
  • Machinery including computers: $43.2 billion (8.5%)
  • Organic chemicals: $22.6 billion (4.4%)
  • Plastics, plastic articles: $15.2 billion (3%)
  • Iron, steel: $12 billion (2.4%)
  • Animal/vegetable fats, oils, waxes: $10.2 billion (2%)
  • Optical, technical, medical apparatus: $9.5 billion (1.9%)
  • Inorganic chemicals: $7.3 billion (1.4%)

Conclusion

If the individuals involved in the Import / Export business want to enjoy the GST benefits, they need to register themselves. Registering under GST is not only an obligation, but it is also for their own advantage.