Export of Service

[Kaustubh Karandikar]

XYZ (India) providing consulting, support and software development services to PQR parent company (Denmark). This work will be paid as a fixed fee subject to a certain number of man-hours per month being provided. All these are performed in India and provided to PQR in Denmark. The server is located in Denmark. Is XYZ required to pay GST on it?

[Venkataprasad Pasupuleti]

No as it would be export of services.

They can claim refund of ITC under GST & also seis benefits under FTP.

[YAGAY and SUN]

Under the provisions of IGST Act, export of goods refers to taking goods from India to a place outside India. Export of services is a more nuanced definition – it refers to a supply of services where the supplier is in India and recipient is outside India, and:

1. Place of supply of service is outside India;
2. Payment for such service is received in convertible foreign exchange and;
3. Supplier and recipient of services are distinct persons.

Under Section 16 of the IGST Act, GST is not applicable in India on exports. Hence, all export supplies of a taxpayer registered under GST would be classified as "zero rated supply". According to Section 16, Zero Rated Supply is an exempted supply but Input Tax Credit (ITC) would be available on such supply. In effect this means a negative GST or a GST refund.

A person making a Zero Rated Supply can opt for one of the following two options, as per Section 16(3) of the IGST Act:-

1. Supply goods or services (or both) under a bond or Letter of Undertaking (LUT) without payment of IGST and claim refund of unutilized ITC, or
2. Supply goods or services (or both) on payment of IGST and claim GST refunds of such tax paid

[YAGAY and SUN]

Every claim should be filed within expiry of 2 years from the relevant date of exports. For service exporters, the relevant date is either:

The date of completion of services, or

The date of receipt of advance, in cases the advance is received prior to the date of issue of the invoice.

Typically, therefore, if a service exporter receives advances, it is beneficial to him to apply at that stage itself.

[YAGAY and SUN]

Furthre depending on the clauses of chapter 3 of the FTP read with chapter 3 of HBP Vol.1, you can also apply for SEIS subject fulfillment of cerntain condition as mentioned in these chapters.

AI Summary

Export of services as zero-rated supply permits LUT or IGST payment with refund and recovery of input tax credit.
Supply of services from India to a recipient outside India whose place of supply is outside India and paid in convertible foreign exchange is treated as a zero rated supply, exempt from GST but eligible for Input Tax Credit recovery. Exporters can either use a bond/LUT to export without paying IGST and claim refund of unutilized ITC, or pay IGST and seek refund of that tax. Refund claims must be filed within two years from the relevant date for exports, defined by completion of services or receipt of advance when applicable. SEIS benefits may also be available subject to FTP conditions.