Proposed changes could make refunds available to exporters on taxes paid on capital goods, while simplifying rules for export eligibility and payment timelines
Exporters in India are set to benefit from changes to goods and services tax (GST) refund rules, with the GST Council recommending refunds on taxes paid on plant and machinery used by businesses. The recommendations also address restrictions on services exports and clarify the conditions under which transactions qualify as exports.
According to a note on the outcomes of the GST Council meeting, four conditions that had restricted export benefits have been eased. The changes include resolving restrictions on refunds in favour of exporters and automating the refund process.
Around 38,700 taxpayers claim refunds on exports, of which approximately 13,100 have tax paid on plant and machinery that could not be recovered until now, according to the note.
Among businesses claiming refunds under the inverted duty structure, around 15,200 carry tax on plant and machinery, while approximately 17,300 carry tax paid on input services.
Refund Benefits for Exporters
The refund benefit for exporters will be spread over five years. Exporters claiming duty drawback will also be eligible for GST refunds, while a cap linking the refund claim to the price of the product sold in the market has been removed.
The changes are intended to expand the pool of recoverable taxes and ease the process for businesses seeking export-related refunds.
Export Eligibility Rules to Be Simplified
Under the existing rules, an export required the supplier and recipient establishments not to be the same person. This meant transactions involving an Indian company and its overseas branch could fail to qualify as exports.
The GST Council has recommended removing this condition. For services supplied from India, the place-of-supply rules had previously treated the service as being supplied where the work was performed. Under the revised approach, the location of the customer will determine the place of supply, according to the note.
Transactions involving goods sold to a foreign buyer but delivered, at the buyer’s instruction, to a Special Economic Zone (SEZ) for storage or processing will now qualify as exports.
Clarification on Export Payment Conditions
The fourth change clarifies when export payment is considered to have been received and the time limit for receiving it. The rule will be aligned with the Reserve Bank of India’s (RBI) framework, providing exporters with a single standard to follow.
The recommendations seek to reduce uncertainty around export eligibility, refund claims and payment compliance.
NASSCOM Flags Concerns Over Services Exports
Separately, the IT industry body NASSCOM said the GST Council’s recommendations on overseas branches and research and development (R&D) services address longstanding concerns affecting services exports.
The organisation said the changes should reduce tax uncertainty, litigation and unnecessary working capital costs for Indian companies serving international clients through overseas branch networks.
Ahead of the meeting, NASSCOM had also raised concerns over the GST treatment of head-office-to-branch-office transactions, describing it as a persistent source of litigation.
The recommendations could provide greater clarity for exporters across goods and services, although implementation details will determine how businesses access the proposed benefits.