GST Requirements for International Service Sales

GST Requirements for International Service Sales
Rohit29 November 2023

It’s 2017. You’re creating an invoice for your software services to a client, and you add VAT/Sales tax before you complete the total. It seems straightforward, but is it really? 

Let’s understand how tax used to work before and after GST, how GST works for export businesses, GST Compliance and Export Services, input tax credit, and how to claim GST refunds.

Previous tax structure vs new tax structure

Under the previous regime, you would have charged a 15% service tax on services worth Rs. 75,000. Then, your output tax would be Rs. 11,250. But, if you purchased office supplies for Rs. 25,000 and paid 5% as VAT, the input tax would have been Rs. 1,250. 

However, you couldn't adjust the input VAT already paid on stationery from the output service tax. Consequently, the total tax outflow would have been Rs. 12,500.

But, after the GST implementation, you would charge 18% GST on services worth Rs. 75,000, which amounts to Rs. 13,500. Subtracting the GST on office supplies (Rs. 25,000 x 18%) equals Rs. 4,500. Your net GST liability would be Rs. 9,000.

Previous tax structure vs new tax structure

The introduction and implementation of the Goods and Services Tax (GST) eliminated the previous cascading effect of “tax on tax” created by several other indirect taxes in India, including excise duty, VAT, and services tax. 

It made the lives of CAs easier, and it was easier for an aspiring entrepreneur to follow their dream and start a business without the nightmare of multiple tax filings.

Four GST types exist–

  • Central Goods and Services Tax (CGST)
  • State Goods and Services Tax (SGST)
  • Integrated Goods and Services Tax (IGST)
  • Union Territory Goods and Services Tax (UTGST)

Each type imposes different tax rates on the buyer's end. 

Filing these GST returns requires a business to register through the GST portal. Once the registration is complete, you get a GSTIN, a unique 15-digit identification number assigned to registered taxpayers under the GST regime in India. It plays a crucial role in tracking transactions and ensuring tax compliance. It further enables the government to monitor the movement of goods nationwide and verify business tax payments. 

Understanding GSTIN Registration for Export Businesses 

A business’s GSTIN registration is subject to certain thresholds and exemptions, particularly if its turnover exceeds in the following cases.

  • Rs. 40 lacs or higher for the manufacturing sector
  • Rs. 20 lacs or higher for the services sector
  • Rs. 10 lacs or more for particular category states

A GSTIN also allows businesses to claim input tax credits on their purchases, reducing their overall tax liability. 

This identification number needed for GST and for your business also requires filing periodic returns, which may vary based on the nature of your business and its turnover. These returns include details of sales, purchases, input tax credits, and output tax liabilities. The frequency of filing returns can range from monthly to quarterly or annually, depending on the turnover threshold.

You can file these tax returns through the GST portal, the official government platform for GST-related activities. You must file these returns within the specified due dates to avoid penalties or late fees.

Recently, the government of India also announced a new threshold for e-invoicing, requiring businesses with an annual turnover of over Rs. 5 crores to adopt the e-invoicing system. This system requires companies to generate invoices in a standard electronic format and upload them to a central portal.

Skydo E-invoice SampleE-invoice Template Sample

Considering the volume of transactions involved in a business with such a considerable turnover, the e-invoicing system aims to reduce errors, increase accuracy and efficiency, provide real-time validation, improve cash flow management, and enhance tax administration.

However, as a business providing your services abroad, how do you navigate this tax, and does it apply to the services you provide worldwide? Let’s find out.

Treatment of GST for exports

Under the GST regime, export services are  considered "zero-rated supplies'', meaning  a supplier can supply without payment of GST if they have submitted the LUT or with payment of GST and then get a refund once the goods are exported. 

However, to claim refunds on the taxes paid on their inputs, they must register for GSTIN. Additionally, GSTIN registration provides several benefits for export service businesses, including having access to input tax credits.

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