GST on Import of Goods and Services

Infographics showing impact of gst on imports

How Imports are treated under Current Tax Regime

In the current tax regime, the import of goods and services are taxable under Custom, Excise, and Services Tax Laws. Import duties such as Custom Duty, Countervailing duty (CVD equivalent to Excise Duty) and Special Additional duty (SAD equivalent to VAT) are levied on import of goods and Service Tax is levied on the import of services.

Current SystemTax LeviedProcedure and Payment of Tax
Import of GoodsCustom Duty, Countervailing duty (CVD equivalent to Excise Duty) and Special Additional duty (SAD equivalent to VAT)Importer is required to file the bill of entry for clearance of goods. The duties are payable on clearance of goods.
Import of ServicesService TaxService receiver is liable to pay service tax under reverse charge mechanism

Example: Rahul Ltd. in Jaipur imported a machine from Japan. The tax calculation under current tax regime is as follows:

ParticulartsAmount (Rs.)
Value of Machine (Converted to Indian Rupees)20,00,000
Custom Duty @10%2,00,000
Custom Education Cess @3% on Custom Duty6000
Cost of Machine After Custom Duty2206000
CVD @12.5% (on 2206000)275750
Sub Total2481750
SAD @4%99270
Total Cost of Machine2581020

Treatment of Imports Under Goods and Services Tax Law

Under the Goods and Services Tax Law, the import of goods or services are treated as “Inter-State Supply” and therefore IGST will be payable. Countervailing duty (CVD) and Special Additional Duty (SAD) will be replaced IGST and Custom duty will continue to be levied on imports of Goods.

ImportsMeaningTaxes Levied
Import of GoodsGoods bringing into India from a place outside IndiaBasic Custom Duty + IGST
Import of ServicesSupply of any service where: (1) provide is located outside India (2) Recipient is located in India (3) "Place of supply of service" is in IndiaIGST

Example: Mr. Bharat purchases machinery from China. The tax on imports under GST regime will be calculated as follow:

ParticulartsAmount (Rs.)
Value of Machine (Converted to Indian Rupees)20,00,000
Custom Duty @10%2,00,000
Custom Education Cess @3% on Custom Duty6000
Cost of Machine After Custom Duty2206000
*IGST @16% (on 2206000)352960
Total Cost 2558960
*Assuming IGST Rate @16% on Machinery

Import of Services – Basic Conditions

Any supply of services shall be considered as “import of services” if:

  1. Service provider is located outside India;
  2. Service recipient is located in India; and 
  3. “The place of supply of service” is in India. (The place of supply is to be determined in accordance with Section 13 of IGST Act)

Import of Services on or after appointed date – Transitional Provision

  • Import of services made on or after the appointed date shall be chargeable to tax under GST law even if the transaction was initiated before appointed date.
  • If the tax on import of services had been paid under the earlier law then no tax shall be paid under GST law.
  • If the tax on import of services had been paid in part under the earlier law then balance of tax shall be paid under GST law.

 

Import of Services received from Related Person Without Consideration 

“Supply” is the basic condition for charging GST and “consideration” is the essential part to constitute “supply”. But the Schedule-I of CGST Act describes the list of activities which shall be treated as “supply” even in the absence of “consideration”.

As per this schedule, services imported without consideration by the taxable person from a related person or from any of his establishment outside India in the course of business shall be treated as “supply”.

Example: If X Limited located in India receives services from its US branch or foreign subsidiary then these services will be taxable even if there is no consideration involved in the transaction.

Declaration of Imports in Return – GSTR-2

The import of goods are required to be declared in Table-5 of GSTR-2 and import of services is required to be declared in table-6 of GSTR-2

Read: Accounting Entries For Import of Goods or Services

Impact of GST on Imports and Importers

Valuation Based on Transaction Value

Under the GST law, the valuation is based transaction value and MRP based valuation is not there in GST. Therefore IGST will be payable on transaction value of all the goods and will affect the customs duty payment on goods which were covered under the earlier system of MRP valuation.

Credit of IGST will be Available

The input credit of IGST paid on import of goods or services will be available under the GST regime. Earlier the credit of CVD and SAD was not allowed to all the taxpayer. It will ensure the free flow of credit chain.

Changes in Foreign Trade Policy and Custom Rules

To align with GST, the Government may change Foreign Trade Policy and Custom Rule including different types of exemption notifications such as Advance Authorization,  EPCG, Duty Drawback, Duty credit scrips SEIS, MEIS etc.

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