Import of Goods or Services – Availability of GST Credit and How Much?

What is considered Import of Goods and Services under GST ?

Bringing goods into India from abroad is defined as an import of products under the IGST (Integrated Goods and Services) Act, 2017. All imports are therefore regarded as interstate supplies. All imports will be subject to IGST, in addition to any relevant customs charges.

Import of Service is defined as whereby the location of the supplier is outside India, the recipient of the service is located in India and the place of supply of service is in India. In this article, we shall go into great detail about the import of goods and services subject to GST.

LEVY OF IGST ON IMPORT OF GOODS and SERVICES

According to Article 269A of the GST regime, if goods or services are imported into India, they would be deemed to be supplied under interstate commerce or trade and will be subject to integrated tax. For example, if a good imported into the nation has an assessable value of Rs. 500, the basic customs duty is 10%, and the integrated tax rate is 18%, the taxes will be calculated as follows:

Assessable Value = Rs. 500

Basic Customs Duty = Rs. 50

Value for the levy of IGST = Rs. 500 + Rs. 50 = Rs. 550

Integrated Tax = 18% of Rs. 550 = Rs.99

Overall Taxes = Rs. 50 + Rs.99 = Rs. 149

Under the GST regime, goods may also be subject to an GST Compensation Cess in addition to existing taxes. This cess will be gathered based on the value selected for the integrated tax levy. The GST cess in the example above will be charged Rs. 550.

Import of Services

When a service is provided by an outside supplier to a company that has an Indian base of operations and the location of the service provider is within India’s borders, this is referred to as the import of services.

According to Section 7(1)(b) of the Central Goods and Services Tax Act, 2017, services that are imported with consideration are considered supplies, regardless of whether they are used for ongoing or regular commercial operations.

Furthermore, as per Section 25 of the Central Goods and Services Tax Act, 2017, services imported by registered taxable individuals from relatives or distinct individuals in the course of their business will be deemed a supply, irrespective of whether they were made without consideration. These provisions are found in Schedule I of the Central Goods and Services Tax Act, 2017.

Input Tax Credit

A registered importer may claim an input tax credit under the GST regime by using the IGST and GST Compensation Cess that was assessed on their import of goods. The input tax credit may be used by the importer to pay output tax liability of CGST, SGST, and IGST,. Before transferring it to the other parties in the supply chain, the importer can additionally claim the GST Compensation Cess in addition to the IGST input tax credit. However, the importer will not be eligible to get the basic customs duty credit. In any event, the importer must compelfully include the GSTIN (GST Registration Number) in the Bill of Entry to receive the input tax credit for the GST Compensation Cess and IGST.

Having GST Registration and IEC Code are prerequisites for claiming GST credit.

Since the basis for the availability of input tax credit is the GSTIN reported in the Bill of Entry, registered individuals are only eligible to claim input tax credit to the extent available in GSTR 2B, which includes all pertinent information as required and all applicable details as specified in the Invoice Rules. Input Tax Credit will be limited to the extent of input available under the tab “ Import of Goods/ services from overseas as per Bill of Entry” . This section would get auto populated from the ICE Gate Portal.

EXAMPLES ON CALCULATION OF IGST ON IMPORT OF GOODS AND SERVICES

EXAMPLE 1

If a commodity is subject to IGST but not countervailing duty, and its assessable value, including landing charges, is Rs. 500, then the duty calculation is as follows: IGST is levied at 12%, Basic Customs Duty is levied at 10%, Education Cess is levied at 2%, and Higher Education Cess is levied at 1%.

BCD = 10% of the assessable value (10% of Rs. 500) = Rs. 50.

Education Cess = 2% of BCD (2% of Rs. 50) = Re. 1

Higher Education Cess = 1% of BCD (1% OF Rs. 50) = Rs. 0.50

IGST = 12% of (Assessable Value + BCD + Education Cess + Higher Education Cess) = Rs. 66.18.

EXAMPLE 2

When a good is subject to IGST and Compensation Cess but does not attract Countervailing Duty, the duty calculation is as follows: if the good’s assessable value, including landing charges, is Rs. 500, the IGST is levied at 12%, Basic Customs Duty is levied at 10%, Education Cess is levied at 2%, Higher Education Cess is levied at 1%, and Compensation Cess is levied at 10%.

BCD = 10% of the assessable value (10% of Rs. 500) = Rs. 50.

Education Cess = 2% of BCD (2% of Rs. 50) = Re. 1

Higher Education Cess = 1% of BCD (1% OF Rs. 50) = Rs. 0.50

IGST = 12% of (Assessable Value + BCD + Education Cess + Higher Education Cess) = Rs. 66.18.

Compensation Cess = 10% of (Assessable Value + BCD + Education Cess + Higher Education Cess) = Rs. 55.15

EXAMPLE 3

If a good is subject to both IGST and Countervailing Duty and its assessable value, inclusive of landing charges, is Rs. 500, the duty calculation will be: IGST is levied at 28%, Basic Customs Duty is levied at 10%, Countervailing Duty is levied at 12%, Education Cess is levied at 2%, and Higher Education Cess is levied at 1%.

BCD = 10% of the assessable value (10% of Rs.500) = Rs.50

Countervailing Duty = 12% of (Assessable Value + BCD) = Rs. 66

Education Cess = 2% of (BCD + Countervailing Duty) = Rs.2.32

Higher Education Cess = 1% of (BCD + Countervailing Duty) = Rs.1.16

IGST = 28% of (Assessable Value + BCD + Countervailing Duty + Education Cess + Higher Education Cess) = Rs.173.45

EXAMPLE 4

If a commodity is subject to Countervailing Duty, IGST, and Compensation Cess and its Assessable Value, including landing charges, is Rs. 500, the following duties will be applied: 28% for IGST, 10% for Basic Customs Duty, 12% for Countervailing Duty, 2% for Education Cess, 1% for Higher Education Cess, and 10% for Compensation Cess.

BCD = 10% of Assessable Value (10% of Rs.500) = Rs.50

Countervailing Duty = 12% of (Assessable Value + BCD) = Rs.66

Education Cess = 2% of (BCD + Countervailing Duty) = Rs.2.32

Higher Education Cess = 1% of (BCD + Countervailing Duty) = Rs.1.16

IGST = 28% of (Assessable Value + BCD + Countervailing Duty + Education Cess + Higher Education Cess) = Rs. 173.45

Compensation Cess = 10% of (Assessable Value + BCD + Countervailing Duty + Education Cess + Higher Education Cess) = Rs. 61.95

Importance of GST in Import Framework

Importing products and services has a significant impact on global trade and business, influencing the state of national economies. The importation of goods and services assumes a varied role that goes well beyond the straightforward act of bringing foreign products into a country within the framework of the Goods and Services Tax (GST).

The GST era has brought about a fundamental change in the way the tax system views and handles imported goods and services. Because the GST sees the importation of goods and services as a supply event in and of itself, unlike prior tax regimes, its effects must be carefully considered. This change in viewpoint emphasises how important it is to comprehend and handle import-related tax requirements well.

The important thing to remember is that the tax liability calculation is based on the import value of goods or services. This calculating process demonstrates the flexibility of the GST system in handling the intricacies of contemporary international trade, in addition to its sophistication. Because tariffs and levies are imposed in accordance with the economic value of the imported products and services, the value-based tax method guarantees a just and equitable taxing system.

Outside of the tax debate, the GST on imports is essential for defending the interests of home businesses. It serves as an essential tool for local producers and service providers to keep their competitive edge. The government can level the playing field and remove unfair benefits that foreign products can enjoy due to tax discrepancies by imposing a Goods and Services Tax (GST) on imports. This safeguard is essential for supporting homegrown businesses, encouraging creativity, and maintaining job possibilities.

The nation’s finances are greatly strengthened by the money collected from import taxes (GST), which allows the government to finance social welfare initiatives, infrastructure improvements, and other necessities.

Conclusion

To put it succinctly, managing the GST on imports in India necessitates a thorough understanding of the legislative framework, tax laws, and most current modifications. The Indian Constitution’s Article 269A highlights the need to adhere to customs legislation, including the IGST Act, the Customs and Tariff Act of 1975, and the Customs Act of 1962.

Essentially, taxpayers that utilize the GST on imports can lower the taxes on their products and streamline their daily operations. To fully benefit from the GST system, one must adopt a calculated approach, maintain meticulous records, stay up to date on legislative changes, and navigate this challenging environment. Given the government’s endeavors to cultivate a more business-friendly environment, importers stand to benefit from being informed and capable of adapting to the evolving import GST landscape. All of this requires professional expertise and we at A K Y V and CO LLP have a team of experts to ensure maximum Input Tax Optimization to ensure downsizing your output tax liabilities within the purview of law.