As an importer, knowing how GST affects your incoming cargo is crucial to your bottom line. Knowing the ins and outs of GST and how it affects your product price is crucial for running a successful import business. This article will help you understand GST on Imported Goods in India.
What is GST?
On July 1, 2017, a new destination-based tax known as goods and services tax (GST) replaced a number of older indirect taxes like excise duty, value-added tax (VAT), service tax, and others. For simpler indirect taxation and less bureaucracy, GST was implemented.
Since its inception, it has decreased trade transaction delays, which were prevalent in the pre-GST regime, and lessened importers’ tax burden by replacing most of the prior taxes with a single tax. In addition, the GST paid at the time of import can be used as a credit against the GST due at the time of sale. The result has been a rise in domestic and international commerce.
Understand more about GST at: GST Registration PDF.
Know about GST on Import in India
Bringing foreign-made items into India is considered an import under the GST Act. Because of this, the GST Act treats all goods entering India from outside as inter-state transactions subject to IGST. The import would incur Customs Duties in addition to the IGST. Therefore, IGST would be added to the price of imported products and collected alongside Customs Duty when they enter India. In preparation for the GST implementation, the Customs Tariff Act of 1975 was changed to permit the imposition of integrated tax and the compensatory cess on imported goods.
In addition to the Basic Customs Duty, the Goods and Services Tax (Compensation to States) Cess Act, 2017 also imposes a cess on some luxury and demerit goods imported into the country.
Calculation of GST on Imported Goods in India
The complete amount of a commodity, including any customs duties paid, is subject to GST. As an example, assume that the normal customs duty rate in India is 10%, and that the IGST tax rate is 18%, and that the assessable value of goods imported into India is Rs.100. The IGST for the importer is Rs. 29.80, based on the value of Rs. 100 + Rs. 10. Products have been classified using HSN (Harmonized System of Nomenclature) codes under the Goods and Services Tax (GST) system. Consequently, the item’s classification for calculating Customs Duty and IGST are made consistent. Know about HSN Code in detail at: List of HSN Code with Tax Rates.
Important Points of Paying GST on Imported Goods in India
- Payment of Customs Duty and the Integrated GST tax due is required prior to goods leaving a customs station under The Customs Act, 1962. For this reason, the Integrated tax is due when products are transferred from a customs station to a warehouse.
- The GST Act makes the importer of the products accountable for the collection and payments of GST. In accordance with the Indian Customs Act, all importers are required to pay GST and do GST Return Filing.The new owner is responsible for paying the customs charges and IGST if the importer sells the items before they enter Indian customs (high sea sales).
- Under the GST Act, businesses can claim a credit for taxes paid on purchases made from other businesses, known as a “input tax credit” (ITC). Goods imported from other countries are also subject to this rule. Importer’s credit allows you to offset the GST amount you paid on imports from the GST amount you pay when selling imported goods.
- ITC can also be used for GST Compensation Cess on goods that are under the onward sales. Accordingly, if an importer has paid the cess on his imported products and his buyers pay it to him on purchase of those goods, he can equalize the two amounts in the same way.
- The Basic Customs Duty (BCD) paid by an importer is not eligible for input tax credit, even though it is applicable for the IGST paid.
Exempted Goods for Import under GST
- Merchandise imported by a company operating in a SEZ
- Supplies for the Indian Defense and police
- Institutionalized Research Tools
- Things of a technical or scientific nature, such as instruments and accessories.
- Products from Nepal and Bhutan
In conclusion, understanding about GST on imported goods is important for businesses. Hence, you must keep in mind the above information and if you have any other doubts, you can consult our GST Experts at: 8881-069-069.
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