Taxation laws have laid down the taxes applicable on import and export of goods and services. In the current tax regime, laws of Customs duty, Excise, Service Tax and VAT lay down the tax treatment of imports and exports. In the GST regime, Excise, Service Tax and VAT will be subsumed into GST and customs duty will continue to be levied separately. Let us understand the tax implication on imports and exports under GST in comparison to the current regime.

Current Regime

Import of goods

In the current regime, a person who imports goods has to pay customs duty, countervailing duty (CVD), and special additional duty (SAD). CVD is levied at a rate equivalent to the rate of Excise on such goods, if they had been manufactured in India. SAD is equivalent to VAT on the goods in India. CVD and SAD are imposed to bring the imported product’s price to its true market price in India. If the importer uses the imported goods to manufacture dutiable goods in India or provide taxable services, CVD paid on inputs is available as tax credit. If the importer is just a trader, CVD on imports is not available as credit. SAD paid on import is eligible for refund, subject to conditions. However, no credit is given on customs duty paid and it becomes a cost for the importer.

Let us see an example to understand the levy of import duties in case of import of goods in the current regime.

Example: Manoj Apparel in Bangalore, Karnataka purchases apparel from a supplier, Oz Designs, in Sydney, Australia.

Tax calculation

Particulars	Nos.	Price per no. (Rs.)	Amount(Rs.)
Women’s T-shirts	200	2,500 (51.68 AUD) *	5,00,000
Men’s T-shirts	100	5,000 (103.37 AUD) *	5,00,000
Total	300	–	10,00,000
Customs duty @ 10%	Â	Â	  1,00,000
Customs education cess @ 3% on customs duty (1,00,000*3%)	Â	Â	        3,000
Sub total	Â	Â	11, 03,000
CVD @ 12.5%	Â	Â	  1,37,875
Sub total	Â	Â	12,40,875
SAD @ 4%	Â	Â	     49,635
Total cost of import	Â	Â	12,90,510

* Exchange rate taken is 0.021 AUD = 1 Rupee

Import of services

A person who imports services has to pay Service Tax on the imported service at the Service tax rate applicable in India. The importer can claim tax credit of the Service Tax paid on imports.

For example: Rajesh Apparels in Hyderabad, Telengana, avails fashion designing services of Rs. 50,00,000 from Kaushi Designs in Colombo, Sri Lanka.

Tax calculation

Particulars	Amount (Rs.)
Fashion designing services	  50,00,000
Service Tax @14%	    7,00,000
Krishi Kalyan Cess @0.5%	       25,000
Swachh Bharat Cess @0.5%	       25,000
Total cost of import	 57,50,000

Exports

In the current regime, export of goods and services is zero rated, i.e. rate of tax on exports is 0%. An exporter can also claim refund of the tax paid on inputs used to manufacture/purchase/provide the exported goods or services.

GST Regime

Import of goods

In the GST regime, a person who imports goods has to pay customs duty and IGST. The difference here is that CVD and SAD levied on imports in the current regime will be replaced by IGST under GST. IGST will be levied at the rate applicable to the imported goods in India. An importer can claim full tax credit of IGST paid on imports. Hence, importers who were unable to claim credit of CVD or SAD in the current regime can now claim full tax credit of the IGST paid on imports. However, no tax credit will be given on customs duty paid and it remains a cost for the importer under GST also.

Let us take an example to understand the levy of import duties in case of import of goods in the GST regime.

Example: Manoj Apparel in Bangalore, Karnataka purchases apparel from a supplier, Oz Designs, in Sydney, Australia.

Tax calculation

Particulars	Nos.	Price per no. (Rs.)	Total Price (Rs.)
Women’s T-shirts	200	2,500    (51.68 AUD) *	  5,00,000
Men’s T-shirts	100	5,000    (103.37 AUD) *	  5,00,000
Total	300	–	10,00,000
Customs duty @ 10%	Â	Â	   1,00,000
Education cess @ 3% on customs duty (10,000*3%)	Â	Â	         3,000
Sub total	Â	Â	11,03,000
IGST @18% **	Â	Â	  1,98,540
Total cost of import	Â	Â	13,01,540

* Exchange rate taken is 0.021 AUD = 1 Rupee
**Assuming GST rate of 18% on apparel.

Import of Services

Under GST, a supply will be considered as an import of service when-

1. The supplier of the service is located outside India.
2. The recipient of the service is located in India and
3. The place of supply of the service is in India.

For example: Rajesh Apparels in Hyderabad, Telengana, avails fashion designing services of INR 50,00,000 from Kaushi Designs in Colombo, Sri Lanka

Location of supplier: Colombo, Sri Lanka

Location of recipient: Hyderabad, Telengana

Place of supply: Place of supply will be the location of the recipient, i.e. Hyderabad, Telengana.

Hence, this supply is an import.

Tax calculation

Particulars	Amount (Rs.)
Fashion designing services	  50,00,000
IGST @ 18%*	    9,00,000
Total cost of import	 59,00,000

* Assuming GST rate of 18% on fashion designing services

Exports

Under GST, exports will be zero rated, similar to the current regime. An exporter can also claim refund of the tax paid on inputs used to manufacture/purchase/provide the exported goods or services.

Export of services

Specific conditions have been laid down for a supply to be considered an export of service under GST. These are:

1. The supplier of the service is located in India.
2. The recipient of the service is located outside India.
3. The place of supply of the service is outside India
4. The payment for the service has been received by the supplier in convertible foreign exchange and
5. The supplier and recipient are not establishments of the same person.

For example: Rohan Consultants in Mumbai, Maharashtra, provides business consultancy services to Abey’s Engineering in Singapore. The payment for the service has been received in Singapore Dollars.

Here,

Location of supplier: Mumbai, Maharashtra

Location of recipient: Singapore

Place of supply: Place of supply will be the location of the recipient, i.e. Singapore.

Payment for the service: Payment for the service has been received in convertible foreign exchange, i.e. Singapore Dollars.

Relationship between the supplier and recipient: The supplier and recipient are distinct persons.

Hence, this supply qualifies as an export of service. Rate of tax on the supply will be 0%.

The levy of taxes and treatment of taxes in case of imports and exports largely remain the same under GST in comparison with the existing laws. In case of an importer, full input credit will be available on the IGST paid on imports and additional input credit will be available on the GST paid on all types of inputs used or intended to be used in the course of or for the furtherance of business. Similarly, in the case of an exporter, refund will be given on the tax paid on all inputs used in the course of business. Overall, costs of import and export are expected to reduce under GST and compliance is expected to become easier with the convergence of multiple tax laws into one law.

Accounts and records are the primary source of data for any organization’s financial reporting. Every law of Direct and Indirect Tax in our country also mandates that information in a prescribed manner has to be captured and preserved for a certain period of time. These accounts and records form the basis for returns filed by tax payers under each law.

Current regime

In the current indirect tax regime, every tax law mandates certain accounts and records of transactions to be maintained for a specific period of time, apart from the regular books of accounts.

Under Excise, the general records to be maintained are the RG-1 register (Daily stock account of excisable goods), Form IV register (Register of receipt or issue of raw material), invoice book and job work register

Under Service Tax, the suggested records include the bill register, receipt register, debit/credit notes register, CENVAT credit register, etc

Under VAT, the records to be maintained include purchase records, sales records, stock records, VAT account containing details of input and output tax, works contract account, etc

These records are required to be retained for at least 5 years from the end of the financial year in which they were effected.

GST regime

Under GST, the activities of manufacture, provision of taxable service and sale of goods will have a common law and hence, businesses can now maintain consolidated information which was maintained separately earlier.

Under GST, every registered taxable person is required to maintain correct accounts of the following details at the principal place of business specified in the registration certificate: –

1. Manufacture of goods
2. Inward and outward supply of goods and/or services
3. Stock of goods
4. Input tax credit availed
5. Output tax payable and paid

If more than one place of business is specified in the registration certificate, accounts relating to each place of business must be kept at the respective places.

Maintaining books and records in electronic form will be ideal and convenient for accurate and timely compliance under GST.

Persons whose turnover during the financial year exceeds Rs. 1 crore

In addition to maintaining the accounts specified above, a registered person whose turnover during the financial year exceeds Rs. 1 crore is required to,

• Get the accounts audited by a Chartered Accountant or Cost Accountant and
• Submit a copy of the audited annual accounts and a reconciliation statement in Form GSTR- 9B while filing the annual return in Form GSTR-9.

In the reconciliation statement, the Chartered Accountant or Cost Accountant is required to certify that the value of supplies declared in the annual return reconciles with the audited annual financial statement.

Persons owning or operating a warehouse or godown

An owner or operator of a warehouse or godown or any other place used for storage of goods, irrespective of whether he is registered or not, is required to maintain records of the consignor, consignee and other details which are yet to be prescribed in the law.

How long should accounts and records be retained?

Every registered person is required to retain accounts and records for 5 years from the due date of filing of annual return for the year to which the accounts and records pertain.

For example: For accounts and records pertaining to Financial Year ’17-’18, annual return must be filed by 31^st December ’18. These accounts and records must be retained till 31^st December ’23.