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Export to Nepal and Bhutan under GST

Exports are treated as zero-rated supplies under the GST regime. By making exports zero-rated means that the entire export chain is tax-free. This means there is no need to pay tax either on inward supply or outward supply. Not only that also there is no restriction in GST on claiming credit of taxes paid on input which used for providing such supply.

Further, if GST is required to be paid on the exports at any point in time then a refund of the same can be claimed later or goods can be exported under bond/LUT without paying tax.

India has rupee trade with Nepal and Bhutan. The RBI regulations allow receipt of payment in Indian rupees in case of exports to Nepal and Bhutan. Thus, the question arises whether exports to Nepal & Bhutan will be eligible for benefits of zero-rated supply. Let's analyze.

Export of goods to Nepal or Bhutan

As per section 2(5) of IGST Act, 2017, "Export of goods means taking goods out of India to a place outside India". 

Export of goods to Nepal or Bhutan falls within the definition of ‘export of goods’ as goods are taken from India to a place outside India. Moreover, receipt of export proceeds in convertible foreign exchange is not a prerequisite for the export of goods. Hence, export of goods to Nepal and Bhutan will be treated as zero rated and consequently will also qualify for all the benefits available to zero rated supplies under the GST regime.

Note, non-realization of export proceeds within the time prescribed under FEMA may result in recovery of any refund paid to the taxpayer.

Export of services to Nepal or Bhutan

“Export of services” is defined under section 2(6) of the IGST Act, 2017. The same is reproduced as under:

“Export of services” means the supply of any service when, –

The supplier of service is located in India;

The recipient of service is located outside India;

The place of service is outside India;

The payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by RBI, and

The supplier of service and the recipient of service are not merely establishments of a distinct person. if place of supply is out of India:

In case of export of services, wherever permitted by the Reserve Bank of India, receipt of payment in Indian rupees is allowed in terms above definition. As discussed earlier, the RBI regulations allow receipt of payment in Indian rupees in case of exports to Nepal and Bhutan.

Consequently, supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees is considered as export of services subject to fulfillment of other conditions.

Therefore, exports of both goods and services to Nepal and Bhutan are treated as ‘normal exports’, i.e. goods and services can be exported to Nepal and Bhutan under LUT.


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Anand Singh

Anand Singh