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Bloggers: Pay GST on Export income or file LUT/Bond with the GST Tax Department

By Paras Mehra

( 6.66K Views) July 31, 2017

Bloggers: Pay GST on Export income or file LUT/ Bond to Department

1.0 Introduction

You may be surprised by reading the title of this article but this is what the GST law is on exports. Under GST, irrespective of whether you are exporting goods or services, there are only two ways possible to export under GST which are as follows:

Export of goods/services by charging GST
Export of Goods/services without charging GST

Let us understand both the cases briefly.

2.0 Export of goods/services by charging GST

Under this way, export of goods and services can be made on after charging IGST on the export invoice value. Further, later on the total tax paid can be claimed as a refund by filing form GST RFD – 01.

As per government rules, the 90% refund shall be released within 7 working days.

3.0 Export of goods/services without charging GST

In this case, if the exporter of goods or services wants to export without charging GST then he shall need to file a letter of undertaking (LUT) or a bond to the GST department. Once the bond or LUT is accepted by the department, then the exporter can export goods or services without charging GST.

4.0 What constitutes Export of services (in case of bloggers?)

First of all, there are no separate rules of each type of services. As per the IGST act, export of services means the supply of any service when:

The supplier of service is located in India
The recipient of services is located outside India
The place of supply of service is outside India
The payment for such service has been received by the supplier of service in foreign exchange;
Not very relevant for this discussion.

If all the above conditions are satisfied then only the services are treated as export services.

5.0 Whether receipt through PAYPAL considered as proper receipt for export of services?

From all the above conditions, one condition which is most debatable is the last condition which mandates the service provider to receive the foreign exchange. Further it becomes more complicated when blogger receives the foreign currency through PayPal account. Paypal account can be maintained in Paypal India or Paypal US. Once the amount is received PayPal, the PayPal converts the same into INR and credit it to the bloggers Indian bank account.

The most important question is whether amount received by the blogger in Indian currency directly converting from Paypal can be considered for export of services?

No Exports if conversion takes place outside India

To get the answer to the above question, we need to understand the whole concept of receiving foreign currency. India exports goods and services to receive foreign currency to strengthen the Indian economy. Hence, even if blogger is receiving the money in INR, the biggest question, where the conversion did took place, in India or outside India. Suppose, PayPal converts the same outside India, in that case services can’t be treated as exports since no foreign currency was received in India. However, in case conversion took place in India, then the services may be treated as export of services because foreign currency is received in India.

How blogger would gets to know whether foreign currency is received or not?

The solution to this problem has already been sought by the PayPal itself. To prove that you have received the foreign currency, you need to have a document called FIRC. FIRC is an inward remittance certificate which is a documentary evidence that the person has received the foreign currency.

To all the Indians who receive foreign currency through paypal can request the company to issue the FIRC. If FIRC has been issued by the Paypal authorised bank, then it shall be proved that conversion took place in India and you may claim the export benefits.

6.0 Whether it is mandatory to file bond/LUT for export of services?

Yes, as per IGST act, it is mandatory to file bond and LUT if exporter wants to export without charging GST.

7.0 What is LUT or bond? When both are filed?

LUT/bond is a documentary letter written by taxpayer to the department where he undertakes that he shall fulfill all the requirements of exports.

Further, as per government notification, bond is required to be filed, when total export receipts is less than Rs.1 crore or 10% of the total export proceeds. If the export receipts is more than Rs.1 crore, than a letter of undertaking shall be sufficient to be filed in place of bond.

8.0 Example on Bond calculation for export under GST

Let us understand it by way of example.

Mr. A incorporates a company to start the import export business. He expects the turnover to be around Rs.50 lakh. Calculate the bond amount and the BG required to be filed with the central tax department. (Assume GST rate 18%)

Total bond should be equal to tax liability on export. Hence, the bond amount shall be: