Is bank guarantee (BG) required for filing bond for exports under GST? – How to calculate bank guarantee for filing bond under GST?

1.0 Introduction

There are two ways possible to export under GST; one way is to export by paying GST and claiming refund later on. The second way is to export without charging GST. To export without charging GST, one needs to file bond or LUT with the central tax department. If in case the bond is to be filed, a copy of bank guarantee is also required to be filed. Let us understand when bond is required and how bank guarantee is filed.

2.0 When bond is filed in place of letter?

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.

3.0 What amount of Bank guarantee (BG) is to require for bond?

If you are filing the bond, then a bank guarantee equivalent to 15% of the bond amount is required to be filed. Bond amount is the amount equal to total GST liability on the total export turnover.

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:

• Bond amount = Rs.9 lakh (18% of Rs.10 lakh)
• Bank Guarantee = Rs.1,35,000/-

4.0 Conclusion

In case you want to file the LUT or bond, please write to us at info@hubco.in.