What is bond amount under GST – How to calculate the bond amount & bank guarantee for filing under GST for export with example

Introduction

If you want to export the goods or services under GST without charging the IGST on the same, then you need to submit the bond or letter of undertaking that all the requirements regarding exports under GST shall be complied with.

As said, there are conditions which decide whether bond is filed or the letter of undertaking. As per notification, if the total foreign receipts are less than Rs.1 crore then you are required to file the bond.

What is the bond amount? And how to calculate the same?

As per the circular by the government, the bond amount shall be equal to the tax liability on the previous year turnover or the expected turnover in this year. Further, a bank guarantee is also required to be filed along with the bond which shall not be less than 15% of the bond amount.

Let us understand the same by way of example:

Example: Mr. A had a previous year turnover of Rs.1 crore and he also expect the turnover to be around Rs.1 crore in the current financial year. Mr. A is a exporter and hence, he want to export without paying tax. Please advice? Assume tax rate @ 18%.

Answer: As per rule 96A and the notification issued by the government of India, if the total foreign inward receipts are less than Rs.1 crore than bond is required to be filed.

The bond amount should be equal to the total tax liability on the export. In our case, Mr. A expects the turnover to be around Rs.1 crore and hence we can take Rs.1 crore as the base turnover. Therefore the bond amount is to be calculated as under:

• Bond amount = Rs.18 lakh (18% of Rs.1 crore)
• Bank Guarantee = Rs.2,70,000 (15% of Rs.18 lakh)

What if Mr. A crosses the turnover of Rs.2 crore in the mid year?

In that case, Mr. A has to revise the bond amount and submit a fresh bond with additional bank guarantee to the department. Further, Mr. A has to file the new bank guarantee as soon as turnover crosses the base amount on which the previous bank guarantee or bond was filed.

Also, since the turnover has crosses the previous year mark. In that case, we need to take a adhoc higher amount as a base. So we take a higher amount of Rs.5 crore as the expected turnover. Now the fresh bond amount shall be calculated as under:

• Bond amount  = Rs.90 lakh (18% of Rs.5 crore)
• Bank guarantee = Rs.13.50 lakh (15% of Rs.90 lakh)

What is the taxpayer does not have any turnover in the previous financial year?

If there is no turnover in the previous financial year then bond amount should be calculated based on the expected turnover.

In whose name the bank guarantee should be filed for exports?

The bank guarantee should be filed in the name of President of India (hereinafter called " The Government") acting through the Assist. Comm./ Dy. Commissioner of Central Tax, Commissionerate with full jurisdiction.

Conclusion

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

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