GST on Indian Imports: All You Need to Know

Goods and services tax (GST) is a destination-based tax that came into effect on 1st July 2017 and replaced various other indirect taxes such as excise duty, VAT, service tax etc. GST was introduced to solve the cascading effect of multiple taxes and to unify the indirect tax structures to improve ease of doing business.  

Since its implementation, it has reduced the tax burden on importers by replacing most of the previous taxes with a single tax and decreased trade transaction delays, which were common in the pre-GST regime. Additionally, it allows importers to claim credit on the GST paid at the time of import, to offset their GST payment at the time of selling the goods. As a result, trade within the country and abroad has seen an improvement.

Also read Import Duties in India: What it Costs to Clear your Goods

As an importer, understanding how GST applies to your incoming shipments is vital as it has a major impact on your profits. To truly understand the effect of GST on your import business, it is essential to be aware of all features of this tax system and how it impacts the pricing of your products. Some topics this article will cover are-

• How GST applies to imports
• How it is calculated on imports  
• Input tax credit (ITC) and how it eases tax burdens on importers

The basis of GST on Imports

GST is divided into four slabs and the different goods and services are taxed as per these. Additionally, it is classified into three different types depending upon whether the supply is intrastate or interstate:  

• Central Goods and Services Tax (CGST)
• State Goods and Services Tax (SGST)  
• Integrated Goods and Services Tax (IGST)

When the supply of goods and services occurs within a state (intrastate), CGST and SGST are applied. However, when the supply occurs between different states (interstate), only IGST applies. CGST and IGST are levied by the Central Government, while SGST is levied by the respective state government.

For example, if a supplier in Maharashtra sells products worth Rs. 50,000 to a dealer in Kerala, he has to pay only IGST. If the applicable IGST slab is 18 percent, he must charge that Rs. 9,000 (18 percent of Rs. 50,000) to his customer as part of his invoice. This money will go directly to the central government.  

According to the IGST Act of 2017, anything brought into India from foreign countries is considered to be imported goods. The GST law states that all imported goods and services are classified as inter-state supplies; as a result, IGST is applied to them. In addition to IGST, custom duties will be charged to the importer.  

Calculating GST on imported goods

All goods are classified under the HSN (Harmonised System of Nomenclature) code system, according to which customs duties and GST rates are determined.

GST is levied on the total product value plus the total customs duty imposed on the imported goods. To understand this better, consider that the assessable value of goods imported into India is Rs.100, the basic customs duty rate is 10 percent, and an IGST tax rate of 18 percent is to be applied. The values of 100 + 10 will be taxed at 18 percent, and the importer will pay an IGST of Rs. 29.80.  

A GST Compensation Cess is applied to certain imported commodities to compensate for revenue loss to states that are exporters of the same category of goods. Since GST is a destination-based tax, the GST revenue from the imported goods is awarded to the states where goods are consumed. Due to this, manufacturing states face a revenue loss. When GST Compensation Cess is applicable, it is levied on the total product value plus the basic customs duty, just like with GST.

Who pays GST on imports?

As per the GST Act, the importer of the goods is responsible for collecting and depositing GST with the government. All importers have to pay GST and file the returns as per the Indian Customs Act.  

If the importer sells the goods before its arrival at the customs of an Indian port (high sea sales), the new owner will pay the customs duties and IGST.

When is GST payment due on imports?

As a rule of thumb, IGST payment is due when import documents are filed, i.e. at the time of clearing the goods at a customs station. The goods imported will be placed in designated warehouses by customs until the importer or buyer (in the case of high sea sales) clears all duties and GST to take delivery of the goods.

How GST eases the tax burden for importers

Input tax credit (ITC) is a mechanism under the GST Act to help reduce the burden of taxes to be paid by traders, merchants, and others. It is applicable on imports of goods as well. As per ITC, at the time of paying GST on sales of imported products, you can deduct the GST amount that you paid on your imports.  

To illustrate how it works for importers, let’s continue with the previous example, assuming that the value of the imported goods is Rs. 100 and the GST paid at 18 percent on just this is Rs. 18. When the importer further goes on to sell these goods with his margin added, he will charge GST to his buyers. If he sells the goods at Rs. 300, including GST charges to the buyers, he will be liable to pay the government a GST of Rs. 54 (18 percent GST on Rs. 300) on these sales. However, he has already previously paid Rs. 18 on the import of the goods, so now he only has to pay Rs. 54 minus Rs. 18, which is Rs. 36.  

ITC is also applicable on GST Compensation Cess on the onward sales of goods. So if an importer has paid the cess on his imported goods, and his buyers pay it to him on purchase of those goods, he can balance it out in the same way as illustrated above.  

Imported goods exempted from GST

• All goods imported by a business located in a Specialised Economic Zone (SEZ)

• Goods for India’s defence and internal security forces
• Research equipment for institutions
• Scientific and technical instruments, apparatus, accessories etc.  
• Goods from Nepal and Bhutan

If you are an exporter, check out our guides on exporting without payment of IGST and exporting with payment of IGST