The Goods and Services Tax (GST) Council is likely to announce significant changes to export refund rules on October 7, potentially releasing working capital for more than 38,000 export taxpayers.
According to a report by Moneycontrol, under the proposed reforms, exporters could claim cash refunds on input taxes paid on services as well as plant and machinery. Currently locked-up tax credits could consequently become available as working capital.
As per an official cited in the report, refunds relating to plant and machinery would be spread over five years.
GST refund process could become faster
The proposed framework also seeks to speed up refund processing. The system would acknowledge refund claims within 10 days. If an officer fails to act during this period, the acknowledgement would be deemed to have been issued.
Around 90% of the refund claim could be released automatically after a risk assessment, while the balance would be paid following regular verification.
The system would also automatically match export invoices against bank realisations, according to the report.
The GST Council could also broaden the classification of zero-rated exports. Supplies delivered to overseas clients would qualify as zero-rated, removing the requirement for exporters to pay tax on such transactions.
Currently, complications can arise when Indian companies bill overseas clients or receive payments through their own foreign branches because existing rules require the supplier and recipient not to be establishments of the same entity. The proposed reforms would remove this condition.
Tax relief likely for services on foreign-owned goods
Another proposed change could benefit Indian businesses that test, repair or process goods belonging to overseas clients.
Such work performed in India could be classified as exports and attract nil GST. At present, Indian units providing these services on foreign-owned goods are required to pay 18% GST.
The change could address a significant concern for Global Capability Centres (GCCs) operating in India.
GCCs are Indian units of multinational companies that undertake activities such as engineering, product development and testing for overseas group entities and receive payments in foreign exchange.
The proposed reforms are aimed at reducing blocked capital, simplifying compliance and improving liquidity for India's export sector.
