Services Supplied to Nepal and Bhutan, GST Applicable or not?

The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange. or Indian rupees but export proceeds shall be realized in freely convertible currency.

It is beyond any contradiction that the provisions under the GST laws have been consistently reworked or modified in order to make them more favourable for different sectors of the economy.

These reforms have altogether eased the burden and complexities of the average taxpayers as well as the tax authorities.

According to section 2(6) of CGST Act-2017, any supply of services shall be considered as ‘export of services’ if ––

• The service provider is situated in India;

• The consumer of service is situated outside India;

• The place of supply of that service is also outside India;

• The consideration for the said service has been got by the supplier of service in terms of convertible foreign exchange; and

• The supplier and place of supply of service are not merely establishments of a different person u/s 8(1) of CGST Act-2017.

Based on above rule, the supplies of services from India to Nepal and Bhutan against the payment in Indian currency does not satisfy the fundamental conditions of ‘export of services’ and hence such supplies to Nepal and Bhutan are not considered as exports. Thus, they are not conducted on a zero-rated basis, i.e. they attract IGST liability.

• Although, the trader and service provider would require to undergo the GST registration and apply for the unique Import Export Code registration if his intent is to provide services to their client situated in Nepal or Bhutan, yet the said trade shan't be considered as export.

• However, as per the government notification 42/2017 dated 27th October 2017 no IGST would be payable on the supply of services from India to Nepal and Bhutan against payment in Indian Rupees.

GST on Export of Services to Nepal

For exporters dealing with Nepal, GST law treats the country as part of the “export of services” category. Key points to note are:

1. Payment has to be in freely convertible foreign exchange, or INR subject to conditions.

2.The recipient of service should be out of India.

3. Place of Supply Outside India.

If all of the above conditions are satisfied, then the export of services to Nepal is said to be a zero-rated supply and the invoice will be raised without IGST. However, the payment needs to be in line with RBI guidelines on foreign exchange.

Documentation Required for Export to Nepal

1. Submission of an LUT (Letter of Undertaking) to export services without payment of IGST.

2.IInvoices issued to the recipient must specify that the transaction is an export of services.

GST on Export of Services to Bhutan

The export of services to Bhutan is in a planned manner. Services provided to Bhutanese clients - If conditions for zero-rated supplies under GST law are met The same rules apply:

1. The place of supply should be located outside India.

2. The payment of services will be in freely convertible foreign exchange or INR through a Vostro account as per RBI guidelines.

These stipulations ensure that services exported to Bhutan are still zero-rated under the law.

GST Impact on Export of Services

GST, and the zero-rating for exports under it, has been helpful for a large segment of services exporters. This results in the simplification of tax compliance, removing the GST burden on exports and allowing refunds to be claimed for any input taxes paid.