GST is very much geared to benefit India-based businesses. No GST is levied on exports out of India, again by virtue of it being a destination-based tax. Companies in India buying imported goods and paying IGST at the time of import can claim that IGST as an input tax credit.
Tax credits on imports are claimed one of two ways:
If the selling company is not registered with GST, the purchasing Indian company that is registered is subject to reverse charge on those imported transactions, meaning the buying company must charge themselves IGST on the value of the imported goods (including the Basic Customs Duty). That company can then immediately claim that IGST as an input tax credit.
If the selling company is a registered foreign taxpayer with GST, the selling company will collect the tax and document those transactions on their monthly GSTR5 (non-resident, foreign taxable person). This then allows the purchasing company to claim the tax paid as an input tax credit. This is the less common scenario, as the foreign entity must not have a fixed place of business. Such taxpayers are typically providing some form of service – consulting, specialized skills, education, or the like. These taxpayers register under GST for 90 days and must estimate and prepay the GST they expect to collect in that time. Since the taxpayer is physically in India when services are provided, those services will be subject to SGST/CGST, as instrastate transactions. Any goods the taxpayer received from their “home office” outside of India would then also be subject to IGST, which the non-resident taxpayer would pay as a reverse charge and then immediately claim input tax credit for those amounts.
