GST on Imports: IGST, ITC, and Customs Duty Explained

When goods are imported into India, they attract Goods and Services Tax in addition to customs duty. Understanding how GST applies to imports is essential for importers, traders, and businesses that source goods or services from overseas. The good news is that the GST paid on imports can often be claimed back as Input Tax Credit.

How GST Applies to Imports

Imports of goods into India are treated as inter-state supplies under GST. Therefore, IGST (Integrated GST) is levied on imported goods. This IGST is collected by Customs at the point of entry, along with Basic Customs Duty (BCD) and other applicable levies.

The IGST on imports is calculated on the assessable value, which includes:
– Transaction value of the goods.
– Basic Customs Duty.
– Any other duty or tax levied.

Formula: IGST = IGST Rate x (Assessable Value + BCD + Other Duties)

IGST Rate on Imports

The IGST rate on an imported product is the same as the GST rate applicable to that product when supplied domestically in India. If a product attracts 18% GST when sold within India, it attracts 18% IGST on import.

Some goods have different customs duty rates and GST rates, so it is important to check both the BCD rate and the IGST rate separately for each product using its HSN code.

ITC on IGST Paid on Imports

The IGST paid on imports is available as Input Tax Credit to registered importers. This is one of the most important aspects of GST for importers: the IGST paid to Customs is not a sunk cost. It appears in the importer’s GSTR-2B and can be used to offset outward GST liability.

To claim ITC on imports:

– The importer must be GST-registered.
– The Bill of Entry must be linked to the GSTIN.
– The IGST must have been paid at customs.

Imports of Services

For import of services, the recipient in India is required to pay GST under the Reverse Charge Mechanism (RCM). The service recipient pays IGST at the applicable rate on the value of services received. This RCM liability is declared in GSTR-3B and the ITC can be claimed in the same period if the services are used for business purposes.

Special Imports: Customs Warehousing

When goods are placed in a Customs bonded warehouse, IGST payment can be deferred until the goods are cleared from the warehouse. This helps importers manage working capital by avoiding upfront IGST payment before the goods are needed for business.

Exemptions and Concessions

Certain imports are exempt from IGST or attract a concessional rate:

– Life-saving medicines and medical equipment during declared health emergencies.
– Goods imported for export (advance authorisation scheme).
– Goods imported under the EPCG (Export Promotion Capital Goods) scheme.
– Imports by SEZ units are zero-rated.

Practical Example

TechStar Pvt Ltd imports computer hardware from China with a transaction value of Rs. 10 lakhs. BCD is 10% = Rs. 1 lakh. Total assessable value for IGST = Rs. 11 lakhs. IGST at 18% = Rs. 1.98 lakhs. TechStar pays Rs. 1.98 lakhs IGST at customs. This appears in its GSTR-2B, and TechStar uses it as ITC to offset its domestic GST output liability.

Key Takeaways

– IGST is levied on imports of goods at the same rate as domestic GST for that product.
– IGST is calculated on the assessable value (transaction value + BCD + other duties).
– IGST paid on imports is available as ITC for registered importers, visible in GSTR-2B.
– Import of services is subject to reverse charge, paid by the Indian recipient.
– ITC on import IGST can be used to offset output GST liability.
– SEZ units and advance authorisation holders enjoy IGST exemption on imports.

Understanding GST on imports upfront helps you calculate the true landed cost of imported goods and plan your cash flow and ITC utilisation efficiently.