Relief to exporters, SEZ as GST Council makes clarifications

Subject: Economy

Section: Fiscal Policy

Context: RBI announces OMO plan, leaves markets surprised.

Key Points:

What was the problem with remittances to Vostro A/Cs?

Under the Goods and Services Tax (GST) regime, exports of goods or services are considered zero-rated supplies, which means they are exempt from GST.
To qualify for GST refund, the supply of services an entity need to qualify as export of services.
Exporters who receive payment through VOSTRO accounts were having difficulty in making refund claims, as the transactions were in Rupee and not forex.

Clarification on remittances in Vostro A/Cs:

Remittances received in Vostro account to now qualify as export of services, ending disputes on GST refunds.
GST Council clarified the admissibility of export remittances received in the Special INR Vostro account, as permitted by RBI, for the purpose of “consideration of supply of services to qualify as export of services.”
Now exporters will find getting GST refunds easy due to clarity on the classification of remittances received in special Rupee Vostro Accounts (SRVAs).

Clarification on claiming IGST for SEZ units:

Till now there was ambiguity on the possibility of claiming a refund of GST paid on supplies made by domestic suppliers to SEZ.
GST Council has now recommended amending the SEZ notification so as to allow the suppliers to a Special Economic Zone unit to claim the refund of tax payment of integrated tax made by them.

Vostro Accounts

Rupee Vostro Accounts keep a foreign entity’s holdings in an Indian bank in Indian rupees.
When an Indian importer wants to make a payment to a foreign trader in rupees, the amount will be credited to this Vostro account.
And when an Indian exporter needs to be paid for supplying goods or services, this Vostro account will be debited, and the amount will be credited to the exporter’s account.
As of the current date, Special Rupee Vostro accounts are permitted for 22 countries.

Special Rupee Vostro Account (SRVA)

The SRVA provides additional freedom compared to the ordinary VOSTRO accounts.
The VOSTRO system also requires maintaining balances and position in preserve currencies like the US dollar and pound to facilitate trade. But SVRA allows balanced to be held exclusively in Rupee.
RBI in July 2022 initiated the mechanism to settle international transactions in rupee to promote the growth of global trade, with emphasis on exports from India, as well as pushing rupee as an international currency. The move also helped sanction hit Russia.

Integrated GST

Integrated GST or Integrated Goods and Services Tax is one of the four types of GSTs levied by the Central Government on interstate supply of goods and services.
The revenue collected under IGST is apportioned equally between the Central and the State Governments (of the state where the goods/services are consumed).