GST on Imports & Exports India 2025: IGST, Customs Duty, ITC on Imports & Zero-Rating
If your business buys from foreign suppliers or sells to international customers, the intersection of GST and customs law is where you operate daily. Yet this is an area where even experienced accountants sometimes get the IGST-on-import calculation wrong, or miss the LUT filing that would have saved them significant cash flow on export transactions.
- Imports are treated as inter-state supplies, so IGST applies — collected by Customs at the time of clearance, not by the GST department.
- IGST paid on imports is available as ITC, provided the import is for business use and not blocked under Section 17(5).
- Exports are zero-rated — 0% GST, but exporters can still claim full ITC on their inputs, unlike exempt supplies.
- Filing a Letter of Undertaking (LUT) at the start of the financial year lets exporters ship without paying IGST upfront.
- Importing services from abroad triggers IGST under Reverse Charge Mechanism (RCM), which can usually be claimed back as ITC in the same period.
- From October 2025, Bills of Entry for imports appear in the Invoice Management System (IMS) and must be accepted for ITC to flow through.
This guide covers the full framework — how IGST applies on imports, how it interacts with customs duty, how exporters can claim refunds or export without paying GST at all, and what's changed in 2025.
What Is the Core Principle of GST on Imports?
India treats imports as inter-state supplies. This means IGST (Integrated GST) applies on imports — not CGST/SGST. The IGST on imports is collected by the Customs department at the time of clearance, not the GST department.
Key rule: IGST on imports = applicable GST rate of the imported goods (same rate as domestic supply of that product)
CBIC — customs duty and IGST on imports
How the Total Tax on an Import Is Calculated
The full import tax stack:
| Component | Applied On | Typical Rate |
|---|---|---|
| Basic Customs Duty (BCD) | Assessable value (CIF value + landing charges) | Varies by product (0–150%) |
| Social Welfare Surcharge (SWS) | 10% of BCD | 10% of BCD |
| Agriculture Infrastructure Development Cess (AIDC) | On specific goods | Varies |
| IGST | Assessable value + BCD + SWS + AIDC | Same as domestic GST rate |
| GST Compensation Cess | On specified sin/luxury goods | Varies (being phased out) |
Example: Importing a laptop (HSN 8471, 18% IGST)
| Component | Calculation | Amount |
|---|---|---|
| CIF value (USD 1,000) | ₹83,000 (assumed rate) | ₹83,000 |
| Landing charges (1%) | 1% × ₹83,000 | ₹830 |
| Assessable value | ₹83,830 | |
| BCD (20% on laptops) | 20% × ₹83,830 | ₹16,766 |
| SWS (10% of BCD) | 10% × ₹16,766 | ₹1,677 |
| Taxable value for IGST | ₹83,830 + ₹16,766 + ₹1,677 | ₹1,02,273 |
| IGST (18%) | 18% × ₹1,02,273 | ₹18,409 |
| Total import duty paid | BCD + SWS + IGST | ₹36,852 |
ITC on IGST Paid During Import
This is where India's import-GST framework becomes powerful for businesses:
The IGST paid on imports is available as ITC — provided:
The import is for business purposes (not personal)
The goods/services are used for taxable supplies
The goods are not specifically blocked under Section 17(5)
The Bill of Entry (BoE) is filed correctly and appears in GSTR-2B
How Import ITC Flows
From October 2025, Bills of Entry for imports appear directly in the Invoice Management System (IMS) dashboard. Recipients can accept or reject individual BoEs — just like domestic supplier invoices.
- Accept the BoE in IMS → IGST paid on import appears in GSTR-2B as available ITC
- ITC then offsets your domestic IGST, CGST, or SGST liability in GSTR-3B
IGST ITC utilisation order (from imports):
First against IGST liability
Then against CGST liability
Then against SGST liability
This is one of the most powerful aspects of India's GST framework — a ₹18,000 IGST payment on an imported laptop becomes ₹18,000 of ITC that directly reduces your output tax liability.
Import of Services: Reverse Charge Mechanism
When you import services from a foreign supplier (e.g., software subscription from a US company, consulting from a Singapore firm), special rules apply:
- No GST is charged by the foreign supplier (they're outside India's tax net)
- You, the Indian recipient, must self-assess and pay IGST under Reverse Charge Mechanism (RCM)
- The IGST rate is the same as the domestic rate for that service category
Common examples:
| Service | IGST Rate Under RCM |
|---|---|
| Software / SaaS subscription | 18% |
| Legal/consulting services | 18% |
| Advertising/marketing services | 18% |
| Cloud computing services | 18% |
| Royalties on IP | 18% |
RCM ITC on imported services: The IGST you self-assess and pay under RCM is available as ITC in the same tax period — effectively making it a cash-neutral transaction if you have taxable output. You pay the RCM and claim it back simultaneously in GSTR-3B.
GST on Exports: The Zero-Rating Framework
Exports are treated as zero-rated supplies under Section 16 of the IGST Act. This means:
- GST rate on exports = 0%
- But unlike exempt supplies, exporters can claim full ITC on inputs used for exported goods/services
This is a critical distinction: exempt supplies have no GST and no ITC; zero-rated supplies have no GST but full ITC is available and refundable.
Two Ways to Export Under GST
Option 1: Export Under Bond / Letter of Undertaking (LUT) — No IGST Payment
The most popular and cash-flow-friendly option. With a valid LUT:
- Export goods/services without paying any IGST
- Claim refund of ITC accumulated on inputs used for exports
Option 2: Pay IGST and Claim Refund
- Pay IGST on exports at the applicable rate
- Claim a refund of the IGST paid from the GST department
- Less preferred (ties up working capital), but sometimes simpler for occasional exporters
How Do You File a Letter of Undertaking (LUT) for Exports?
Who Must File LUT?
Any exporter who wants to export without paying IGST must file a LUT (Form RFD-11) at the start of each financial year.
Who can file LUT:
- Regular GST-registered taxpayers who export goods or services
- Not applicable to exporters who have been convicted of tax evasion of ₹2.5 lakh or more in a given year
How to File LUT (Annual Filing)
Login to gst.gov.in
Navigate to Services → Refunds → Furnish Letter of Undertaking (LUT)
Select the financial year
Fill in undertaking details and authorised signatory
Submit — LUT is valid for the entire financial year
No documents need to be physically submitted; it's fully online
LUT must be filed before the first export of the year. Exporting without a valid LUT means you must pay IGST upfront and then claim a refund — a cash flow disadvantage.
What Are the Two Types of GST Refund for Exporters?
Type 1 — Refund of IGST Paid on Exports
If you paid IGST on exports (no LUT):
The shipping bill filed at customs serves as the refund application
The system automatically processes the refund based on GSTR-1 and shipping bill data
Refund is credited to your bank account — typically within 60 days
Type 2 — Refund of Accumulated ITC (Under LUT)
If you exported under LUT (zero IGST paid):
File Form RFD-01 on the GST portal
Claim refund of ITC accumulated on inputs used for zero-rated supplies
The refund is calculated as: (Turnover of zero-rated supply ÷ Total turnover) × Net ITC
Timeline: Refunds are to be processed within 60 days of complete application. If delayed, the government pays 6% p.a. interest.
Export of Services: Special Conditions
Exporting services qualifies for zero-rating only if all five conditions are met:
The supplier is located in India
The recipient is located outside India
The place of supply is outside India
Payment is received in foreign currency (convertible foreign exchange or INR from a non-resident account)
The supplier and recipient are not merely establishments of the same entity
Common pitfall: Software companies billing foreign group companies in INR often fail condition 4 — the export may not qualify for zero-rating unless foreign exchange is actually received.
How Are SEZ Supplies Treated Under GST?
Supplies to Special Economic Zones (SEZ) units and developers are also treated as zero-rated supplies:
- No GST charged on SEZ supplies (or IGST charged and refunded)
- ITC on inputs fully available
- Same LUT mechanism applies — file LUT to supply to SEZ without paying IGST
SEZ buyers also have their own GST registration and cannot claim ITC on domestic purchases — they can only claim refund of IGST paid on imports or supplies received from DTA (Domestic Tariff Area).
When Does GST Not Apply on High Sea Sales?
High Sea Sales — sales of imported goods while the vessel is still at sea, before customs clearance — are outside the scope of GST. Only the final importer who clears customs pays IGST. The intervening high-sea sale is not taxed under GST.
However, high-sea sales must follow strict documentation: the sale agreement and endorsement of the Bill of Lading must occur before customs clearance.
What Are the Most Common Import-Export GST Mistakes?
Not filing LUT at the start of the financial year — forces you to pay IGST upfront and wait for refund
Not claiming ITC on IGST paid at customs — many businesses miss this, paying out of cash unnecessarily
Importing services without paying RCM — a common compliance gap; the department tracks outward remittances
Not matching shipping bills with GSTR-1 — export refunds require shipping bill data to match GSTR-1 Table 6 entries exactly
Treating all export receipts in INR as non-qualifying — some INR receipts from specific accounts qualify; verify with your bank
Not accepting import BoEs in IMS — since October 2025, BoEs appear in IMS; failure to accept delays ITC flow into GSTR-2B
Key Portals and Resources
| Resource | URL |
|---|---|
| ICEGATE (customs clearance) | icegate.gov.in |
| DGFT (export-import policy) | dgft.gov.in |
| GST portal (LUT filing, refunds) | gst.gov.in |
| CBIC customs duty search | cbic.gov.in |
| Foreign Trade Policy 2023 | dgft.gov.in |
Conclusion
GST on imports and exports is built around a straightforward principle: collect IGST on imports (recoverable as ITC), and zero-rate exports (with full ITC refund). The complexity lies in the details — RCM on imported services, LUT filing, refund mechanics, and now the IMS integration for import BoEs.
Your import-export GST checklist:
File LUT at the start of every financial year before first export
Claim IGST paid on all imports as ITC in GSTR-3B
Self-assess and pay RCM on all imported services
Accept import BoEs in IMS (October 2025 requirement)
File shipping bills at customs matching your GSTR-1 Table 6 data
Track accumulated ITC and file RFD-01 refund applications regularly
Use gstcalculator.me to compute the IGST component on any import transaction — essential for accurate BoE assessment and ITC planning.
Related: GSTIN Format & Verification Guide · E-Invoicing Under GST India 2025 · Input Tax Credit Under GST · Invoice Management System (IMS) Guide
GST on Imports and Exports — Frequently Asked Questions
Is CGST/SGST charged on imports into India?
No. Imports are treated as inter-state supplies, so only IGST applies — collected by the Customs department at the time of clearance.
Can a business claim ITC on IGST paid on imports?
Yes, provided the import is for business purposes, used for taxable supplies, not blocked under Section 17(5), and the Bill of Entry appears correctly in GSTR-2B.
Do exporters have to pay GST on exports?
No. Exports are zero-rated supplies — 0% GST applies, and exporters can still claim full ITC on inputs used, unlike exempt supplies.
What is a Letter of Undertaking (LUT) used for?
An LUT (Form RFD-11) lets exporters ship goods or services without paying IGST upfront, avoiding the cash flow hit of paying tax and waiting for a refund.
Does GST apply to importing services like SaaS subscriptions?
Yes. The Indian recipient must self-assess and pay IGST under Reverse Charge Mechanism, which can typically be claimed back as ITC in the same period.
Compute IGST on any import
Enter the post-customs taxable value and pick the IGST rate — instant tax & ITC numbers for your BoE.
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