13 June 2023
An India Company provides professional services to USA based co. in USD, the POS is in India (Remotely) no physical Establishment in India of the recipient. how should it be transacted- 1) Export of Services under LUT without payment of taxes - in the absence of registered establishment of recipient in India. or 2) Export of Services - under IGST in USD.
09 July 2024
In the scenario where an Indian company provides professional services to a USA-based company, and the point of supply (POS) is in India (remotely), and there is no physical establishment of the recipient in India, here's how the transaction should typically be handled:
1. **Export of Services under LUT (Letter of Undertaking) without payment of taxes:**
This option is applicable when the service qualifies as an export under GST rules. To qualify for this option: - The service provided should be considered an export of services under GST laws. - The payment should be received in convertible foreign exchange (USD in this case). - The recipient (USA-based company) should not have a physical presence or establishment in India. - The Indian company should have obtained an LUT or a Bond from the GST department to export services without payment of IGST.
Under this option: - The Indian company doesn't collect IGST on invoices. - Instead, they declare the export of services in their GST returns. - They can file GST refunds if applicable, or adjust the input tax credit (ITC) if they have accumulated any.
2. **Export of Services under IGST (Integrated Goods and Services Tax) in USD:**
This option involves: - Charging IGST on the invoice issued to the USA-based company. - The USA-based company can claim input tax credit of the IGST paid, provided they are registered under GST (which is unlikely if they have no establishment in India).
However, since the USA-based company has no physical establishment in India, they are unlikely to be registered under GST. Therefore, charging IGST could lead to complications without the recipient being able to claim the credit, which may result in practical challenges and potential refunds or adjustments later.
### Recommendation:
Given the scenario described (no physical establishment of the recipient in India), **export of services under LUT without payment of taxes** is generally the more straightforward and commonly accepted approach. It simplifies the transaction process, avoids unnecessary tax complications for the recipient, and aligns with the GST law's provisions for service exports under LUT.
It's advisable to consult with a tax expert or a GST consultant to ensure compliance with GST regulations specific to your business and transaction details. They can provide tailored advice based on the specific nature of your services and transaction flow.
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