India optimizes GST refunds for export remittances on Vostro accounts

Exporters in India will benefit from the GST Council’s clear guidelines on remittances through Special Rupee Vostro Accounts (SRVA) and simplify GST refund procedures in Special Economic Zones (SEZs). Allowing exporters to claim IGST refunds on supplies to SEZ units is expected to free up working capital. These changes will boost business confidence and boost India’s export trade and related economic activities within the SEZ.

In a significant development, the Goods and Services Tax (GST) Council of India has issued recommendations aimed at streamlining the GST refund process for exporters. These recommendations provide much-needed clarity on the classification of remittances received in Special Rupee Vostro Accounts (SRVAs) and provide relief to exporters whose refunds have been delayed due to disputes in this particular aspect.

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SRVAs, where foreign companies hold funds in Indian rupees, have gained importance, particularly in trade agreements such as the rupee-ruble trade between India and Russia. If Indian importers are required to make payments in rupees to foreign traders, these amounts will be credited to SRVAs. Conversely, when Indian exporters need to receive payment for their goods or services, the SRVA is debited and the funds are credited to the exporter’s account. Currently, SRVAs with 22 countries are permitted.

Additionally, exporters can now claim IGST refunds on supplies made to Special Economic Zone (SEZ) units. These moves are expected to free up working capital for companies engaged in international trade.

What were the challenges when transferring money to Vostro accounts?

Under the GST regime, exports of goods or services are classified as exempt supplies, meaning they are exempt from GST. However, to be eligible for a GST refund, a company’s supply of services must meet the criteria to be considered an export of services.

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The problem that exporters faced in this regard was related to the remittances received in SRVAs. These Vostro accounts, particularly the SRVAs, are traded in Indian Rupees (INR) and not Foreign Exchange (Forex). Exporters who received payments through these Vostro accounts in INR faced difficulty in claiming GST refunds. The lack of clarity on whether these INR transactions were exports led to disputes and hampered the refund process. This ambiguity posed a major challenge for exporters, hence it was crucial for the GST Council to take a clear stance to resolve the issue and streamline the refund process.

Current clarification on Vostro account transfers considered as export of services

The GST Council has put an end to long-standing disputes over GST refunds by providing clarity on remittances received in SRVAs. The Council clarified that remittances received in the Special INR Vostro Account, as permitted by the RBI, will now be considered as export of services. This final stance removes ambiguity surrounding the classification of these remittances and streamlines the process, making it significantly easier for exporters to obtain GST refunds. With this development, exporters can expect a smoother process in claiming their refunds, which is a positive turnaround for India’s export businesses.

Facilitating trade from special economic zones and removing GST confusion

Previously, there was a significant degree of ambiguity regarding the ability to claim a refund for GST payments made on supplies from domestic suppliers to special economic zones. This uncertainty raised questions and concerns about the financial implications for companies involved in SEZ transactions.

To address the complexities associated with supplies in SEZs, the GST Council recommended retrospective amendment of a Notification (No. 1/2023 – Integrated Tax dated July 31, 2023, effective from October 1, 2023) to allow domestic suppliers to SEZs To give entities the opportunity to request a refund of the integrated tax they paid. This change provides much-needed clarity and ensures that domestic suppliers working with SEZs can confidently claim GST refunds on their integrated tax payments. This move is expected to promote smoother financial transactions, boost business confidence and strengthen the growth of economic activities within the special economic zones.

Notably, these changes will not apply to goods such as pan masala, tobacco, gutkha and others.

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