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E-Wallet System under GST

GST E-Wallet

GST E-Wallet

The GST council has implemented E-Wallet system under GST from April 2018 as a relief for the exporters who encounter working capital squeeze due to delayed GST refunds. The interruptions in the refund mechanism have been causing serious issues in cash flow, which consequently affected the shipments. GST E-Wallet has been introduced to resolve such issues that occur due to the delay in refund of duty claims under GST.

GST on Exports

Exports were tax-free before the GST regime. In order to promote the share of manufacturing in the global market, no tax was payable at the time of exports. This continued after GST implementation. Export of any kind of Goods and services are tax-exempted. However, exporters are required to pay the GST in two stages —

  • While procuring goods/raw materials for the manufacturing of the export product
    • Exporters are required to pay the tax in advance and then claim for refund. This denotes ‘pay first and seek refund’ mechanism.
  • When exporting the final product
    • Under IGST act, exports have been treated as inter-state supply and thus liable for tax.

Refund of GST is also made accordingly.

  • Refund of the GST paid for purchasing the inputs is done by Input Tax Credit (ITC).
  • The IGST refund occurs at the time of export. Moreover, input tax on various purchases could be set off against the output tax, and the balance could be claimed as refund from tax authorities.

Purpose of E-Wallet System

The Government has decided to refund the GST paid by the exporters under the zero rating principle (no tax or duty imposed on the export of goods or services during the entire supply chain and the refund of input tax credit can be claimed) to promote exports. The refund rules and process makes the refund mechanism complex and the refund date was delayed, resulting in fund shortage for the exporters. To address the rising complaints made by the exporters on this complex refund mechanism and to ensure better movement of goods, the GST Council has introduced e-Wallet system.

GST E-Wallet

Initially, based on the tax record or the past performance on exports, a notional credit i.e., virtual currency will be credited to the exporter’s account by the Directorate General of Foreign Trade (DGFT). This in-turn can be used to pay GST on inputs, raw materials, or goods procured for export purposes so that their funds are not blocked.

On submission of the proof for exports, the amount will be credited to the exporter’s account subsequently facilitating free credit flow. The restriction of this scheme is that the advance amount cannot be encashed thus limiting its usage only for the GST payment.