An Alumnus of IIM and DU with almost a decade of experience in the banking and finance sectors. I had the opportunity to work with all types of institutions in BFSI ecosystem like Bank, NBFC, Fintech, Consulting and Auditor. I started my professional journey at KPMG and subsequently worked in leading names of the BFSI sector including Ujjivan Bank, Vistaar Finance. Currently building a fintech startup ( PICE) by handling alliances, compliance and creation of GTM strategy for payments and credit product.
25 Jun 25
9 mins
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Know Impact of GST on STPI Units and Export-Oriented Units (EOUs)
Zero-rated supply provisions under GST enable STPI and EOU exporters to claim refunds and remain tax neutral.
Exporters can file GST refund claims via LUT/bond or by paying IGST and subsequently claiming output tax refunds.
Rule 96(10) restricts IGST refunds if exemptions on capital imports or input services are availed under specific schemes.
Documentation accuracy, timely filing of returns, and compliance with forms like GST RFD-01 and SOFTEX are critical for smooth refunds.
Challenges like refund delays, lack of software export certification, and refund eligibility ambiguity necessitate expert GST guidance.
While GST brought standardisation and uniformity, certain niche sectors like Software Technology Parks of India (STPI) units and Export-Oriented Units (EOUs) experienced significant changes in their operational and compliance landscapes.
These units, which are primarily engaged in the export of software services and goods, need to understand the implications of GST laws, especially concerning input services, refund mechanisms, customs duty exemptions, and export transaction documentation.
In this detailed guide, we will explore the impact of GST on STPI units and EOUs, the challenges they face, and how they can leverage various provisions, such as zero-rated supplies, to optimize their export performance and business continuity.
What Are STPI Units and EOUs?
STPI is a government initiative under the Ministry of Electronics and Information Technology (MeitY), established in 1991 to promote the growth of software exports. STPI units play a major role in stimulating the software economy within India and provide about nearly 50% of national software exports, thus adding to national GDP.
These exporters actually export software services, software products, and IT-enabled solutions. STPI also works as the regulatory authority to monitor and supervise the operations of registered software companies regarding their export commitments and the realization of export proceeds.
Meaning of Export-Oriented Units (EOUs)
Export-Oriented Units are business entities that are permitted to produce and export 100% of their products or services. EOUs operate under the Foreign Trade Policy (FTP) and enjoy various benefits, including exemption from customs duties, duty-free procurement of capital goods, and simplified procedures for exports.
In the place of GST introduction, zero-rated supply turned out to be in the core of the export taxation. Under section 16 of IGST Act, zero-rated supplies are covered within the:
Export of goods and services
Supplies to Special Economic Zones (SEZs)
This enables an exporter to make outward supplies without any tax liability and, therefore, to claim refund of taxes paid on input services, raw materials, and capital goods. Thus, the export of software service, export of software, and export by STPI and EOU units are tax neutral.
The two ways of getting refund claims are:
Export under bond or Letter of Undertaking (LUT) without payment of tax and claim refund of unutilised Input Tax Credit (ITC).
Export on payment of IGST and claim refund of output GST paid.
Input Services and Input Tax Credit (ITC)
Operating through STPI units and EOUs, use a number of services or capital inputs in their functioning, such as software licenses, internet infrastructure, consulting services, etc. Under GST, ITC is available on such input services to the extent they are used for making taxable or zero-rated outward supplies. Compliance from GSTR-3B and Form GSTR-1 are the required forms to claim and report their exports for ITC purposes. Accurate reporting would allow a seamless refund process.
Refund of Output GST and Unutilized ITC
Under Section 54(3) of the CGST Act, exporters can get refunds for goods or services supplied under LUT without payment of tax. Refund of output GST is a huge incentive for software companies and exporters under STPI or EOU schemes.
Key points to consider:
Filing of application for refund in Form GST RFD-01.
Refund is limited to only the export income and its last export performance.
Exporters are required to furnish declarations and proof of export as prescribed to the concerned tax authorities.
Under Rule 89(4) of CGST Rules, refund amount is calculated using the formula:
Refund = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover
This rule has led to confusion regarding eligibility for refunds, especially for merchant export suppliers, who often use multiple schemes to reduce export costs.
Following are some challenges related to GST refunds on STPI units:
1. Absence of Certification
The absence of certification for software exports creates hurdles in verifying export of services. Exporters often face delays in getting digital form approvals from authorities.
2. Ambiguity in Refund Eligibility
There’s ongoing ambiguity around refund eligibility for EOUs that avail capital goods duty benefits under customs schemes. This affects the claim for refund and may lead to disallowance of otherwise eligible refund amounts.
3. Delayed Processing
While the GST portal has provisions to file refunds online, exporters report delays in receiving the benefit of refund, sometimes beyond the stipulated refund claim period.
GST on Export Transactions: Documentation and Compliance
For a smooth entire process of refund and compliance, exporters must ensure:
Proper classification of goods/services.
Timely filing of returns.
Maintenance of records for at least 6 years from the end of relevant tax periods.
Submission of documents to governmental authorities.
Forms for software export, including STPI’s SOFTEX Forms, should also align with GST reporting requirements.
Impact on Software Companies and Export Commitments
The GST regime’s increased compliance has made it essential for software projects to integrate taxation strategy from the start. Key impacts include:
Increased cost of compliance due to e-invoicing and documentation.
Improved refund process efficiency with the introduction of real-time validations.
Enhanced monitoring by authority for monitoring STPI exports.
Use the latest digital forms for filing and track the details of refund claims online.
Conclusion
Understanding the impact of GST on STPI units and EOUs is crucial for software exporters aiming to maintain profitability and compliance. By leveraging zero-rated supplies, carefully evaluating refund eligibility, and adhering to prescribed procedures, software exporters can continue to thrive in a globally competitive environment.
Whether it is export at custom ports, or filing of export declaration, businesses must focus on timely documentation, use of prescribed forms, and managing costs with duty to maximize tax benefits.
The Application for refund can be a seamless process when businesses follow due diligence and remain updated with policy changes from the GST Council and respective ministries.
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FAQs
Are STPI units eligible for GST refunds on exported software services?
Yes, STPI units exporting software services are eligible for GST refunds under the zero-rated supply provisions of Section 16 of the IGST Act. They can either export under a Letter of Undertaking (LUT) without payment of tax and claim a refund of unutilized Input Tax Credit (ITC), or export on payment of IGST and claim refund of the output tax paid. Proper documentation and return filings like GSTR-1 and GSTR-3B are essential for eligibility.
What is Rule 96(10) and how does it affect STPI/EOU exporters?
Rule 96(10) of the CGST Rules disallows IGST refunds on exports if the exporter avails exemptions on imports (e.g., under EPCG or Advance Authorization). This affects STPI and EOU exporters who procure capital goods or inputs duty-free. To avoid refund rejections, exporters must assess whether claiming duty exemptions conflicts with their IGST refund eligibility.
What documents are required for filing a GST refund for STPI/EOU exports?
Exporters must submit export invoices, shipping bills, bank realization certificates, and Form GST RFD-01. Depending on the refund type, declarations like Annexure-III and IV may also be required. Accurate filing and classification ensure faster verification and refund processing by tax authorities. Maintaining export-related documents for 6 years is mandatory.
Can EOUs claim ITC on input services used for exports?
Yes, EOUs are eligible to claim Input Tax Credit (ITC) on input services and goods used for making zero-rated supplies, including exports. However, care must be taken to avoid availing benefits under multiple overlapping schemes. ITC can only be claimed if it directly contributes to the export activity and is properly documented.
What are common challenges STPI units face under GST compliance?
STPI units often face delays in refund disbursal, lack of clarity on software service classification, and confusion around overlapping benefits like customs exemptions and IGST refunds. Additionally, absence of standardized export certification (like SOFTEX) for services complicates refund claims. Regular GST updates and expert advice help navigate these hurdles.
An Alumnus of IIM and DU with almost a decade of experience in the banking and finance sectors. I had the opportunity to work with all types of institutions in BFSI ecosystem like Bank, NBFC, Fintech, Consulting and Auditor. I started my professional journey at KPMG and subsequently worked in leading names of the BFSI sector including Ujjivan Bank, Vistaar Finance. Currently building a fintech startup ( PICE) by handling alliances, compliance and creation of GTM strategy for payments and credit product.
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