India removes GST on services supplied to Nepal against payment in Indian currency

Kathmandu, October 28

Nepali traders have been exempted from paying the goods and services tax (GST) while purchasing services in India if the payment is made in the Indian currency to the Indian service providers.

Issuing a Gazette notification on Friday, the Ministry of Finance, India announced removal of the GST on supply of services to Nepal and Bhutan against payments made in the Indian currency. Earlier, the GST was exempted only if the service supplier received payment in convertible foreign currency. That rule had created extra burden on Nepali traders as they usually make payments to service suppliers in the Indian currency.

Nepali traders import various services from India namely, transportation, insurance, handling of shipping line containers, container freight stations, among others that are also associated with third-country trade. Also, India is one of the prominent suppliers of software and other information technology-related products, business process outsourcing, knowledge process outsourcing and legal product outsourcing.

Since the implementation of GST on July 1, services like transportation, cargo handling and container freight station had became costlier as the new rule recognised and exempted GST only if the service procurer made payments in convertible foreign currency. Though GST is not applicable on export of goods and services, it recognised service export only if the Indian supplier received payment in convertible foreign currency.

The government and the private sector of Nepal had continuously lobbied for removal of GST levied on services supplied to Nepal citing the services purchased by Nepali traders were ‘service export’ for India.

Hari Bhakta Sharma, president of the Confederation of Nepalese Industries (CNI), said that Nepali traders could save around Rs 10 billion per year on service import from India due to the removal of GST.

The Indian government had removed GST on services provided by Indian service providers for transit cargo such as transportation, insurance, shipment, container freight station and cargo handling charges, among others for Nepal and Bhutan in the last week of September.

Rabi Shanker Sainju, joint secretary at the Ministry of Commerce, has said that it would be easier for Nepali traders to purchase services in Indian currency since the government of India has issued special provision for Nepal and Bhutan as Indian currency is widely circulated in both the land-locked neighbouring countries.

Nepal Rastra Bank also encourages traders to make payments in Indian currency during trade with India except in cases of payments against letter of credit (L/C). Sainju further said that the recent amendment in GST rules on the recommendation of GST Council of India will help boost service export from India to Nepal.