GST affects cross‑border trade in India in several powerful ways. As the nation retools its tax regime, exporters and importers feel the shifts in costs, compliance and competitiveness. With new reforms under GST, both opportunities and challenges emerge for trade across borders.
How GST simplifies cross‑border transactions:
One major advantage of GST is that it removes cascading taxes such as multiple layers of excise duty, VAT and service tax. This streamlines the tax burden for businesses dealing in international trade. For companies importing raw materials or exports inputs, reduced tax overlap lowers overall cost. As a result, cross‑border trade becomes more affordable and compliance becomes simpler — a win for efficiency.
Moreover, under GST, exports are treated as “zero-rated supplies.” This means exporters do not pay GST on their output and can claim input tax credit (ITC) on inputs and services used domestically. That reduces the effective tax cost for goods bound for foreign markets and boosts export competitiveness.
Recent Reforms & Their Effect on Exports and Imports:
With the rollout of recent reforms sometimes called GST 2.0, India further cut GST rates on many inputs and packaging materials. For example, GST on paper packaging, textiles, leather, wood, toys and sports goods was reduced from 12–18% to 5%. This lowers production costs for export‑oriented manufacturers, especially in labour‑intensive and small‑scale industries.
In addition, GST on trucks and delivery vans was lowered from 28% to 18%. That reduces freight and logistics costs — a critical component in cross‑border supply chains. Together, these changes help Indian exporters price more competitively in global markets.
Also important: the refund mechanism under GST has been improved. As of November 2025, exporters can get 90% provisional refunds for zero‑rated supplies and inverted duty structure (IDS) claims on a risk‑based basis. Furthermore, the previous value-based threshold limit for refunds has been removed — even small consignments now qualify. This helps SMEs and cross‑border e‑commerce exporters to manage working capital better.
Broader Trade Impact: Competitiveness, Supply Chain & Liquidity
Thanks to GST reforms, exporters see improved liquidity, lower input costs and faster refunds. Consequently, Indian exports may surpass previous levels, even in a challenging global environment. The export share of goods and services in GDP recently rose (from 19.8% in 2015 to 21.2% in 2024), showing rising global integration.
Reduced cost and better working capital flow encourage manufacturers to scale up and offer competitive global pricing. For importers, GST on inter‑state and international procurement — especially via Integrated GST (IGST) — provides a transparent tax structure. In short, GST fosters a smoother supply‑chain for cross‑border trade. At the policy level too, GST helps buffer external shocks. In the wake of steep global tariffs, GST reforms can partly offset losses and stimulate domestic demand.
Limitations & What Traders Should Watch:
However, GST is not a magic wand for all cross‑border trade issues. Experts caution that while rate cuts may boost exports and consumption, they cannot fully neutralize external pressures like global tariffs or demand shocks. Moreover, increased compliance requirements remain for importers and exporters.
Businesses must register under GST, maintain accurate invoices, file returns, and ensure timely refunds — which may be burdensome, especially for small firms. Lastly, cost savings from lower input taxes may not always translate to greater global competitiveness. Global markets still demand quality, timely delivery, efficient logistics, regulatory compliance and competitive pricing.
Conclusion:
GST affects cross‑border trade in India in profound ways. By reducing cascading taxes, enabling zero‑rated export supplies and cutting input and logistic costs, GST strengthens India’s global trade competitiveness. Recent reforms and faster refund mechanisms under GST 2.0 further democratise export benefits for MSMEs and small‐scale exporters. Explore more cross‑border trade and GST insights now!
– Ketaki Dandekar (Team Arthology)
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