The Indian government has been ardently advocating for rupee-based trade agreements with various countries as a strategic move to reduce reliance on the U.S. Dollar. Banks from 22 countries have opened Special Rupee Vostro Accounts with Indian banks to remit payments for their imports from India.
A Vostro account is an account that domestic banks hold for foreign banks in the former’s domestic currency, in this case, the rupee. Vostro is a Latin word that means “your”, therefore, a Vostro account implies that it is “your account”. The Rupee Vostro Account holds the foreign entity's deposits in Indian rupees at the Indian bank. When an Indian exporter has to be paid for in rupees, this Vostro account will be deducted and amount will be credited to the exporter's regular account. With the help of Vostro account, instead of paying and receiving US dollars, the invoicing and payments can be done in Indian rupees if the counterparty has a Rupee Vostro account.
However, the exporters of services faced an issue as the prevailing GST norms necessitated foreign currency receipts to qualify as 'exports,' leaving them ineligible for input tax credits. Many refund applications were pending on the ground that receipt of consideration in INR did not meet the condition prescribed for the purpose of qualifying as ‘exports of services,
In response to this challenge, the GST Council recommended the issuance of a circular to clarify the admissibility of export remittances received in Special Rupee Vostro accounts, as permitted by RBI. These remittances will now be considered for the evaluation of service supplies, making them eligible as 'exports of services' under the IGST Act, 2017.
This move provides much-needed clarity and relief to exporters of services. Such measures will facilitate smoother trade relations with nations, especially nations like Iran and Russia which are grappling with global sanctions, and bolster India's overall economic resilience.