Export of Services Under GST: Conditions, LUT and Refunds

Summary:Export of services under GST requires satisfaction of all statutory conditions prescribed under Section 2(6) of the IGST Act. The supplier must be located in India, the recipient must be outside India, the place of supply must be outside India, payment must be received in convertible foreign exchange or permitted Indian rupees, and the supplier and recipient must not merely be establishments of the same person. Once these conditions are fulfilled, the supply is treated as zero-rated under Section 16, enabling eligible exporters to make supplies without payment of IGST under LUT and claim refund of eligible accumulated ITC, or use the permitted IGST-payment route subject to applicable provisions. The article explains the place-of-supply rules, including special rules for immovable property, physical performance, events and intermediary services, along with treatment of supplies to foreign parent or group entities. It also covers LUT filing, Rule 96A timelines, export invoicing, GST return reporting, refund documentation, foreign-exchange realisation and common compliance errors. Proper reconciliation of export invoices, GST returns, LUT records, accounting records and bank receipts is highlighted as an important compliance measure for service exporters.

Export of Services Under GST: Key Conditions and Compliance Requirements

Export of services has become an important part of India’s economy, particularly for businesses providing software development, IT support, consultancy, accounting, legal assistance, digital marketing, engineering, design, research, back-office support and other professional services to overseas clients. Although the customer may be located outside India, simply raising an invoice on a foreign client does not automatically make the transaction an export of services under GST.

The Integrated Goods and Services Tax Act, 2017 lays down specific conditions that must be satisfied before a service can qualify as an export. Once those conditions are fulfilled, the supply is treated as a zero-rated supply under Section 16 of the IGST Act. This allows an eligible exporter to export without payment of IGST under a Letter of Undertaking (LUT) and claim refund of accumulated eligible input tax credit, or use the permitted IGST-payment route and claim refund subject to the applicable law and restrictions. Exporters should therefore understand the definition of export, place-of-supply rules, foreign-exchange requirements, LUT procedure, invoicing, GST return reporting and refund provisions before treating an overseas transaction as zero-rated.

What is Export of Services Under GST?

Section 2(6) of the IGST Act defines an export of services through a set of statutory conditions. Broadly, a supply qualifies where the supplier is located in India, the recipient is located outside India, the place of supply is outside India, payment is received in convertible foreign exchange or in Indian rupees where permitted by the Reserve Bank of India, and the supplier and recipient are not merely establishments of the same person. export of services conditions have also been addressed by CBIC.

All of these conditions need to be examined together. The fact that a customer has a foreign address or makes payment in US dollars does not, by itself, establish that the transaction is an export under GST. For example, an Indian software company developing customised software directly for a company incorporated in the United States may generally qualify for export treatment where the recipient and place of supply are outside India, the consideration is received through the permitted banking channel and the other statutory conditions are satisfied.

Five Essential Conditions for Export of Services

The Supplier of Service Must Be Located in India

The first condition is that the supplier of the service should be located in India. Therefore, the GST export-of-services framework is relevant where an Indian business, professional, company, LLP or other supplier provides services to a recipient located outside India.

Determining the location of the supplier may sometimes require examination of the registered place of business or fixed establishment from which the service is actually supplied. This becomes particularly important for multinational businesses operating through multiple offices or establishments.

The Recipient of Service Must Be Located Outside India

The person receiving the service must be located outside India. Exporters should therefore clearly identify who the contractual recipient of the service actually is. For example, suppose an Indian consulting company enters into an agreement with a UK company, raises its invoice on the UK company and the UK company is contractually liable to pay for the service. The UK company would ordinarily be examined as the recipient.

However, exporters should be careful where the service benefits another Indian entity or where the overseas party merely makes payment on behalf of an Indian customer. The contractual arrangement, consideration, responsibilities of the parties and actual nature of the service should all be examined.

Place of Supply Must Be Outside India

This is one of the most important conditions for determining whether a service qualifies as an export. Under Section 13 of the IGST Act, where either the supplier or recipient is located outside India, the general rule is that the place of supply is the location of the recipient, except for specified categories of services for which special rules apply.

Therefore, if an Indian consultant provides ordinary consultancy services directly to a foreign company and no special place-of-supply provision applies, the location of the foreign recipient may generally become the place of supply.

However, special rules apply to several categories, including services connected with immovable property, services requiring physical performance, certain event-related services, banking services to account holders, intermediary services and passenger transportation. Exporters should therefore determine the correct place of supply before treating a service as zero-rated.

Payment Must Be Received in the Permitted Manner

One of the statutory conditions is that payment for the service should be received in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India. Therefore, receiving payment in US dollars, euros, pounds or another permitted convertible currency can satisfy this part of the export definition where the other requirements are also met.

The law also recognises receipts in Indian rupees where RBI permits such settlement. RBI has introduced mechanisms for international trade settlement in INR through permitted banking arrangements, including Special Rupee Vostro Accounts. The GST Council has specifically examined the interaction between such RBI-permitted INR settlements and the export-of-services condition. Exporters receiving overseas consideration in rupees should therefore verify that the receipt is through a mechanism permitted by RBI instead of assuming that every INR payment from an overseas customer qualifies. Special Rupee Vostro Accounts are addressed in the relevant CBIC clarification.

Supplier and Recipient Must Not Merely Be Establishments of the Same Person

The final condition is that the Indian supplier and the overseas recipient should not merely be establishments of the same person. For example, services supplied by an Indian establishment of a foreign company to another establishment of the same foreign company outside India may not qualify as export because the two establishments can be treated as establishments of a distinct person.

CBIC has, however, clarified that an Indian-incorporated subsidiary and its separately incorporated foreign parent company are separate legal persons. Therefore, services supplied by an Indian-incorporated subsidiary to its foreign parent are not automatically disqualified from export treatment merely because they belong to the same corporate group, provided all the other export conditions are satisfied.

Export of Services is Zero-Rated, Not Exempt

Exporters should understand the difference between a zero-rated supply and an exempt supply.

Section 16 of the IGST Act treats exports of goods or services as zero-rated supplies. Zero-rating is more beneficial than a normal exemption because eligible input tax credit may generally be availed for making zero-rated supplies, subject to the GST provisions.

For example, an Indian IT company may incur GST on:

• office rent;
• professional services;
• software subscriptions;
• cloud services;
• equipment;
• telephone and internet services; and
• other eligible business expenses.

Where such inputs or input services are used for zero-rated exports, eligible ITC can generally be retained and, subject to the refund provisions, accumulated credit may be claimed as refund.

How Can Services Be Exported Under GST?

There are principally two routes relevant to zero-rated exports.

Export Without Payment of IGST Under LUT

The most commonly used route is to export services without payment of IGST after furnishing a Letter of Undertaking in Form GST RFD-11. Under the GST portal procedure, registered taxpayers making zero-rated supplies can furnish the LUT electronically through:

Services → User Services → Furnish Letter of Undertaking (LUT).

Once the LUT is furnished, the exporter can make eligible export supplies without charging IGST and may claim refund of eligible accumulated input tax credit. Form GST RFD-11 filing procedures are available on TaxGuru.

Example

An Indian digital marketing company provides services worth ₹10 lakh to a US client. If the transaction satisfies all conditions of export and the company has furnished a valid LUT, it may raise the export invoice without charging IGST. If eligible GST of ₹75,000 has accumulated on business inputs and input services, the company may consider claiming refund of the eligible unutilised ITC under the prescribed refund procedure.

Export on Payment of IGST and Claim of Refund

GST law also provides a route under which notified classes of goods or services may be exported on payment of IGST and the tax paid may subsequently be claimed as refund. With effect from October 1, 2023, the Government notified goods and services that may use this route, subject to specified exclusions and conditions. Services generally fall within the permitted class under the notification. The appropriate route should be selected after considering the exporter’s cash flow, ITC position and applicable refund requirements.

What is a Letter of Undertaking?

A Letter of Undertaking or LUT is an undertaking furnished by an eligible registered exporter allowing zero-rated supplies to be made without upfront payment of IGST. The LUT is generally valid for the financial year for which it is furnished. CBIC extended the LUT facility to registered exporters subject to the prescribed conditions, while exporters falling within specified prosecution-related restrictions may be required to follow the bond procedure instead. For example, an LUT furnished for FY 2026-27 should be renewed for the next financial year if the taxpayer wishes to continue exporting without payment of IGST.

When Should LUT Be Filed?

The LUT should ideally be furnished before making the zero-rated supply without payment of IGST. The GST portal allows Form GST RFD-11 to be filed online for the relevant financial year. The taxpayer needs to complete the required declarations and provide details of authorised signatories and witnesses while filing.

Exporters should therefore make LUT renewal part of their financial-year opening GST compliance instead of discovering an expired LUT after export invoices have already been issued.

Time Limit for Receiving Export Consideration Under LUT

Rule 96A is important for service exporters using LUT. Where services are exported without payment of IGST under LUT, the exporter undertakes to receive the payment for the exported services within one year from the date of issue of the invoice, or within such further period as may be permitted by the Commissioner. If the prescribed requirement is not met, the exporter may become liable to pay the tax along with applicable interest in accordance with Rule 96A.

This rule makes outstanding export receivables an important GST compliance issue. Businesses should maintain an ageing report specifically for overseas invoices so that unpaid export invoices approaching the Rule 96A deadline can be identified in advance.

Place of Supply Rules for Exporters

A foreign customer does not automatically mean the place of supply is outside India. Section 13 of the IGST Act contains several special rules, and exporters need to determine which provision applies to their particular service.

General Professional and Consultancy Services

For services not covered by a special rule, the place of supply is generally the location of the recipient. Therefore, ordinary business consultancy, professional advisory or similar services supplied directly to an overseas recipient can potentially have a place of supply outside India. However, the precise scope and contractual arrangement should always be reviewed.

Services Related to Immovable Property

Where services are directly connected with immovable property, the place of supply is generally the location of the property. This may apply to services of architects, estate agents, accommodation providers, interior decorators and certain construction-related service providers.

Example

An architect located in India provides architectural services relating specifically to a building situated in Dubai. Since the immovable property is outside India, the place-of-supply analysis may support export treatment, subject to satisfaction of all other conditions. If the same service relates to property situated in India, the result can be different even where the customer is located abroad.

Services Requiring Physical Presence

Certain services that require goods or an individual to be physically made available to the service provider can be governed by the place where the services are actually performed. Therefore, exporters should not mechanically apply the recipient-location rule to every service.

Event-Related Services

Services relating to admission to or organisation of certain cultural, artistic, sporting, scientific, educational or entertainment events can have a place of supply determined by where the event is actually held. The location of the overseas customer may therefore not always determine export status.

Intermediary Services and Export of Services

Intermediary services are one of the most important areas of GST disputes involving cross-border services. An intermediary generally arranges or facilitates a supply between two or more persons but does not supply the main goods or services on its own account.

Under Section 13(8), the place of supply of intermediary services is generally the location of the supplier. Therefore, where an intermediary is located in India, the place of supply can be India even though the customer or principal is located outside India. In such a situation, the requirement that the place of supply should be outside India may not be satisfied, meaning the transaction may not qualify as an export of services.

Example

An Indian company merely arranges customers for a foreign supplier and earns commission for facilitating transactions between the foreign supplier and third-party customers. Depending on the contractual terms and actual activities, the company may need to examine whether it is acting as an intermediary.

By contrast, if an Indian company independently provides marketing, consultancy, research, software development or another service to a foreign customer on a principal-to-principal basis, the intermediary provision may not necessarily apply. The real nature of the service is more important than the label used in the agreement.

Export to Foreign Parent, Subsidiary or Group Company

Many Indian companies provide IT, finance, accounting, back-office, support and research services to overseas group companies. Such transactions are not automatically denied export status merely because the customer belongs to the same corporate group.

CBIC has clarified that an Indian-incorporated company and a separately incorporated foreign company are separate persons. Therefore, services provided by an Indian subsidiary to its foreign parent or group entity can qualify as exports if all the other requirements under Section 2(6) are satisfied. However, a branch and head office arrangement can be different because establishments of the same legal person may be treated as establishments of a distinct person for this purpose. Export of Services to Group Entities is also addressed in a TaxGuru publication.

GST Invoice for Export of Services

Exporters should issue a proper tax invoice containing the particulars required under GST law. The invoice should clearly indicate that the transaction is an export and identify whether it is being made:

“Supply meant for export under bond or Letter of Undertaking without payment of integrated tax”

or, where applicable,

“Supply meant for export on payment of integrated tax.”

The invoice should also appropriately capture details such as:

• invoice number and date;
• exporter’s name, address and GSTIN;
• overseas customer details;
• description of services;
• SAC where applicable;
• value of supply;
• currency;
• place of supply;
• LUT reference where relevant; and
• payment terms.

Correct invoicing helps support the export position during return filing, refund processing or GST scrutiny.

Reporting Export of Services in GST Returns

Export transactions should be properly disclosed in GST returns even where no IGST is charged because an LUT has been furnished. Export invoices are required to be reported in the appropriate export section of GSTR-1, while the zero-rated turnover is also reflected appropriately in GSTR-3B.

The details reported in invoices, GSTR-1, GSTR-3B and refund applications should be consistent. Differences in invoice number, value, tax amount or export category can create issues during refund processing. Businesses with a large volume of overseas invoices should therefore reconcile:

Export invoices → Accounting records → GSTR-1 → GSTR-3B → Foreign remittances → Refund application

Refund of Input Tax Credit on Export of Services

An exporter supplying services without payment of IGST under LUT may accumulate ITC because GST continues to be paid on eligible domestic purchases and input services while no output GST is collected on exports. Such eligible accumulated ITC can generally be claimed as refund under the prescribed mechanism. Refund of unutilised input tax credit on exports is covered in TaxGuru’s GST refund reference material.

The GST portal currently provides the refund category for export of goods/services without payment of tax, and the refund application is filed in Form GST RFD-01. Refund eligibility is subject to the statutory conditions, formula and restrictions under the CGST Act and Rules.

Documents Important for Export Service Refund Claims

The exact documents depend on the nature and amount of the claim, but exporters should generally maintain strong documentary evidence including:

• export invoices;
• valid LUT;
• service agreement or work order;
• evidence establishing the overseas recipient;
• bank realisation/remittance records;
• Foreign Inward Remittance Certificate or equivalent banking evidence where applicable;
• Bank Realisation Certificate or permitted supporting record;
• GSTR-1 and GSTR-3B;
• input tax credit records;
• purchase invoices;
• refund computation;
• declarations and undertakings required under GST law; and
• evidence establishing that the service was actually provided.

The agreement and invoice description should also clearly support the nature of the service and the place-of-supply position.

Time Limit for Filing GST Refund on Export of Services

Refund applications under Section 54 are generally subject to a two-year limitation period from the relevant date, subject to the applicable provisions. For exported services, the relevant date can depend on whether payment was received before or after completion of the service. The statutory framework connects the relevant date with receipt of payment in permitted foreign exchange/INR where service was completed before payment, or with the invoice where payment was received in advance. Exporters should therefore avoid accumulating refund claims for long periods. Quarterly or periodic refund reviews can help protect cash flow and prevent limitation issues.

Foreign Exchange Realisation and GST Compliance

Foreign-exchange compliance and GST compliance are closely connected for service exporters. A transaction may satisfy the commercial meaning of an export but still face GST problems if consideration is not received in the manner required under Section 2(6) and Rule 96A.

Exporters should monitor:

• invoice date;
• currency of invoice;
• amount outstanding;
• date of receipt;
• foreign exchange amount;
• INR equivalent;
• bank charges;
• permitted RBI route; and
• ageing of unpaid invoices.

Proper reconciliation between accounting records and bank remittance records becomes especially important during GST refund proceedings.

Common GST Mistakes Made by Service Exporters

Treating Every Foreign Invoice as an Export

The foreign location of the customer is only one condition. The place of supply, payment condition and relationship between supplier and recipient must also be checked.

Ignoring the Place of Supply

This is particularly risky for intermediary services, immovable-property services, events and services requiring physical performance. A wrong place-of-supply conclusion can convert what the business considered zero-rated turnover into a taxable transaction.

Exporting Without a Valid LUT

Businesses using the without-payment-of-IGST route should ensure that the LUT has been furnished for the relevant financial year before making supplies under that route.

Not Tracking Foreign Receivables

Unpaid export invoices can create consequences under Rule 96A. Businesses should therefore maintain invoice-level ageing of export receivables.

Assuming Every INR Receipt Qualifies

Indian-rupee receipt can satisfy the export condition only where receipt in INR is permitted by RBI.

Misclassifying Intermediary Services

Calling an arrangement “consultancy” in the invoice will not determine its GST treatment if the actual role is merely arranging or facilitating another supply. Contracts and operational activities should be reviewed together.

Mismatch Between GST Returns and Refund Data

Differences between invoice values, GSTR-1, GSTR-3B, LUT details, remittances and refund statements can delay or complicate refund processing.

Practical GST Compliance Process for Service Exporters

A business exporting services should first identify whether the overseas arrangement satisfies all five conditions of Section 2(6). The place of supply should be analysed separately for each major service category instead of assuming that every foreign customer transaction is an export. The business should then ensure that a valid LUT is furnished where services are to be exported without payment of IGST. Export invoices should contain appropriate declarations and should be correctly reported in GSTR-1 and GSTR-3B.

After invoicing, overseas receivables should be monitored to ensure that consideration is received through permitted banking channels within the applicable period. Finally, accumulated eligible ITC should be reconciled and refund claims should be filed within the statutory limitation period.

Conclusion

GST on export of services requires exporters to satisfy specific legal conditions rather than simply providing services to an overseas client. The supplier must be located in India, the recipient and place of supply must be outside India, payment should be received in the permitted manner, and the transaction must meet the prescribed export conditions. Once fulfilled, the supply is treated as zero-rated, allowing exporters to use LUT for export without payment of IGST and claim refund of eligible accumulated ITC.

Exporters should carefully review place-of-supply rules, intermediary services, foreign remittances, INR receipts, Rule 96A timelines, GST invoicing and refund documentation. Regular reconciliation of export invoices with GSTR-1, GSTR-3B, LUT records and bank receipts can help prevent tax disputes and refund delays. For professional assistance with GST on export of services, LUT filing and GST refunds, contact Compliance Calendar LLP at info\@ccoffice.in or 9988424211.

Frequently Asked Questions

Q1. Is GST Charged on Export of Services?

Ans. A transaction satisfying the statutory definition of export of services is treated as a zero-rated supply under Section 16 of the IGST Act. The exporter may use the LUT route to export without payment of IGST or follow the permitted tax-payment and refund route, subject to the applicable provisions.

Q2. Is LUT Mandatory for Export of Services?

Ans. LUT is required where a registered exporter chooses to make zero-rated supplies without payment of IGST under the LUT mechanism. Form GST RFD-11 can be furnished electronically on the GST portal for the relevant financial year.

Q3. Can Payment for Export Services Be Received in Indian Rupees?

Ans. Yes, where receipt in Indian rupees is permitted by the Reserve Bank of India. The export definition specifically recognises convertible foreign exchange as well as INR receipts permitted by RBI.

Q4. Is a Service to a Foreign Client Always an Export?

Ans. No. All conditions under Section 2(6) must be satisfied. In particular, the place of supply must be outside India. A foreign customer’s address alone does not determine export status.

Q5. Can an Indian Company Export Services to Its Foreign Parent?

Ans. Yes, an Indian-incorporated company and separately incorporated foreign parent can be treated as separate persons. Such supplies may qualify as exports where all the remaining statutory conditions are fulfilled.

Q6. Are Intermediary Services Treated as Export?

Ans. Not necessarily. Under Section 13(8), the place of supply of intermediary services is generally the location of the supplier. Therefore, an intermediary located in India may fail the requirement that the place of supply be outside India.

Q7. Can an Exporter Claim ITC on Business Expenses?

Ans. Eligible ITC may generally be availed for inputs and input services used for making zero-rated supplies, subject to the usual ITC conditions and blocked-credit provisions. Zero-rated exports are therefore different from ordinary exempt supplies.

Q8. Can Accumulated ITC Be Refunded?

Ans. Yes. A registered exporter making zero-rated supplies without payment of IGST under LUT may claim refund of eligible accumulated ITC subject to the GST refund provisions and prescribed formula. The application is generally filed in Form GST RFD-01.

Q9. What Happens if Export Payment Is Not Received Within the Required Period?

Ans. Under Rule 96A, failure to receive consideration for export of services within the prescribed period can require the exporter to pay the applicable tax along with interest, unless an extension or other permitted treatment applies.

Q10. How Long is an LUT Valid?

Ans. An LUT is furnished for a particular financial year. Exporters intending to continue zero-rated supplies without payment of IGST should therefore furnish a fresh LUT for the next financial year.