As per the Indian indirect tax laws including Customs and GST, taxes shall not be exported outside India. In other words, the taxes shall not be charged from customers located outside India. The reason is to boost the exports to increase the inflow of foreign currency in India.

In this write up, we will analyse the GST provisions applicable on export of services in case the exporter has availed the benefit of Letter of Undertaking along with the legal provisions applicable i.e. Section 2(6), Section 16 of IGST Act, 2017, Rule 96A of CGST Rules, 2017 and circulars issued in this regard.

Legal applicability of Section 2(6) and Section 16 of IGST Act on Export of Services 

Section 2(6) of IGST Act, “export of services” means the supply of any service when,– 

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange*; and

(v) the supplier of service and the recipient of service are not merely establishments  of  a  distinct  person  in  accordance  with   Explanation 1 in section 8; 

The export of services is defined as any service where the location of supplier is in India [1], location of recipient [2] and place of supply of service is outside India [3] and payment for such service has been received by the supplier in convertible foreign exchange. If any of the 5 condition does not meet then the supply of service shall not be qualified as Export of service and IGST shall be charged.

*w.e.f. 01 Feb 2019, the phrase “or in Indian rupees wherever permitted by the Reserve Bank of India” shall be included;

The first 3 condition of definition may be referred from the respective provisions mentioned in notes. Convertible foreign exchange shall be elaborated in this writeup. But first, we shall discuss the extract of section 16 of IGST Act, which provides the meaning of ‘zero rated supply’. As per the provision, ‘zero rated supply’ means ‘supply of export of services and/or goods’ & ‘supply of goods and/or services to SEZ unit or developer’.

The provision also provides about the GST chargeability on above mentioned supplies. The said provision allows 2 options to the exporter w.r.t. GST chargeability on supplies:

  1. A registered person may claim GST refund of un-utilized input tax credit where the goods or services are supplied without charging IGST against the bond or letter of undertaking (LUT); OR
  2. Another option to export the services on payment of integrated tax and claim refund of such tax paid on services supplied;

Export with or without payment of IGSTLetter of Undertaking 

It is clear from the above explained provision that, the services can be exported without payment of IGST against the bond/letter of undertaking (LUT)[4].

There is no specific definition of LUT given in the GST law. However, as per the format of LUT specified in CGST Rules, the assessee undertakes that LUT shall stand withdrawn and IGST shall be payable within 15 days along with interest, if the remittance against export of services is not received by the supplier of service in convertible foreign currency within 1 year from the date of invoice. This means that IGST shall be payable on the supplies if the consideration is not received in convertible foreign currency within 1 year from the date of invoice.  

Therefore, when an exporter has supplied services without IGST against LUT then the consideration should be received: 

i. within the specified time period : Within 1 year from the date of invoice;

ii. as convertible foreign currency;

Consideration not received within 1 year time period – Export of services without IGST 

As per sub-rule (1)(b) of rule 96A of CGST Rules, the exporter shall be required to make the payment of IGST if the amount is not received within 1 year or the time period extended by the commissioner. Therefore, the exporter may file an application with the jurisdictional officer for extension of time to receive the consideration.

In this way, the exporter may get the relief from payment of IGST along with due interest. Please note that the application should be filed considering the fact that consideration shall be received and time limit of 1 year is not expired.

What is meant by Convertible Foreign Currency ?

The term ‘convertible foreign currency’ is not defined under the provisions of GST Law. However, point no. 2(f) of circular no. 5/5/2017 – GST issued by GST policy wing of CBIC clarifies about the remittances in convertible foreign exchange against export of services. The relevant extract of the circular is given as below:

Attention is invited to Para A(v) Part-I of RBI Master Circular no. 14/2015-16 dated July 1, 2015 (dated as on November 5, 2015), which states “there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notification and Directions framed under the Foreign Exchange Management Act, 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency……”

Accordingly, an exporter can issue the invoice in INR as well. There is no mandatory requirement to issue the invoice in foreign currency. 

“……However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan.”

Where an assessee has received consideration from overseas client and foreign inward remittance certificate (FIRC) issued by the recipient bank in India reflects the currency of remittance as INR, then such remittance may be treated as receipt of foreign exchange as per the instructions/circulars of RBI if the amount is received through a freely convertible VOSTRO account of a non-resident bank situated in any country (not being member country of ACU or Nepal or Bhutan).

However, it is also necessary to mention here that more clarification from the GST authorities is awaited over the above matter. Further, the exporter is suggested to receive the consideration in convertible foreign currency only i.e. in currency other than INR which is convertible in India.

Important Note: As per the IGST Amendment Act, 2018, a person may receive the consideration in foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India. The amendment act shall be effective from 01-02-2019.

 Therefore, the exporters are advised to check the INR receipts are duly permitted by the RBI to confirm that such supplies are covered under the category of Export of services. 


The exporter needs to be very cautious about the determination of place of supply, location of recipient, remittance in foreign currency (or INR wherever permitted by RBI), ageing of receivables, etc. to avoid any issues in filing the refund application of GST credit with the authorities and most importantly future litigation on taxability.

We believe that for 01 Feb 2019 onwards period, the exporter should not be challenged on receipt in foreign exchange only. However, foreign currency inward remittance (FIRC) certificate shall be necessarily required by the authorities and therefore such documents should be kept in records.

The export of services without payment of taxes has always been a point of attraction for audit team of GST authority. The exporter should also be more cautious in this regard since the authorities are more strengthen with the analytical team. Therefore, the tax payer has to keep and maintain all the basic documentation like LUT, agreements/contracts, foreign inward remittance certificates (FIRCs), tax invoices and opinions (in case of specific case) to support the supplies as export.


[1] For location of supplier, section 2(71) of CGST Act shall be referred;

[2] For location of recipient, section 2(70) of CGST Act shall be referred;

[3] For place of supply for services, section 12 and 13 of IGST Act shall be referred;

[4] LUT option can be availed by any exporter except person who has been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds INR 250 Lakhs [N/N 37/2017-(CT)];

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST.

(Authors – CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at [email protected], 9818449179)

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Qualification: CA in Practice
Company: RAPG & Co. Chartered Accountants
Location: Delhi, New Delhi, IN
Member Since: 04 Mar 2019 | Total Posts: 3

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  1. Sweta says:

    Sir Export of Services made under LUT part consideration received and part consideration has become Baddebts because the foreign government had stalled the project now in such scenario what we should do as part money is never going to be received please advice

  2. Shivani says:

    If a payment is not realized payment for export within one year but the company has taken extension from the RBI under the FEMA Act for extension of one year of payment period.
    Still the company has to pay IGST within 15 days from the expiry of one year? or The extention obtained from RBI will be applicable to GST also?

  3. kumar says:

    Dear Sir,
    Good afternoon,
    We are MNC foreight forwarding Pvt Ltd company incorporated in India, one of our client asking us to invoice their parent company located in Hongkong in USD without IGST for service received in India, please advise your opinion.
    Both service percipient and service provider within tax territory.

  4. sanju says:

    Dear Sir,
    The article is really informative.
    Have a query, on filing of GSTR-1 and 3B.
    Where to show details in GSTR-1 and 3B for export of service without payment of IGST as the exporter has issued invoices with ARN of LUT for FY 2019-20?

  5. Ravitosh says:

    Sir, I believe we should also have clarity on what is export of goods or service permitted by RBI to be received in INR.

    Please suggest where I can find permitted by RBI criteria in specific RBI circular or guidelines

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