GST on Export of Services from India: LUT, Zero-Rated Supply and Refunds

If you invoice overseas clients from India — SaaS, design, development, consulting, marketing — your supply is almost certainly zero-rated, which means no GST goes on the invoice. "Zero-rated" is not the same as "exempt" and it is not the same as "ignore GST", and the difference is money: a zero-rated exporter keeps input tax credit and can claim it back in cash, while an exempt supplier cannot. Getting the paperwork wrong turns a refund into a liability.

Here is the five-part test your supply has to pass, the two routes to export without tax, the renewal that lapses every April, and the single provision that catches more Indian service exporters than all the others combined.

The five conditions for "export of service"

A supply qualifies as an export of service under the IGST Act only if all five of the following hold:

• 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 the RBI permits it.
• The supplier and recipient are not merely establishments of a distinct person — that is, not two arms of the same legal entity, such as an Indian branch of a foreign company serving its own head office.

Fail any one and the supply is a domestic taxable supply, with GST payable at the applicable rate — a charge you did not collect from your client and will have to absorb.

The subsidiary question

A frequent worry: an Indian private limited company providing development services to its overseas parent. Does the fifth condition disqualify it? No — a company incorporated in India and a foreign company are separate legal persons, not establishments of the same person, so the supply can qualify as an export. The condition is aimed at branch and liaison office structures, not at subsidiaries. This matters a great deal for the common "Indian engineering subsidiary of a US parent" setup.

The provision that catches people: intermediary services

Here is where most incorrect positions come from. For intermediary services, the place of supply is the location of the supplier — in India. That breaks the third condition, so an intermediary service supplied to an overseas client is not an export and is taxable at the standard rate, even though the client is abroad and pays in dollars.

An intermediary is broadly someone who arranges or facilitates a supply between two other persons, rather than supplying the main service on their own account. The practical exposures:

• Commission agents finding Indian buyers for a foreign manufacturer — intermediary, taxable.
• Sales representatives or channel partners paid a commission on deals closed for a foreign principal — usually intermediary.
• Lead generation on a commission basis — frequently intermediary.
• A marketing agency running campaigns on its own account for a foreign client, for a fee rather than a commission on sales — generally not an intermediary, and therefore an export.
• A software development firm building a product for a foreign client — main service on its own account, an export.

The distinction turns on whether you are supplying the service yourself or facilitating someone else's supply, and the commercial substance matters more than the contract heading. If your revenue is commission-based from a foreign principal, this is the first thing to get an opinion on — it is the difference between a refund claim and a demand with interest.

Payment in dollars from a client abroad does not make a supply an export. The place of supply does, and for intermediaries that place is India.

Two routes to exporting without tax

Once your supply does qualify, zero-rating is achieved one of two ways. You choose; they are not both automatic.

For almost every service exporter, the LUT route is the right one. You are not paying out tax you will have to chase, and the only ongoing obligation is the annual filing plus the refund claim for accumulated input credit.

The LUT, and the renewal that lapses

The Letter of Undertaking is filed online on the GST portal in the prescribed form. It is an undertaking that you will fulfil the export conditions, and most exporters are eligible to file one — a bond with a bank guarantee is required only where the exporter has been prosecuted for tax evasion above the specified threshold.

The critical operational fact: an LUT is valid for one financial year and must be filed afresh each year. There is no auto-renewal and no reminder. An exporter who filed in year one and never again is, from 1 April of year two, exporting without a valid LUT — which means IGST was payable on those invoices. The exposure accumulates invisibly for months and surfaces in a departmental query or at audit.

Put the LUT filing in the first week of April, alongside your other year-start items such as the annual IEC update. Our compliance calendar tracks it as a fixed annual date for exactly this reason.

Registration: do you need it?

Yes, in practice. Export of services is an inter-state supply and is taxable — zero-rated, but taxable, not exempt. Beyond the technical registration requirement, registration is necessary as a matter of mechanics: you cannot file an LUT, cannot claim a refund of input credit, and cannot report zero-rated supplies without a GSTIN. A service exporter operating without registration is not saving compliance; they are forfeiting refunds. Our GST registration guide covers the process.

Claiming the refund

• What you claim. Under the LUT route, the refund is of unutilised input tax credit attributable to zero-rated supplies — the GST you paid on your own inputs: software subscriptions, rent, professional fees, equipment.
• How. An online refund application for the relevant period, with the statement of invoices and the supporting documents.
• Proof of receipt in foreign exchange. This is the documentary heart of the claim. You need the bank's evidence of inward remittance — the foreign inward remittance advice or certificate — tying the receipts to the invoices. Banks issue these electronically; collect them as payments arrive rather than reconstructing a year later.
• Timing. Refund applications are subject to a limitation period from the relevant date, so claims cannot be left indefinitely. A provisional refund of a large part of the claim is available for zero-rated supplies, with the balance after scrutiny.
• Reconciliation. Your claim has to agree with your returns, your books and your remittance evidence. Mismatches between the invoice values declared, the credit claimed and the forex actually received are the standard reason a refund stalls — which is why GST reconciliation is worth doing monthly rather than at claim time.

Receipt in rupees

The fourth condition allows receipt in Indian rupees where the RBI permits it — relevant for exports to certain neighbouring countries and for settlement through the RBI's rupee arrangements. It is a narrow permission, not a general one: receiving rupees from an overseas client through an ordinary channel does not satisfy the condition.

A working checklist for a service exporter

• Confirm the supply meets all five export conditions, and specifically that you are not an intermediary.
• Hold a valid GST registration.
• File the LUT in April, every April.
• Invoice without GST, marked as a zero-rated export supply, with the client's overseas details.
• Collect inward remittance evidence from your bank for every receipt.
• Report zero-rated supplies correctly in your monthly returns.
• Claim the input credit refund periodically rather than letting credit accumulate for years.
• Keep contracts that describe the service accurately — they are the first thing read if the intermediary question is raised.

Frequently asked questions

Check your position, then claim what you are owed

Two things are worth checking today: whether your LUT for the current year is actually on file, and whether anyone has tested the intermediary question against what your contracts say you do. Both are quick, and both are expensive to get wrong in opposite directions — one creates a liability, the other leaves a refund unclaimed. Book a free consultation with our CA team and we will review your export invoices and contracts against the five conditions, confirm your LUT status, and work out how much accumulated input credit you can reclaim.