GST on Export of Services from India — Zero-Rated Supply and Refund Guide

If your business exports services from India — whether you are an IT company, a software developer, a consultant, a designer or any other service provider working with foreign clients — you need to understand how GST applies to your exports. The good news is that exports are treated as "zero-rated supplies" under GST, meaning you do not charge GST to your foreign clients. But the process to benefit from this has specific rules.

What is a Zero-Rated Supply?

A zero-rated supply is a supply on which the rate of GST is zero. Under Section 16 of the IGST Act, exports of goods and services are zero-rated supplies. This means you do not charge any GST to your overseas client, but you are still eligible to claim ITC on the GST you paid on your purchases that went into producing the exported service.

Two Options for Exporting Services Under GST

Option 1 — Export Under LUT (Letter of Undertaking): You file a Letter of Undertaking (Form GST RFD-11) at the beginning of each financial year. This allows you to export services without paying IGST on them. You can then claim a refund of the accumulated ITC on your inputs. This is the preferred option for most regular exporters.

Option 2 — Export With Payment of IGST: You pay IGST on the export invoice and then claim a refund of the IGST paid. This route is simpler but requires upfront payment and is generally not preferred for service exporters with large volumes.

What is an LUT and How to File It?

An LUT is a declaration by the exporter that they will fulfil the export within the prescribed time and will pay IGST if they fail to do so. It must be filed on the GST portal (Form GST RFD-11) before or at the beginning of each financial year. Filing is online and takes only a few minutes once you are registered. Once filed, it is valid for the entire financial year.

Conditions for Classifying a Service as Export of Service

Under Section 2(6) of the IGST Act, a service is an "export of service" if ALL five conditions are met:

• The supplier of service is located in India
• The recipient of service is located outside India
• The place of supply of the service is outside India
• The payment for the service has been received in convertible foreign exchange or Indian rupees where permitted by RBI
• The supplier and recipient are not merely establishments of a distinct person

The foreign exchange receipt is particularly important — retain FIRC (Foreign Inward Remittance Certificate) or bank advice for all export payments. This is required for refund claims.

ITC Refund on LUT Exports

When you export under LUT (without paying IGST), accumulated ITC on inputs becomes eligible for a refund under Section 54 of the CGST Act. The refund is calculated as a proportion of the export turnover to total turnover. File Form GST RFD-01 on the portal with supporting documents (export invoices, bank realisation statements, GSTR-3B, GSTR-1).

IGST Refund on Exports With Payment

If you export with payment of IGST, the refund is processed automatically based on the shipping bill / export invoice data filed in GSTR-1 and cross-verified with the customs system. The refund is directly credited to your bank account.

Common Issues for IT and Service Exporters

• Not filing LUT at the start of the year and inadvertently charging IGST on export invoices
• Receiving payment in INR from foreign clients without RBI approval — this disqualifies the transaction as an export of service
• Delay in FIRC collection from bank causing refund processing issues
• Place of supply incorrectly determined

Conclusion

GST on service exports is zero-rated, but benefiting from this requires proper LUT filing and ITC refund claims. SPOTON's GST team handles all aspects of export compliance for service businesses in Kerala. Contact us today to ensure you are not overpaying GST.