GST on Export of Services: The Five Conditions, the LUT, and What Changed in 2026

Zero-rated is not the same as exempt

An Indian developer bills a US client $10,000 and charges no GST. That is usually correct, but the reason matters more than the result.

Exempt supply means no tax and no input tax credit. Zero-rated supply means no tax and full credit, refundable in cash if it accumulates. Exports are zero-rated. Getting the label right is what turns your software subscriptions, your co-working rent and your laptop into recoverable credit rather than sunk cost.

The catch is that zero rating depends on the transaction meeting a five-part statutory test, not on the fact that your client happens to be abroad.

What is export of services under GST?

Export of services is defined in Section 2(6) of the Integrated Goods and Services Tax Act 2017 and requires five conditions to be satisfied simultaneously: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange or in Indian rupees where the RBI permits, and the supplier and recipient are not merely establishments of the same person.

All five. Fail any one and the supply becomes a taxable domestic supply, usually at 18 per cent, and the department will look for the tax with interest.

Section 16 of the IGST Act then treats a qualifying export as a zero-rated supply and gives the supplier two routes to relief, which are described below.

Key terms explained

• Zero-rated supply: a supply taxed at nil where input tax credit remains fully available and refundable, under Section 16 of the IGST Act.
• LUT (Letter of Undertaking): a declaration in Form GST RFD-11 under Rule 96A of the CGST Rules, in which you undertake to pay IGST with interest if the export conditions are not met.
• Place of supply: the location the law treats as the place of consumption. For most cross-border services this is the recipient’s location under Section 13(2) of the IGST Act.
• Intermediary: defined in Section 2(13) of the IGST Act as a broker or agent who arranges or facilitates a supply between two or more persons, but not a person supplying on their own account.
• FIRC or eFIRA: the certificate from your authorised dealer bank confirming receipt of foreign currency against an export invoice. It is the document that proves condition four.
• Establishments of the same person: an Indian subsidiary billing its own foreign head office. Condition five exists to block intra-entity billing being dressed as export.

Who this applies to

You are in scope if you supply services from India to a person outside India. In practice that means IT and software development, SaaS, design, marketing, consulting, accounting and legal support, research, engineering, content, and back-office work.

Whether you need to be registered at all is a separate question. Export of services is an inter-state supply under Section 7(5) of the IGST Act, but Notification 10/2017 Integrated Tax preserves the ₹20 lakh threshold for inter-state suppliers of services. Our note on whether you need a GSTIN at all works through that.

Most exporters register anyway, because without a GSTIN you cannot file an LUT and cannot claim a refund of accumulated credit.

What changed on 30 March 2026

For nearly a decade, Section 13(8)(b) of the IGST Act deemed the place of supply of intermediary services to be the location of the supplier. An Indian agent facilitating a deal for a Dubai principal, paid in dollars, was treated as making a domestic supply and had to charge 18 per cent GST.

The provision generated a decade of litigation, conflicting High Court rulings, and a real competitive disadvantage for Indian BPOs, marketing agencies, procurement agents and global capability centres.

The GST Council recommended its removal at its 56th meeting on 3 September 2025. Section 157 of the Finance Act 2026, which received Presidential assent on 30 March 2026, omitted clause (b) of Section 13(8) with effect from that date.

Outbound, the consequence is that the place of supply for intermediary services now falls back to the default rule in Section 13(2), the location of the recipient. An Indian intermediary serving a foreign principal can now satisfy condition three of Section 2(6) and qualify as an exporter, with LUT access and refund eligibility.

Inbound, where an Indian business pays a foreign agent, broker or commission agent, the place of supply is now India, making it an import of service. IGST at 18 per cent becomes payable under reverse charge, and a self-invoice must be issued under Section 31(3)(f) of the CGST Act. The credit is available if the supply is used for taxable supplies, but the cash flow and the compliance step are new.

The two routes under Section 16(3)

Route one: LUT. File Form GST RFD-11, invoice without IGST, and claim refund of accumulated input tax credit under Section 54 read with Rule 89(4). This preserves working capital and is what almost every services exporter uses.

Route two: pay and reclaim. Charge IGST on the export invoice, pay it, then claim refund of the tax paid. The money is out of your account for months. It is used mainly by exporters who are ineligible for an LUT.

Filing the LUT, step by step

Step 1: Confirm eligibility. Any registered person may file an LUT unless prosecuted for tax evasion of ₹2.5 crore or more under the CGST Act, IGST Act, any existing law or the Customs Act. This follows Notification 37/2017 Central Tax and Circular 8/8/2017-GST.

Step 2: Log in to the GST portal. Navigate to Services, then User Services, then Furnish Letter of Undertaking (LUT).

Step 3: Select the financial year. Choose the year the LUT will cover. An LUT filed in April 2026 runs to 31 March 2027.

Step 4: Enter two independent witnesses. Name, address and occupation for each. They must be independent, so not family of the proprietor or the partners.

Step 5: Accept the three undertakings. Completing exports within the prescribed period, receiving payment in convertible foreign exchange, and paying IGST with interest if you fail.

Step 6: Sign and submit. Digital Signature Certificate is mandatory for companies and LLPs. Electronic Verification Code is available to proprietors and partners.

Step 7: Save the ARN. The portal generates an Application Reference Number and the LUT is deemed accepted. There is no approval wait and no government fee.

Step 8: Put the ARN on every export invoice. A line reading “Supply meant for export of services without payment of IGST under LUT, ARN [number]” removes most invoice-level queries before they start.

Documents to keep for every export

• Signed contract, statement of work or engagement letter
• Export invoice showing the LUT ARN and the zero-rated declaration
• FIRC, eFIRA or bank realisation advice for each receipt
• Bank statement showing the inward remittance and the purpose code
• LUT acknowledgement for the relevant financial year
• GSTR-1 Table 6A and GSTR-3B Table 3.1(b) for the period
• A written place-of-supply rationale where the service could be argued to be intermediary

The numbers that matter

Five mistakes that cost real money

• Forgetting to renew the LUT on 1 April. Every invoice raised before the new LUT is filed sits outside the no-IGST route, because an LUT is not retrospective. File in March for the year ahead.
• Assuming any foreign client means export. The place of supply turns out to be India because of a performance-based rule or an intermediary characterisation, and 18 per cent falls due with interest. Document the place-of-supply reasoning before the first invoice.
• Billing your own foreign parent or subsidiary. Condition five fails where the two are establishments of the same person, and zero rating is denied. Check the corporate structure against Section 2(6)(v).
• Not collecting the FIRC. The refund application fails on condition four even though the money clearly arrived. Request the certificate at the time of each receipt, not at year end.
• Letting an invoice age past one year. IGST plus 18 per cent interest becomes payable within 15 days of expiry, and the LUT facility can be withdrawn. Run an ageing report on export receivables every month.

Penalties and consequences

Where export proceeds for services are not realised within one year of the date of invoice, or such further period as the Reserve Bank of India permits under the Foreign Exchange Management Act 1999, Rule 96A(1)(b) of the CGST Rules 2017 requires the exporter to pay the IGST together with interest under Section 50(1) of the CGST Act within fifteen days of expiry.

Interest under Section 50(1) of the CGST Act runs at 18 per cent per annum from the date the tax was due.

Where the exporter fails to pay that amount, Rule 96A(3) provides that the facility to export under LUT is withdrawn forthwith and the amount is recovered under Section 79 of the CGST Act.

Where a supply is wrongly treated as zero-rated and tax is short-paid without fraud, Section 73 of the CGST Act permits recovery with interest and a penalty of 10 per cent of the tax or ₹10,000, whichever is higher. Where suppression is alleged, Section 74 raises the penalty to 100 per cent of the tax.

How these provisions interact

Section 2(6) of the IGST Act defines export of services, and Section 16 of the same Act attaches zero rating to that definition, so a failure of any one of the five conditions in Section 2(6) removes the zero rating in Section 16 entirely.

Rule 96A of the CGST Rules operationalises the LUT route permitted by Section 16(3)(a), and its realisation deadline is expressly linked to the period allowed under the Foreign Exchange Management Act 1999, so an RBI extension of the FEMA period extends the GST deadline with it.

The omission of Section 13(8)(b) by Section 157 of the Finance Act 2026 restores the default rule in Section 13(2) for intermediary services, but it leaves the definition of intermediary in Section 2(13) untouched, so classification disputes continue even though the place of supply consequence has reversed.

LUT route against the IGST-paid route

Refund mechanics deserve their own treatment, and we have set them out in the RFD-01 refund process. Note that low-risk refund claims now receive 90 per cent provisional sanction within seven days on an automated risk score, which makes a clean filing history a cash flow asset rather than a compliance nicety. The wider picture is in cross-border tax for Indian businesses.

Two operational layers usually sit underneath this. If you invoice in dollars, the three exchange rates on every export invoice decide what your books actually show. And if your registration has lapsed, a cancelled GSTIN means no valid LUT for the whole period it was down.

Key takeaways

• Export of services is zero-rated under Section 16 of the IGST Act 2017 only where all five conditions in Section 2(6) are satisfied together, and the failure of any single condition converts the supply into a taxable domestic supply.
• A Letter of Undertaking in Form GST RFD-11 under Rule 96A of the CGST Rules 2017 is valid for one financial year from 1 April to 31 March, carries no government fee, and is not retrospective, so an invoice raised before the LUT is filed is not covered by it.
• Export proceeds for services must be realised within one year of the invoice date or the period permitted under the Foreign Exchange Management Act 1999, failing which IGST with interest at 18 per cent under Section 50(1) becomes payable within fifteen days of expiry.
• Section 157 of the Finance Act 2026 omitted Section 13(8)(b) of the IGST Act with effect from 30 March 2026, moving the place of supply for intermediary services to the recipient’s location under Section 13(2) and allowing Indian intermediaries to qualify as exporters for the first time.

Frequently asked questions

If the LUT is due

The LUT is a March job, not an April job, because the first invoice of the new year usually goes out before anyone remembers. We file your LUT for the year and set the reminder for the next one.