Tag: LUT

India’s service exporters, from software developers and design studios to consultants and back-office providers, benefit from a simple principle under GST: exports are zero-rated. Export of services GST treatment means no tax is effectively borne on the export, and credits on inputs can be refunded. But a supply counts as an export only when specific conditions are met, and the place of supply rules decide much of the outcome.

This guide explains the conditions, the place of supply framework, the important change for intermediaries from 30 March 2026, and the two routes to zero-rating.

Key takeaways

• A supply is an export of services only if all five conditions in section 2(6) of the IGST Act are met.
• The place of supply must be outside India; for most services this is the location of the recipient.
• From 30 March 2026, intermediary services follow the default rule, so Indian intermediaries serving foreign clients can now qualify as exporters.
• Exporters can supply under a letter of undertaking (LUT) without paying IGST and claim refund of unused credit, or pay IGST and claim a refund of that tax.
• Receiving payment in convertible foreign exchange (or in rupees where RBI permits) is essential, and documentation should link each receipt to the invoice.

The five conditions for export of services

A supply of services qualifies as an export only when:

1. the supplier is located in India;
2. the recipient is located outside India;
3. the place of supply is outside India;
4. payment is received by the supplier in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI; and
5. the supplier and recipient are not merely establishments of a distinct person, such as an Indian branch and its foreign head office.

If any one condition fails, the supply is treated as a domestic taxable supply, usually attracting IGST at the applicable rate. Services to a foreign subsidiary or parent that is a separate legal entity can qualify, while services by an Indian branch to its own foreign head office generally cannot.

Place of supply: where most questions arise

For cross-border services, place of supply is decided by section 13 of the IGST Act. The default rule is the location of the recipient, which makes most B2B services to foreign clients exports. The exceptions are the ones to watch:

When a service mixes elements, look at the main nature of the supply and document the reasoning in the contract and invoice description.

The intermediary change in 2026

For years, section 13(8)(b) deemed the place of supply of intermediary services to be the supplier’s location. Indian agents who arranged supplies between foreign parties, such as sourcing agents and sales support providers, therefore could not treat their commission as an export, which led to extensive litigation.

The Finance Act 2026 omitted this clause with effect from 30 March 2026. Intermediary services now follow the default recipient-location rule. Two practical effects follow:

• Indian intermediaries serving foreign principals can treat those services as exports from that date, subject to the other conditions, and file an LUT to supply without IGST.
• Indian businesses receiving intermediary services from abroad now generally pay IGST under reverse charge on the import of those services.

The change operates prospectively, so disputes for earlier periods are decided under the earlier law.

Zero-rating: LUT or IGST with refund

Exports are zero-rated supplies under section 16 of the IGST Act, and exporters can choose between two routes:

• Under LUT: file a letter of undertaking in Form GST RFD-11 for the financial year, export without paying IGST, and claim refund of accumulated input tax credit.
• On payment of IGST: charge and pay IGST on the export, then claim a refund of the IGST paid.

Most service exporters prefer the LUT route because it avoids blocking cash in tax. Remember to renew the LUT before the start of each financial year and quote it on export invoices.

Refund of unutilised credit is claimed in Form GST RFD-01 with a statement of export invoices and foreign exchange receipts. Our guide to GST refunds for exporters walks through the refund process and documents.

Worked example

A Noida software firm bills a US client USD 20,000 for development work in August, under a valid LUT. The client is located in the US, the service is not performance-based in India, and payment arrives in US dollars through a bank channel.

1. All five conditions are met, so the supply is an export of services.
2. The invoice shows zero IGST with the LUT reference and the note supply meant for export under LUT without payment of IGST.
3. The firm reports the export in GSTR-1 and GSTR-3B.
4. Input credit on its cloud hosting, rent and professional fees accumulates and can be claimed as refund in RFD-01, supported by the bank realisation record.

Documentation checklist

• Contract or engagement letter showing the foreign recipient and nature of service.
• Export invoice with LUT reference, currency and exchange rate.
• Foreign inward remittance certificates or bank advices linking receipts to invoices.
• Evidence of the recipient’s location, such as registration documents or addresses.
• LUT acknowledgement for the relevant financial year.
• A reconciliation of export turnover in GSTR-1, GSTR-3B and the books.

Frequently asked questions

Is GST charged on export of services?

Export of services is zero-rated. Under an LUT, no IGST is charged; alternatively IGST can be paid and refunded.

Can payment in Indian rupees count for export of services?

Only where the RBI permits rupee receipts for the transaction. Otherwise, payment must be received in convertible foreign exchange.

Are intermediary services now treated as exports?

From 30 March 2026, the place of supply for intermediary services is the recipient’s location, so services to foreign recipients can qualify as exports if the other conditions are met.

Are services to my foreign group company an export?

It can be, if the foreign entity is a separate legal person and not merely an establishment of the same person, and the other conditions are satisfied.

This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.