GST on Export of Services and Zero-Rating Conditions

For India's IT, ITES, and professional services exporters, GST is meant to be neutral. The policy intent is that taxes should not be exported along with the service, so a genuine export of services is treated as a zero-rated supply and the exporter can recover the GST embedded in its costs. The problem is that "export of services" is a precise legal term, not a commercial description. Many businesses that bill foreign clients assume they are exporting, only to discover during an assessment that the place of supply was India and the supply was taxable all along.

This guide walks through the four pieces of law that decide the GST treatment of a cross-border service: the five conditions for export of services under Section 2(6) of the IGST Act, the zero-rating mechanism under Section 16, the place of supply rules under Section 13, and the LUT versus bond machinery for exporting without upfront tax. It closes with the situations where zero-rating is denied and a practical checklist for exporters and their advisers.

What Qualifies as Export of Services: Section 2(6) IGST Act

Section 2(6) of the IGST Act 2017 defines "export of services" through five cumulative conditions. All five must be satisfied. If even one fails, the transaction is not an export, regardless of where your client sits or which currency you invoice in.

1. The supplier of service is located in India.
2. The recipient of service is located outside India.
3. The place of supply of the service is outside India.
4. Payment for the service is received by the supplier in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI.
5. The supplier and the recipient are not merely establishments of a distinct person under Explanation 1 to Section 8.

Two conditions deserve emphasis. Condition (iv) is satisfied when funds are received in convertible foreign exchange, but the RBI also permits realisation in INR in specific cases (for example, through a vostro account arrangement or under the rupee settlement mechanism the RBI has notified). The proviso to Section 2(6) was amended to recognise INR receipt where allowed by the RBI, so do not assume that an INR credit automatically disqualifies the export. Check how the payment was routed.

Condition (v), the "distinct person" test, refers to Explanation 1 to Section 8 of the IGST Act. A service supplied by an Indian company to its own branch, project office, or head office abroad is treated as a supply between establishments of the same person and is excluded from the definition of export. We return to this trap below.

Zero-Rated Supply: Section 16 IGST Act

Section 16(1) of the IGST Act declares two categories of supply to be zero-rated: exports of goods or services, and supplies to a Special Economic Zone developer or unit. Zero-rating is not the same as an exemption. An exempt supply blocks input tax credit; a zero-rated supply lets you both supply without tax and recover the credit on your inputs. That is the whole point of the regime, to keep exports tax-free end to end.

Section 16(3), read with the refund provisions, gives an exporter of services two routes to realise the benefit:

• Route (a): supply under a bond or LUT without paying IGST, and claim a refund of the unutilised input tax credit.
• Route (b): supply on payment of IGST, and claim a refund of the IGST paid.

Most service exporters choose route (a). Services rarely carry the large input credit balances that goods exporters accumulate, but route (a) avoids tying up working capital in tax you would only get back later. Route (b) can suit a business that would rather claim a refund of a defined IGST amount, but it requires you to fund the tax first. Unlike goods exports, where the shipping bill is treated as the refund claim, a service exporter claims both kinds of refund by filing Form RFD-01 under Rule 89.

For the detailed refund mechanics, timelines, and documentation, see our companion guide on GST refund for exporters using LUT and RFD-01.

Place of Supply: Section 13 IGST Act

Condition (iii) of the export definition turns entirely on Section 13, which applies when either the supplier or the recipient is located outside India. Section 13(2) lays down the general rule: the place of supply is the location of the recipient of services. Where the recipient's location is not available in the ordinary course of business, it defaults to the location of the supplier.

The general rule is what makes most software development, consulting, design, and back-office services to a foreign client an export. But Sections 13(3) to 13(13) carve out specific categories where the place of supply is fixed by the nature of the service, not the recipient's location.

The performance-based and immovable-property rules matter for service exporters who do part of the work on the ground in India. If your engagement requires a physical presence in India, or relates to property situated in India, Section 13 can place the supply in India even though you bill abroad.

The single biggest cause of denied export claims has been the intermediary rule.

Intermediary Services: The Section 13(8)(b) Rule and Its Omission

An "intermediary" is defined in Section 2(13) of the IGST Act as a broker, agent, or any person who arranges or facilitates the supply of goods or services between two or more persons, but does not supply those goods or services on its own account. The classic markers are that you earn a commission or facilitation fee, you act on behalf of a principal, and the main supply happens directly between your principal and the third party.

Under Section 13(8)(b), the place of supply for an intermediary located in India is the location of the supplier, that is India. So even if your principal is abroad and you are paid in foreign exchange, the place of supply is in India, condition (iii) of Section 2(6) fails, and the transaction is not an export. It is a domestic taxable supply liable to GST.

Change through the Finance Act, 2026: on the recommendation of the 56th GST Council, the Finance Act, 2026 omits clause (b) of Section 13(8) of the IGST Act. Once the omission is in force, the place of supply for intermediary services follows the default rule in Section 13(2), the location of the recipient, so an intermediary service to a recipient outside India can qualify as an export if all five conditions are met. The Budget memorandum states that the GST amendments take effect from the date the government notifies, so check the notified date before treating an intermediary invoice as zero-rated. For earlier invoices, the old rule applies.

This is where many Indian businesses that "support" or "represent" a foreign company get caught. CBIC's Circular No. 159/15/2021-GST dated September 20, 2021 clarified the scope of intermediary services and is essential reading. Its key tests are:

• An intermediary needs a minimum of three parties and two supplies: the main supply between the principal and the third party, and the ancillary supply of facilitation by the intermediary.
• Someone who supplies the main service on their own account is not an intermediary. A software developer or back-office service provider billing a foreign client directly is supplying on its own account, not arranging a supply between others.
• Sub-contracting is not intermediation. If you provide the service yourself, you are the supplier, not a middleman.

The practical takeaway: if you genuinely perform the service and invoice the foreign client for that service, you are very likely outside the intermediary definition and your supply can be a zero-rated export. If you merely connect a foreign principal with Indian customers and earn a commission, the old Section 13(8)(b) puts the place of supply in India for invoices issued before the omission takes effect.

LUT vs Bond: Form GST RFD-11

To export services without paying IGST under route (a), you must furnish a Letter of Undertaking (LUT) or, where you are not eligible for an LUT, a bond with a bank guarantee. The governing provision is Rule 96A of the CGST Rules read with Notification No. 37/2017-Central Tax dated October 4, 2017, which extended the LUT facility broadly.

Who can file an LUT

Under the current rules, any registered person intending to export goods or services can furnish an LUT, except a person who has been prosecuted for an offence under the GST law (or any existing law) where the tax evaded exceeds Rs 2.5 crore. In other words, the LUT is the default for clean exporters; the bond is the fallback for those who do not qualify.

How to file the LUT on the GST portal

1. Log in to the GST portal at www.gst.gov.in.
2. Go to Services > User Services > Furnish Letter of Undertaking (LUT).
3. Select the financial year for which the LUT is being filed.
4. Fill in the self-declarations, enter the details of two independent witnesses, and verify.
5. Sign with DSC or EVC and submit. Download the acknowledgement with the ARN.

The most common operational lapse is forgetting to renew. An LUT is valid only for the financial year in which it is filed. File a fresh LUT at the start of every financial year (the facility for the new year typically opens before April 1). If you export under an expired LUT, the benefit can be withdrawn and you may have to pay IGST with interest until the LUT position is regularised, which increases your exposure to penalties.

When Zero-Rating Is Denied

Zero-rating is a benefit you have to earn by satisfying the law, not a status that attaches to any foreign-currency invoice. The recurring situations where the benefit is denied:

• Intermediary services (before the Finance Act, 2026 omission takes effect): place of supply becomes India under Section 13(8)(b), so condition (iii) fails. Taxable as a domestic supply.
• The Indian leg of an export: services that relate to performance in India or to immovable property in India can have an Indian place of supply under Sections 13(3) and 13(4), even when billed abroad.
• Services to a foreign branch or establishment of the same entity: barred by condition (v) of Section 2(6) read with Explanation 1 to Section 8. A supply to your own overseas branch is a supply between distinct persons, not an export.
• Payment not realised in the permitted manner: if foreign exchange is not received (or INR is received outside what the RBI permits), condition (iv) fails. Keep your FIRC or bank realisation certificates.
• Exporting under an expired or missing LUT: the supply may still be zero-rated in principle, but the no-IGST route under route (a) is not available, so IGST and interest can become payable until regularised.

A related cross-border issue is the reverse position, where you import a service from abroad and pay tax under reverse charge. That mechanism is covered separately in our guide on GST on import of services and RCM.

Note on GST Rates and Exports

A quick clarification, because clients often ask. The GST rate slabs were restructured with effect from September 22, 2025, when the 28% slab was abolished and the principal slabs became 0%, 5%, 18%, and 40%. None of this changes the export position. A genuine export of services is zero-rated under Section 16 of the IGST Act irrespective of what rate the same service would attract domestically. The rate matters only for the input tax credit you accumulate and recover, not for the output, which is zero.

Practical Checklist for IT, ITES, Consultants, and CAs

Before you treat a foreign-billed engagement as a zero-rated export, run through this:

1. Confirm the supplier is in India and the recipient is genuinely abroad. A foreign client billing address is not enough if the real recipient is an Indian establishment.
2. Run the Section 13 place-of-supply test for the specific service. Default to recipient location, but check the carve-outs for performance, immovable property, intermediary, and banking services.
3. Rule out the intermediary characterisation. Ask whether you supply the service on your own account or merely facilitate a supply between two other parties. Apply CBIC Circular No. 159/15/2021-GST.
4. Verify the "distinct person" condition. If the foreign recipient is your own branch, head office, or project office, the export definition fails.
5. Confirm payment realisation. Obtain the FIRC or bank realisation certificate, and confirm INR receipts fall within RBI-permitted channels.
6. File a valid LUT for the current financial year in Form GST RFD-11 before exporting under the no-IGST route, and diarise the annual renewal.
7. Choose your refund route deliberately. Route (a) refund of unutilised ITC suits low-IGST service businesses; route (b) refund of IGST paid suits those who can fund the tax first. Both are claimed in Form RFD-01.
8. Report exports correctly in returns. Disclose zero-rated supplies in Table 6A of GSTR-1 and in the zero-rated row of GSTR-3B, and reconcile with your refund claims.
9. Keep contemporaneous documentation. Agreements, invoices, FIRCs, LUT acknowledgement, and the place-of-supply rationale should be on file before any audit asks for them.

Frequently Asked Questions

Is every invoice to a foreign client an export of services under GST?

No. All five conditions of Section 2(6) of the IGST Act must be met: 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 INR where RBI permits, and the two parties are not establishments of the same person. A foreign billing address or a dollar invoice alone does not make it an export.

Do I need to file an LUT every year to export services without paying IGST?

Yes. A Letter of Undertaking in Form RFD-11 is valid only for the financial year in which it is filed, so a fresh one must be filed on the GST portal for each year, ideally before the first export invoice after 1 April. Without a valid LUT or bond, you must charge IGST on the export and claim it back as a refund.

What is the difference between exporting under LUT and paying IGST and claiming a refund?

Under an LUT, you invoice without IGST and later claim a refund of the unutilised input tax credit built up on your costs. Under the other route, you pay IGST on the export invoice, usually from your credit ledger, and claim a refund of that IGST. Most service exporters use the LUT because it avoids blocking cash in tax that comes back later.

Are services billed to my own branch or head office abroad treated as exports?

No. A supply by an Indian establishment to its own branch, project office or head office outside India is between establishments of the same person, which fails the fifth condition of the export definition. Such services are not zero-rated exports. A separately incorporated foreign subsidiary is a different legal person and is not caught by this condition.

Where do I report export of services in my GST returns?

Report zero-rated export invoices in Table 6A of GSTR-1, marked as with or without payment of IGST, and show the value in the zero-rated supplies row of GSTR-3B. Keep the foreign inward remittance certificate or bank realisation proof for each invoice, since refunds and the export status itself depend on showing that payment was received as required.

---

Sources and verification: This guide is based on the Integrated Goods and Services Tax Act 2017, specifically Section 2(6) (definition of export of services), Section 2(13) (definition of intermediary), Section 8 with Explanation 1 (intra-state supply and distinct establishments), Section 13 (place of supply where supplier or recipient is outside India, including the general rule in 13(2), performance-based services in 13(3), immovable property in 13(4), intermediary and other services in 13(8), and OIDAR in 13(12)), and Section 16 (zero-rated supply and the two refund routes). LUT and bond procedure is per Rule 96A of the CGST Rules 2017 and CBIC Notification No. 37/2017-Central Tax dated October 4, 2017. The scope of intermediary services is verified against CBIC Circular No. 159/15/2021-GST dated September 20, 2021. Refund mechanics are governed by Section 54 of the CGST Act and Rule 89 of the CGST Rules. GST rate slabs (0%, 5%, 18%, 40%) reflect the restructuring effective September 22, 2025. All provisions, notifications, and procedures should be verified against www.gst.gov.in and the latest CBIC circulars before applying to specific compliance decisions.