GST on Export of Services: LUT, Zero-Rating and Refunds Explained
Exports of services are zero-rated under GST. File a Letter of Undertaking (LUT) each year to invoice without IGST, then claim refunds of unused input tax credit. Here is who qualifies and how.
GST on Export of Services and the LUT
Exports of services are "zero-rated" under Section 16 of the IGST Act. This means no GST is charged to the foreign client, and you can still claim input tax credit (ITC) on your costs. To invoice without paying IGST, file a Letter of Undertaking (LUT) in Form GST RFD-11 online before you raise export invoices each financial year. Unused ITC can then be refunded through Form RFD-01.
What counts as an export of services?
Under Section 2(6) of the IGST Act, all five conditions must be met:
- 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 permitted by the RBI).
- The supplier and recipient are not merely establishments of the same person, such as an Indian branch and its foreign head office.
Freelance developers, designers, SaaS companies, consultants and KPOs billing overseas clients usually meet these. Watch condition 3: for some services, such as those relating to immovable property or events in India, the place of supply is in India and it is not an export.
Option 1: Export under LUT (without paying IGST)
- File RFD-11 on the GST portal, usually by 31 March for the next year. It is free and approved almost instantly.
- Invoice with no IGST and the endorsement: "Supply meant for export of services under LUT without payment of IGST."
- Receive payment within the period allowed (one year from invoice, extendable). If not received, you pay IGST with interest.
- Claim refund of accumulated ITC through RFD-01 within two years from the relevant date.
Option 2: Export with payment of IGST
- Charge 18% IGST on the invoice and pay it in GSTR-3B, usually using ITC.
- Claim a refund of the IGST paid through RFD-01.
This locks up working capital, so most service exporters use the LUT route.
| Point | With LUT | With IGST payment |
|---|---|---|
| IGST on invoice | Nil | 18% |
| Cash blocked | Only unused ITC | IGST paid |
| Refund of | Accumulated ITC | IGST paid |
| Paperwork | Annual RFD-11 | Per-refund claims |
Do freelancers exporting services need GST registration?
An exporter of services with aggregate turnover below ₹20 lakh does not need to register, since interstate supply of services below the threshold is exempt from compulsory registration. Export turnover counts in aggregate turnover.
Register voluntarily if:
- you have large input costs (laptops, software, co-working) and want ITC refunds,
- your clients or platforms ask for a GSTIN,
- you are close to ₹20 lakh with domestic clients too.
How to claim a refund of ITC
Refunds of ITC under LUT are calculated with the formula in Rule 89(4):
Refund = (Turnover of zero-rated supply × Net ITC) ÷ Adjusted total turnover
Documents needed: export invoices, FIRCs or bank realisation advice (e-BRC), statement of invoices (Statement 3A), and GSTR-2B for ITC.
Worked example
A Bengaluru design studio bills ₹60 lakh a year: ₹48 lakh to US clients and ₹12 lakh to Indian clients (with 18% GST). Eligible ITC for the year is ₹4.5 lakh.
- Output GST on domestic sales: ₹2.16 lakh, paid using ITC
- Net ITC after that: ₹2.34 lakh left unused
- Refund limit by formula: (₹48L × ₹4.5L) ÷ ₹60L = ₹3.6 lakh
- Refundable: ₹2.34 lakh (lower of the formula and balance in the ledger)
Without an LUT, the studio would have paid ₹8.64 lakh in IGST on exports and waited months for a refund.
Common mistakes
- Raising export invoices before filing the LUT for the year.
- Receiving payments via a platform in INR without proper foreign exchange documentation, which can defeat export status.
- Forgetting to report exports in GSTR-1 Table 6A.
- Billing a foreign client for work where the place of supply is in India, and treating it as an export.
Is it the same for income tax?
No. GST zero-rating has no effect on income tax. Export profits are taxable in India, though foreign taxes withheld may be credited under the relevant tax treaty (Form 67).
How SP & SC helps
We file your LUT every March, check that your contracts and invoices meet export conditions, reconcile FIRCs, and prepare and track ITC refund claims until they are credited. See GST registration and GST return filing, or ask for a fixed-fee quote.
Frequently asked questions
Is GST applicable on export of services?
Export of services is zero-rated. No GST is payable if you export under an LUT.
When should I file the LUT?
Before raising your first export invoice of the financial year. Most exporters file in March for the coming year.
Is GST registration mandatory for freelancers with foreign clients?
Not below ₹20 lakh aggregate turnover. Many register voluntarily to claim ITC refunds.
What if my foreign client pays late?
If payment is not received within the allowed period, IGST becomes payable with interest. It can be refunded once the payment arrives.
Can I get a refund of GST paid on my laptop?
Yes. Under LUT, ITC on inputs and capital goods used for exports is refundable, subject to the Rule 89(4) formula.
Written by
SP & SC Editorial
Editorial team at SP & SC Legal and Taxation Services — practising advocates, chartered accountants, and company secretaries publishing hands-on guidance from live client files.
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