GST on Export of Services: Zero-Rating and LUT

India's freelancers, agencies and IT companies earn in dollars but comply in GST — and the regime is genuinely generous once understood: exports of services are zero-rated, meaning not just tax-free but credit-refundable. The machinery, however, is condition-based and documentation-hungry, and a single misclassification (the dreaded 'intermediary' tag) can convert a zero-rated business into an 18%-taxable one retrospectively. Here is the full working picture.

The five conditions that make a supply an 'export of services'

• Supplier is in India
• Recipient is outside India
• Place of supply is outside India (the technical heart — most services default to the recipient's location, but exceptions exist)
• Payment received in convertible foreign exchange (or INR where RBI permits)
• Supplier and recipient are not merely establishments of the same person (branch billing head office abroad fails this)

Fail any one and the supply is not an export — usually becoming taxable at 18% with interest when discovered years later. The place-of-supply rules deserve professional reading for your exact service; performance-based services, events, and anything tied to immovable property carry exceptions.

Zero-rating: two routes to your money

Route one — LUT (Letter of Undertaking): export without charging IGST, and claim refund of the input tax credit accumulated on your purchases. This is the default for services. Route two — pay IGST on the export and claim it back. LUT wins on cash flow for almost everyone. The LUT itself is a simple annual online filing (form RFD-11) on the portal — file it every April before the year's first export invoice; exporting on an expired LUT technically obliges you to the pay-and-refund route.

The refund process in practice

• Refund of unutilised ITC is claimed in RFD-01, per period, within two years
• The formula caps refund by the ratio of export turnover to total turnover — maintain clean turnover workings
• Core evidence: export invoices, FIRC/e-FIRC or bank advice proving forex receipt, agreements/SOWs, and the ITC ledger
• Deficiency memos restart timelines — file complete or file twice

The intermediary trap

An 'intermediary' — someone who arranges or facilitates another's supply (think: agent, broker, some models of staffing and marketing) — has place of supply in India, killing export status entirely. The line between 'providing a service to a foreign client' and 'facilitating a foreign client's supply to others' is contract language plus substance, and the department reads it aggressively. Agencies doing lead-gen, recruitment or platform-style work should have contracts reviewed with this single word in mind; it is the highest-stakes classification in service exports.

Registration, invoicing and the freelancer question

Exporters of services need registration once turnover crosses the threshold (₹20 lakh in most states) — and need it anyway to file LUT and claim refunds, so voluntary registration usually pays. Invoices should state the LUT declaration ('supply meant for export under LUT without payment of IGST'), recipient details, and place of supply. GSTR-1 reports exports in its dedicated table; keep it consistent with 3B and your refund claims. Freelancers below threshold selling only abroad can stay unregistered — but forgo ITC refunds and should document the choice.

How Aidwish helps

Aidwish runs the exporter stack for services businesses — registration, annual LUT, invoice and contract review (with the intermediary lens), monthly FIRC filing discipline, and refund applications pursued to credit — so the zero-rating you are entitled to actually reaches your bank.