Key Takeaways
- Export of services qualifies as zero-rated supply under Section 16 of the IGST Act only when all five conditions of Section 2(6) are met, including receipt of payment in convertible foreign exchange (or INR where the RBI permits).
- Zero-rating gives you two refund routes: export under LUT or bond without paying IGST (then refund the unutilised input tax credit), or pay IGST and claim a refund of the tax paid.
- Place of supply under Section 13 of the IGST Act decides whether your service is genuinely an export. For most services the place of supply is the location of the recipient, but several carve-outs override this.
- Intermediary services are the most common trap: under Section 13(8)(b) the place of supply is the location of the supplier (India), so the supply is taxable, not an export.
- A Letter of Undertaking (LUT) in Form GST RFD-11 is valid for one financial year and must be renewed annually; a bond with bank guarantee is needed only when you are not eligible for the LUT.
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.
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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.
| # | Condition (Section 2(6) IGST Act) | What it means in practice |
|---|---|---|
| (i) | The supplier of service is located in India | Your business establishment from which the service is provided is in India |
| (ii) | The recipient of service is located outside India | The client receiving and liable to pay for the service is abroad |
| (iii) | The place of supply of service is outside India | Determined by Section 13 (see below), this is where most disputes arise |
| (iv) | Payment is received in convertible foreign exchange, or in Indian rupees wherever the RBI permits | FIRC or bank realisation certificate evidences this |
| (v) | The supplier and recipient are not merely establishments of the same person | A foreign branch or head office of the same legal entity does not count as a separate recipient |
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 | How it works | What you claim |
|---|---|---|
| (a) LUT or bond, without paying IGST | Export under a Letter of Undertaking (or bond) and charge no IGST on the invoice | Refund of unutilised input tax credit under Section 54, filed in RFD-01 |
| (b) Pay IGST, then claim refund | Charge IGST on the export invoice, pay it through your GSTR-3B | Refund of the integrated tax paid on the export |
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 wants a cleaner, faster refund trail, since the IGST-paid refund is largely system-driven, but it requires you to fund the tax first.
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.
| Service category | Place of supply under Section 13 | Practical effect |
|---|---|---|
| General rule (default) | Location of the recipient [13(2)] | Export if recipient is abroad |
| Performance-based services (goods made physically available, services requiring physical presence) | Location where the service is performed [13(3)] | Service performed in India can be taxable |
| Services related to immovable property | Location of the immovable property [13(4)] | Property in India = place of supply in India |
| Intermediary services | Location of the supplier [13(8)(b)] | Supplier in India = taxable, not export |
| Banking and financial services to account holders | Location of the supplier [13(8)(a)] | Supplier in India = place of supply in India |
| Hiring of means of transport (up to one month) | Location of the supplier [13(8)(c)] | Place of supply in India |
| Online information and database access or retrieval (OIDAR) | Location of the recipient [13(12)] | Export if recipient is genuinely abroad |
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, however, is the intermediary rule.
Intermediary Services: The Section 13(8)(b) Trap
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.
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, Section 13(8)(b) is likely to put the place of supply in India.
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.
| Feature | Letter of Undertaking (LUT) | Bond |
|---|---|---|
| Form | GST RFD-11 | GST RFD-11 |
| Who | Any exporter not prosecuted for tax evasion over Rs 2.5 crore | Exporters not eligible for LUT |
| Bank guarantee | Not required | Required (typically up to 15% of the bond amount) |
| Validity | One financial year | Until covered transactions are completed |
| Renewal | Annual (fresh LUT each FY) | As specified |
How to file the LUT on the GST portal
- Log in to the GST portal at www.gst.gov.in.
- Go to Services > User Services > Furnish Letter of Undertaking (LUT).
- Select the financial year for which the LUT is being filed.
- Fill in the self-declarations, enter the details of two independent witnesses, and verify.
- 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: 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:
- 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.
- 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.
- 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.
- Verify the "distinct person" condition. If the foreign recipient is your own branch, head office, or project office, the export definition fails.
- Confirm payment realisation. Obtain the FIRC or bank realisation certificate, and confirm INR receipts fall within RBI-permitted channels.
- 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.
- 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 prefer a system-driven refund and can fund the tax.
- 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.
- 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 export of services always zero-rated under GST?
Only when it qualifies as an export of services under Section 2(6) of the IGST Act, which requires all five conditions to 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 in INR where the RBI permits), and the supplier and recipient are not merely establishments of the same person. If the transaction meets this definition, it is zero-rated under Section 16. If any condition fails, it can be a taxable domestic supply.
Do I need to charge IGST on an export invoice?
Not if you export under a Letter of Undertaking or bond. Under route (a) of Section 16(3), you export without paying IGST under a valid LUT (Form GST RFD-11) and later claim a refund of unutilised input tax credit. Alternatively, under route (b), you charge and pay IGST on the export invoice and then claim a refund of the integrated tax paid. Both routes ultimately keep the export tax-free.
Why are intermediary services not treated as exports?
Because of the place of supply rule. Under Section 13(8)(b) of the IGST Act, the place of supply for an intermediary located in India is the location of the supplier, which is India. Since the place of supply is in India, condition (iii) of the export definition fails, so the supply is taxable in India even if the principal is abroad and payment is in foreign currency. CBIC Circular No. 159/15/2021-GST explains when a person is, and is not, an intermediary.
How do I know if I am an intermediary or supplying on my own account?
If you perform the service yourself and bill the foreign client for that service, you are supplying on your own account and are not an intermediary. If you merely arrange or facilitate a supply between your principal and a third party, and earn a commission or facilitation fee for that arrangement, you are likely an intermediary. An intermediary arrangement needs at least three parties and two distinct supplies. Sub-contracting the main service is not intermediation.
Can I receive export payment in Indian rupees?
Generally export payment must be received in convertible foreign exchange. However, the proviso to Section 2(6) recognises receipt in Indian rupees wherever permitted by the Reserve Bank of India, for example through certain vostro account arrangements or the rupee settlement mechanism the RBI has notified. Confirm how the funds were routed and retain the bank documentation before relying on an INR receipt.
What is the difference between an LUT and a bond?
Both are furnished in Form GST RFD-11 to export without paying IGST. An LUT is available to almost every registered exporter (except those prosecuted for tax evasion exceeding Rs 2.5 crore) and does not require a bank guarantee. A bond is the fallback for exporters who are not eligible for the LUT, and it usually requires a bank guarantee. An LUT is valid for one financial year and must be renewed annually.
Is a supply to my company's foreign branch an export of services?
No. Under condition (v) of Section 2(6), read with Explanation 1 to Section 8 of the IGST Act, a supply between establishments of the same person is excluded from the definition of export. Your overseas branch, head office, or project office is treated as a distinct person but a related establishment, so the supply does not qualify as an export of services.
Does the 2025 GST rate change affect exports of services?
No. The rate restructuring effective September 22, 2025 (abolishing the 28% slab and moving to 0%, 5%, 18%, and 40% slabs) does not change the export position. A genuine export of services remains zero-rated under Section 16 of the IGST Act regardless of the domestic rate. The rate is relevant only to the input tax credit you accumulate and recover, not to the output tax, which is nil on a zero-rated supply.
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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.