If you’re an Indian-registered service provider billing overseas clients, three statutory provisions determine your GST treatment: Section 13 of the IGST Act (for cross-border services), Section 16 of the IGST Act (for zero-rated supplies), and Rule 96A of the CGST Rules (for the LUT mechanism). Get any of them wrong and you either over-pay tax or face a demand notice.
The two paths: LUT vs With Payment of Tax
For an export of services, GST law gives you two options:
Option 1 — Letter of Undertaking (LUT) mode under Section 16(3)(a) IGST Act You execute an LUT (a one-time annual undertaking with the GST department) and export without charging IGST. You can claim refund of unutilized input tax credit.
Option 2 — With Payment of Tax under Section 16(3)(b) IGST Act You charge IGST on the export invoice, pay it to the government, and then claim refund of the IGST paid.
Both routes give you the same end result — zero net tax — but the working capital implications and documentation differ. Most exporters opt for LUT because it doesn’t tie up cash with the government.
When does the supply qualify as “export of services”
For a service to qualify as an export under Section 2(6) of the IGST Act, ALL of these must be satisfied:
1. Supplier is in India (you, a registered Indian person) 2. Recipient is outside India (your foreign client) 3. Place of supply is outside India (per Section 13 of IGST Act) 4. Payment is received in convertible foreign exchange OR in INR where permitted by RBI 5. Supplier and recipient are not merely establishments of the same person (i.e., no foreign branch routing)
Miss any one of these — you’re not in zero-rated territory, and IGST applies normally.
Section 13 — Place of supply for services to foreign clients
This is where most exporters trip up. Section 13 has a default rule (Section 13(2)) and specific exceptions (Sections 13(3) through 13(13)).
Default rule (Section 13(2))
For most services, place of supply = location of the recipient.
If your software development client is in California, place of supply is California (outside India). The supply qualifies as export.
Common exceptions
Section 13(3) — Performance-based services Place of supply = where service is actually performed, regardless of recipient location.
Examples: Repair of physical goods, hospitality services, training/education physically attended.
If you train executives in Mumbai for a Singapore company, place of supply is Mumbai → not export.
Section 13(4) — Immovable property Place of supply = location of the immovable property.
Architectural services for a property in Dubai → place of supply is Dubai → export. Architectural services for a property in Goa for a UK client → place of supply is Goa → not export, IGST applies.
Section 13(8) — Intermediary services Place of supply = location of the supplier (i.e., India).
This is the most controversial provision. If you’re acting as an “intermediary” (broker/agent arranging supplies between two principals), GST treats you as supplying services in India even when both principals are abroad. No export benefit.
The Karnataka High Court and Bombay High Court have ruled differently on whether Section 13(8)(b) is constitutionally valid. Until the Supreme Court rules, the safe position is to charge IGST on intermediary services unless your facts clearly fall outside the definition.
Section 13(12) — Online information and database access (OIDAR) Place of supply = location of recipient.
Most SaaS, online subscriptions, e-learning fall here. If your subscription buyer is in the US, place of supply is the US → export.
The LUT mechanism — Rule 96A
To export under LUT, you need:
One-time setup (per FY)
1. File an LUT in Form RFD-11 on the GST portal (online, no fee) 2. Valid for the entire financial year — must be renewed each FY 3. Bond/bank guarantee NOT required if your turnover meets eligibility criteria (most exporters qualify)
On every export invoice
The invoice MUST contain:
1. The standard mandatory fields per Rule 46 2. Declaration: “Supply meant for export of services under Letter of Undertaking (LUT) without payment of IGST as per Section 16(3)(a) of IGST Act, 2017 read with Rule 96A of CGST Rules” 3. The LUT number and date 4. IEC code (if you’ve claimed export benefits) 5. Currency and exchange rate (if invoicing in foreign currency)
Quarterly compliance
Within 90 days of date of invoice (or such extended period as allowed), payment in convertible foreign exchange must be received. If not, the supply ceases to be zero-rated and IGST becomes payable with interest.
Common mistakes
Mistake 1: Charging IGST while under LUT. If you’re under LUT and you charge IGST, you’ve collected tax that wasn’t due. You’d need to refund the buyer (foreign client) and claim refund yourself. Painful paperwork.
Mistake 2: Missing the LUT declaration on invoice. The declaration is mandatory under the LUT regime. Without it, the GST officer can dispute that the supply was made under LUT and demand IGST + interest + penalty.
Mistake 3: Treating intermediary services as export. Section 13(8)(b) deems intermediary services as supplied at supplier’s location. Most agents and brokers cannot claim export benefit for these transactions, even when both ends of the deal are abroad.
Mistake 4: Incorrect Place of Supply for online services. Some software exporters wrongly classify their service as “performance-based” (Section 13(3)) rather than default (13(2)) or OIDAR (13(12)). Always check which sub-section your service falls under.
Mistake 5: Receiving payment in INR for export. RBI permits INR receipts for exports only under specific bilateral arrangements (e.g., INR-vostro accounts of certain countries). Default route requires convertible foreign exchange.
Frequently asked questions
Q: Do I need IEC code for export of services? A: Technically no — IEC is mandatory only for export of goods. But most banks ask for it, and you’ll need it if you want to claim certain export benefits.
Q: I missed renewing LUT for this FY. What now? A: Apply immediately for renewal. Until then, your exports must be under “with payment of IGST” mode. Past invoices issued under expired LUT may be challenged — consult a CA on remediation.
Q: My foreign client paid via PayPal in INR. Is it still export? A: PayPal converts foreign currency to INR before crediting. If your bank statement shows INR receipt with corresponding FIRC/eBRC mentioning the foreign currency, it qualifies. Keep the FIRC.
Q: Can I claim refund of input GST under LUT? A: Yes — Rule 89(4) allows refund of unutilized ITC for zero-rated supplies. File RFD-01 with required documentation.
Q: I provide services to a US company’s Indian branch. Export? A: No — the recipient is the Indian branch, located in India. Place of supply is India. Domestic supply, charge CGST/SGST or IGST as applicable.
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Last updated: April 2026. Reviewed by Practising Chartered Accountants. This guide is for general information only and does not constitute professional advice. For your specific situation, consult a qualified Chartered Accountant.