By Meghna Sharma Indian businesses providing services to overseas clients can benefit from the zero-rated supply provisions under the Goods and Services Tax (GST) system. These provisions are particularly important for IT companies, software developers, consultants, digital marketing agencies, business process outsourcing (BPO) providers and professional service firms working with international customers. However, simply providing a service to a foreign client or receiving payment in foreign currency does not automatically qualify a transaction as an export of services.
Under Section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017, a service must satisfy five specific conditions to qualify as an export. If all five conditions are fulfilled, the supply is treated as zero-rated under Section 16 of the IGST Act. Understanding these requirements helps businesses determine their GST liability, file Letters of Undertaking (LUTs), claim eligible ITC refunds and avoid disputes with tax authorities.
What Is Export of Services under GST?
Export of services means supplying services from India to a recipient located outside India while satisfying the conditions prescribed under Section 2(6) of the IGST Act.
Exports are treated as zero-rated supplies under Section 16. This means eligible exporters can supply services without payment of IGST under a valid LUT or bond and claim a refund of eligible unutilised ITC, subject to the applicable provisions.
Alternatively, an exporter may choose the payment-of-IGST route where permitted under the law and claim a refund of the tax paid, subject to applicable conditions.
The five conditions must be fulfilled together. Failure to satisfy even one condition can prevent a transaction from qualifying as an export of services.
Five Conditions for Export of Services under GST
Supplier of Services Must Be Located in India
The first condition is that the supplier of services must be located in India.
For example, if an Indian software development company provides application development services to a client in the United States, the supplier is located in India. This condition is generally satisfied if the relevant supplier establishment is in India.
Businesses should correctly identify the establishment from which the service is supplied. Where a company has multiple establishments, the relevant location must be determined under the applicable GST provisions.
Recipient of Services Must Be Located Outside India
The second condition requires the recipient of services to be located outside India.
The recipient is generally the person who is liable to pay consideration for the service. Therefore, businesses must identify the actual recipient rather than relying only on the address or country mentioned in an invoice.
For example, an Indian digital marketing agency providing advertising campaign management services to a company located in the United Kingdom may satisfy this condition if the UK company is the actual recipient.
However, if an Indian company receives and uses the services for its own business, the transaction may not qualify as an export merely because payment is routed through a foreign entity.
Place of Supply Must Be Outside India
The third condition is often one of the most important and complicated requirements.
Under Section 13 of the IGST Act, the place of supply for services where either the supplier or recipient is outside India is generally the location of the recipient, unless a specific provision provides otherwise.
For example, an Indian graphic design company providing services to a business located in Canada may generally have its place of supply outside India under the default rule.
However, certain services have special place-of-supply provisions. These may include services relating to immovable property, admission to or organisation of certain events, transportation and other specified categories. Intermediary services also require particular attention because their place of supply is governed by a specific provision.
Therefore, businesses should examine Section 13 carefully before treating a cross-border transaction as an export. A foreign customer and foreign-currency payment alone are not sufficient.
Payment Must Be Received in Convertible Foreign Exchange or Permitted Indian Rupees
The fourth condition requires the supplier to receive payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (RBI).
For example, an Indian consultancy firm providing services to a German customer may receive payment in euros through an authorised banking channel. Such receipt can satisfy this condition, provided the other statutory requirements are fulfilled.
The law also permits certain transactions to be settled in Indian rupees where RBI allows the arrangement.
CBIC Circular No. 202/14/2023-GST dated October 27, 2023, clarifies the treatment of export remittances received in Special INR Vostro accounts maintained in accordance with RBI-permitted arrangements.
Businesses should maintain bank statements, foreign inward remittance certificates (FIRCs), bank realisation certificates (BRCs), or other relevant payment evidence to establish receipt of consideration.
Supplier and Recipient Must Not Be Merely Establishments of the Same Person
The fifth condition requires that the supplier and recipient must not merely be establishments of a distinct person under Explanation 1 to Section 8 of the IGST Act.
This condition is particularly relevant for multinational companies operating through branches and offices in different countries.
For example, if an Indian branch provides services to the overseas head office of the same legal entity, the transaction may fail this condition because both establishments belong to the same person.
However, an Indian subsidiary and its foreign parent company are generally separate legal entities. A service supplied by the Indian subsidiary to its foreign parent is not automatically excluded from export treatment merely because they belong to the same corporate group.
CBIC Circular No. 161/17/2021-GST dated September 20, 2021, provides clarification on this distinction.
Example of Export of Services under GST
Suppose an Indian IT company provides software development services to an independent business in Australia.
| Export condition | Example details | Result |
| Supplier located in India | Indian IT company | Satisfied |
| Recipient located outside India | Australian business | Satisfied |
| Place of supply outside India | Australia under the applicable place-of-supply rule | Satisfied |
| Payment received appropriately | Payment in convertible foreign exchange | Satisfied |
| Separate legal establishments | Independent Indian supplier and Australian customer | Satisfied |
If all five conditions are fulfilled, the transaction qualifies as an export of services and can be treated as a zero-rated supply.
How to Claim Zero-Rated Benefits on Export of Services
Eligible exporters generally follow these steps:
- Obtain GST registration where registration is required.
- Furnish a Letter of Undertaking (LUT) in Form GST RFD-11 for the relevant financial year if exporting without payment of IGST.
- Issue export invoices containing the prescribed details and appropriate export endorsement.
- Report export transactions correctly in GSTR-1 and GSTR-3B.
- Maintain contracts, invoices and payment evidence.
- Claim eligible refunds of unutilised ITC through Form GST RFD-01, subject to applicable conditions.
Under Rule 96A of the CGST Rules, exporters using an LUT must also comply with the prescribed time limits for receipt of payment. For export of services, consideration must generally be received within one year from the date of issue of the invoice, unless the Commissioner allows a further period.
Conclusion
Export of services under GST requires more than providing services to an overseas customer. Businesses must satisfy all five conditions under Section 2(6) of the IGST Act, including supplier location, recipient location, place of supply, receipt of consideration and the distinct-establishment requirement. Once these conditions are fulfilled, the service qualifies as a zero-rated supply under Section 16. Proper contracts, invoices, payment records and LUT compliance help exporters claim eligible ITC refunds and avoid unnecessary GST disputes.
Frequently Asked Questions (FAQs)
Q. What are the five conditions for export of services under GST?
The supplier must be located in India, the recipient must be outside India, the place of supply must be outside India, payment must be received in convertible foreign exchange or permitted Indian rupees, and the parties must not merely be establishments of the same person.
Q. Is export of services exempt or zero-rated under GST?
Export of services is treated as a zero-rated supply under Section 16 of the IGST Act. It is not simply an exempt supply because eligible ITC benefits are available subject to statutory conditions.
Q. Can an Indian company provide services to a foreign parent company as an export?
Yes. An Indian subsidiary and its foreign parent are generally separate legal entities. However, the transaction must satisfy all five export conditions.
Q. Is foreign-currency payment mandatory for export of services?
Not in every case. Payment may also be received in Indian rupees where permitted by the RBI under the applicable arrangements.
Q. Can an Indian freelancer claim export benefits under GST?
Yes, an eligible registered freelancer can claim zero-rated treatment when providing services to overseas clients, provided all five statutory conditions are fulfilled.
Q. Is LUT mandatory for export of services?
An eligible registered exporter choosing to supply services without payment of IGST must generally furnish an LUT or bond under Rule 96A.
Q. Can ITC be claimed on export of services?
Yes. Eligible exporters can claim ITC on business inputs and input services used for zero-rated supplies, subject to the applicable provisions and restrictions.
Q. What happens if payment for exported services is not received within the prescribed period?
Under Rule 96A, the exporter may become liable to pay the applicable IGST with interest if payment is not received within the prescribed period, unless an extension is granted by the Commissioner.
Q. Which GST section defines export of services?
Section 2(6) of the IGST Act, 2017, defines export of services and specifies the five conditions that must be fulfilled.
Q. Which section covers zero-rated supplies under GST?
Section 16 of the IGST Act, 2017, deals with zero-rated supplies, including exports of goods and services.
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