GST on Export of Services: LUT Filing and Zero-Rated Supply Explained
Billing an overseas client is mechanically simple. The tools below handle currency and formatting without a second thought. The GST treatment behind that invoice is where most freelancers and agencies have never actually had it explained: is it taxed, is it exempt, and what's this "LUT" your accountant mentioned?
This covers what actually counts as an export of services, the two legitimate ways to handle the tax on it, how LUT filing works at a practical level, and the deadline that catches people out most often.
What counts as export of services
Under the IGST Act, a supply of services only counts as an "export," and gets export treatment, if it meets several conditions together, not just one of them:
- The supplier of the service is located in India.
- The recipient of the service is located outside India.
- The place of supply of the service is outside India.
- Payment has been received in convertible foreign exchange, or in Indian rupees where the RBI specifically permits it.
- The supplier and recipient are not simply two branches or establishments of the same legal person.
For a straightforward case (an Indian freelancer or agency billing a genuinely separate overseas client for design, development, consulting or similar remote work, paid in USD or another foreign currency into an Indian bank account) these conditions are usually met without much analysis. Certain categories of services have their own specific place-of-supply rules that can change this (particularly ones tied to where something is physically performed or located); if your work doesn't fit the simple remote-services pattern, it's worth confirming your specific case rather than assuming it qualifies.
Qualifying as an export doesn't change whether you need to be GST-registered in the first place. That's a separate question with its own threshold. See do freelancers need to register for GST if you haven't settled that yet.
What zero-rated actually means
"Zero-rated" is a specific GST term, and it's different from "exempt." An exempt supply isn't taxed, but you also can't claim input tax credit on the costs behind it. A zero-rated supply is taxed at 0% and you can claim input tax credit on the related costs. That distinction is exactly why exports get a dedicated mechanism (LUT or refund) rather than just being left off the tax return.
The two ways to export
Once a supply genuinely qualifies as an export, you have two options, not both:
| Route | How it works | Trade-off |
|---|---|---|
| Export under LUT | File a Letter of Undertaking; invoice without charging IGST at all. | No cash outlay upfront, but you must file (and renew) the LUT correctly. |
| Pay IGST, then claim refund | Charge and pay IGST as normal, then file for a refund of that tax. | Fully compliant either way, but ties up cash until the refund is processed. |
Most exporters who export regularly choose the LUT route specifically to avoid the working capital hit of the second option.
Filing an LUT
Filing a Letter of Undertaking is done entirely online through the GST portal, under the refunds section, using Form GST RFD-11. Submission generates an Application Reference Number immediately, and the LUT is deemed accepted on filing. There's no manual approval wait and no fee, for eligible applicants (see the exception below).
The detail that catches people out: an LUT is valid for one financial year only (1 April to 31 March) and has to be refiled every year before you export again under it. An LUT filed partway through a year still only runs to that year's 31 March. It doesn't carry twelve months forward from the filing date.
LUT vs bond
Almost every registered exporter is eligible to use the simple LUT route. The exception: anyone who has actually been prosecuted (not merely investigated or issued a demand notice, prosecution specifically) for an offence involving tax evasion of ₹2.5 crore or more under GST or an earlier indirect tax law must furnish a bond with a bank guarantee instead, which involves manual verification rather than the instant, self-declared LUT process. For the overwhelming majority of freelancers, consultants and small agencies, this exception simply doesn't apply.
The one-year payment deadline
Export proceeds are expected to be realised (actually received into your account) within one year of the date of the export invoice. Missing that window doesn't just create an administrative note: it can mean the export loses its zero-rated treatment retroactively, triggering an IGST liability on that invoice plus interest (commonly cited at 18% per annum) for the period the tax went unpaid.
This is a real, practical risk with a slow-paying overseas client. Track payment dates against invoice dates rather than assuming a year is more time than you'll ever need.
Worked example
A GST-registered Indian UX design agency invoices a US-based startup ₹9,00,000 (in USD, at the invoice-date rate) for three months of remote design work, paid via international wire transfer in USD to the agency's Indian bank account. All five export conditions are met: Indian supplier, foreign recipient, place of supply outside India, payment in convertible foreign exchange, and a genuinely separate client. Because the agency has an active LUT for the current financial year, the invoice carries no IGST at all. The ₹9,00,000 is the full amount received, with no tax component to separately account for on this transaction.
Illustrative figures to show how the mechanics fit together. Your own eligibility depends on your actual facts, and this isn't a substitute for confirming your specific export arrangement with a GST practitioner.
Common mistakes
- Letting the LUT lapse into the new financial year. An LUT filed last year does not cover exports made after 31 March. File the new one before invoicing under it, not after.
- Assuming any overseas client automatically qualifies. A branch office or subsidiary of the same company you're part of, or a service with special place-of-supply rules, can fail the export conditions even with a foreign client.
- Losing track of the one-year payment window. A slow-paying client isn't just a cash-flow problem. Past the one-year mark it can become a tax problem too.
- Treating export of services as automatically registration-exempt. The export itself doesn't force registration, but it doesn't exempt you from the normal threshold rules either. The two questions are separate.