Export of Services Under GST: Conditions, LUT Procedure and Refund Roadmap

India’s service sector has a strong export footprint—software development, IT-enabled services, consulting, legal and accounting support, digital marketing, KPO/BPO work, engineering design and similar activities are routinely supplied to overseas clients. Under GST, however, merely billing a foreign customer does not automatically convert a service into an “export”.

The Integrated Goods and Services Tax Act, 2017 (IGST Act) prescribes a precise legal definition of “export of services” in Section 2(6). Only when every limb of that definition is satisfied does a supply of services qualify as zero-rated under Section 16. Once treated as zero-rated, the assessee can:

  • Export services without payment of IGST under a valid Letter of Undertaking (LUT) and claim refund of eligible accumulated ITC, or
  • Use the IGST payment route, charge IGST on export invoices and later claim refund of the tax paid, subject to notifications and conditions.

This article explains, in a structured manner:

  • The statutory definition of export of services
  • Detailed analysis of the five mandatory conditions under Section 2(6)
  • Place of supply rules under Section 13 and common risk areas (immovable property, intermediary services, events, etc.)
  • LUT filing, validity and Rule 96A timelines
  • Practical aspects of export invoicing, GST return reporting and ITC refund claims
  • Typical compliance mistakes by service exporters and a step-wise internal control process

1. Statutory Concept: What Is “Export of Services” Under GST?

Section 2(6) of the IGST Act defines “export of services” through a five-part legal test. A supply of services is considered an export only when:

  1. The supplier of service is located in India
  2. The recipient of service is located outside India
  3. The place of supply of service is outside India
  4. Payment for such service is received in convertible foreign exchange or, where specifically allowed, in Indian rupees as permitted by the Reserve Bank of India (RBI)
  5. The supplier and recipient are not merely establishments of the same person

All five conditions must be satisfied simultaneously. A foreign address on the invoice or payment in USD, by itself, is not enough to establish that the supply qualifies as an export under GST.

Important: CBIC has issued several clarifications on the interpretation of Section 2(6), especially for group-company transactions and INR receipts through RBI-permitted mechanisms such as Special Rupee Vostro Accounts.

2. Five Building Blocks of Export of Services

2.1 Supplier of Service Must Be Located in India

Export treatment under GST is relevant only when the supplier is in India. Typically, this will cover:

  • Indian companies
  • LLPs and partnership firms
  • Professional proprietorships
  • Any registered assessee operating from a location/fixed establishment in India

Where a business has multiple establishments (for instance, a global software company with branches in several countries), location of supplier is determined by examining:

  • The registered principal place of business in GST records, and
  • The fixed establishment from which the service is actually provided

In cross-border groups, correctly identifying the supplying establishment is critical to avoid later disputes over whether the service was genuinely supplied “from India”.

2.2 Recipient of Service Must Be Located Outside India

The contractual recipient of service must be outside India. That requires clarity on:

  • Who is the counterparty under the contract or work order?
  • In whose name is the invoice raised?
  • Who bears the legal obligation to pay consideration?

For instance, if an Indian advisory firm signs a contract with “ABC Ltd, London”, invoices ABC Ltd and ABC Ltd is liable to pay, ABC Ltd would normally be treated as the recipient.

Issues arise where:

  • A foreign entity is only paying on behalf of an Indian beneficiary, or
  • The actual benefit of the service accrues to an Indian party while contracts are structured to show an overseas entity as the recipient.

In such cases, authorities may scrutinise whether the real recipient is located outside India or whether the structure is essentially domestic with a foreign paymaster.

2.3 Place of Supply Must Be Outside India

This is often the most litigated condition. Under Section 13 of the IGST Act, where either the supplier or the recipient is located outside India, place of supply is determined by:

  • A general rule (location of recipient), and
  • Specific rules for particular types of services

If the place of supply turns out to be India, the service fails the export test even when the recipient is foreign and payment is in foreign currency.

Key points:

  • General rule (Section 13(2)): Place of supply is the location of the recipient of services, provided no specific rule applies.
  • Specific rules cover, among others:
    • Services in relation to immovable property
    • Services that require physical presence of goods or individuals
    • Event-related services
    • Certain banking services to account holders
    • Intermediary services
    • Passenger transportation services

Assessees must first determine if their service falls under a specific rule; only if not, the general rule applies.

2.4 Payment Must Be Received in Permitted Manner

A supply will not be treated as export unless consideration is received in the legally accepted form:

  • Convertible foreign exchange (e.g., USD, EUR, GBP, etc.) through authorised banking channels; or
  • Indian rupees, but only where such INR settlement is specifically permitted by RBI

RBI has allowed certain international transactions to be settled in INR through structures such as Special Rupee Vostro Accounts. The GST Council and CBIC have aligned export rules with these RBI mechanisms.

Note: Every receipt in INR from an overseas counterparty does not automatically qualify. The assessee must ensure that the banking route and transaction type are RBI-compliant for INR settlement.

2.5 Supplier and Recipient Must Not Be Establishments of the Same Person

The last limb of Section 2(6) eliminates situations where services travel only between different establishments of the same legal person. For instance:

  • Head Office outside India ↔ Indian branch office of the same legal entity
  • Overseas branch ↔ Indian project office of the same overseas company

Such establishments may be treated as establishments of a distinct person, and services between them may not qualify as “export of services”.

However, CBIC has clarified that:

  • An Indian-incorporated subsidiary and its foreign holding company are separate legal persons.
  • Similarly, two separate incorporated group entities (India–foreign) are distinct persons.

Therefore, services supplied by an Indian subsidiary to its foreign parent or affiliated group entity can qualify as export where all other conditions (place of supply, consideration, etc.) are fulfilled.

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