A service that qualifies as an export is zero-rated: no output tax, and full recovery of the input tax behind it. That is worth a great deal to a developer, designer, consultant or agency billing overseas. But it is a defined term with five conditions, all of which must hold — and an Indian business that simply invoices in dollars has established none of them.
The five conditions
- The supplier is located in India.
- The recipient is located outside India.
- The place of supply is outside India.
- Payment is received in convertible foreign exchange, or in Indian rupees where the RBI permits it.
- The supplier and recipient are not merely establishments of the same person — a branch billing its own head office abroad does not export.
Condition four is the one that fails most often. Payment routed through an Indian intermediary, or settled by set-off against something owed the other way, is not receipt in convertible foreign exchange. Keep the FIRC or bank realisation evidence — it is the proof, and refunds are declined without it.
Place of supply is not where the client sits
For most services the place of supply follows the recipient’s location, which is what makes the export analysis work. But several categories have their own rules — services connected to immovable property, admission to events, and performance-based services on goods physically made available.
A designer working remotely for a US client generally exports. A surveyor inspecting a factory in Rajasthan for that same client generally does not, because the service is tied to property here.
The intermediary trap
This catches agencies and marketplaces. Where you arrange or facilitate a supply between two other parties rather than supplying on your own account, you may be an intermediary — and for an intermediary, the place of supply is the supplier’s own location. That is India. The service is then taxable at the full rate, however foreign the client is.
The distinction turns on whether you supply the main service on your own account, or connect two other people who deal with each other. Recruiters, freight forwarders, sales agents and some marketing agencies live near this line, and the contract wording matters enormously.
Getting the benefit
Once you qualify, choose the LUT route and export without paying IGST, then claim the accumulated credit — the mechanics are in the GST refund guide, and the registrations in export compliance. File the LUT afresh each financial year before your first export of that year.
Where we come in
We establish the export position in writing before it is relied on, file the annual LUT, and run the refund cycle. See GST services and IEC registration.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.