Export of Services — Complete GST, Income Tax & FEMA Guide (2025 Edition)

Introduction: India’s Service Export Boom & The Compliance Gap

India’s service exports have crossed $340+ billion annually (FY 2023-24), making the country a global powerhouse in:

🌐 IT & Software Development
💼 Business Process Outsourcing (BPO/KPO)
🎨 Digital Marketing & Creative Services
📊 Consulting (Management, Financial, Legal)
🚀 SaaS & Cloud Platforms
🎓 EdTech & Online Education
🏥 Telemedicine & Healthcare Services

Who’s driving this growth?

Lakhs of freelancers on Upwork, Fiverr, Toptal
Digital agencies serving US/EU clients
SaaS startups with global user bases
IT companies offshoring projects
Professional service firms (CA, lawyers, consultants)

But here’s the problem:

Every month, thousands of service exporters—from solo freelancers to established agencies—make costly compliance mistakes:

❌ Paying 18% GST unnecessarily (when it should be 0%)
❌ Losing ITC refunds worth lakhs due to documentation gaps
❌ Forgetting to file LUT → automatic IGST liability
❌ Wrong GST return entries → notices and scrutiny
❌ FEMA violations → penalties for late/incorrect remittance reporting
❌ Income Tax mismatches → GST vs. Books vs. ITR discrepancies triggering audits

The cost of these mistakes:

18% GST paid + blocked for months in refunds
₹25,000 – ₹1,00,000 penalty for FEMA violations
ITC refunds rejected (₹2-10 lakhs+ stuck)
GST notices requiring CA representation (₹50K+ fees)
Income Tax scrutiny (months of stress)

This comprehensive guide covers:

What qualifies as “Export of Services” under GST (5-point test)
GST rate and payment rules
LUT (Letter of Undertaking) — when, why, how
Export invoice requirements
GSTR-1 and GSTR-3B reporting
ITC refund process
Income Tax treatment of export income
FEMA compliance for service exporters
Special scenarios (SaaS, freelancers, agencies)
Common mistakes and how to avoid them
Founder-friendly compliance checklist

1. What Qualifies as “Export of Services” Under GST? (The 5-Point Test)

Legal Definition: Section 2(6) of the IGST Act, 2017

For a service to qualify as export of services, ALL FIVE conditions must be satisfied simultaneously:

✅ Condition 1: Supplier is Located in India

Your business or GST registration must be in India.

Example:
Indian freelancer providing design services = ✅
Indian SaaS company with servers in US = ✅
US company’s Indian branch = ✅

✅ Condition 2: Recipient is Located Outside India

The client receiving services must be physically located outside India.

Test: Where is the recipient’s business/residence?

Example:

Client: US-based company = ✅ Export
Client: Indian company’s US subsidiary = ✅ Export (separate legal entity)
Client: Indian company’s branch in US = ❌ Not export (same entity, different establishment)

Common confusion:
Indian company sending employee to US to deliver services on-site = Still export if client is foreign entity.

✅ Condition 3: Place of Supply is Outside India

Determined by Section 13 of IGST Act.

General rule for services:
Place of supply = location of recipient (if recipient is registered for GST/VAT/Tax abroad).

For specific services (Section 13(3)):

Services related to immovable property → location of property
Restaurant/hotel services → location of property
Admission to events → location of event
Training/performance appraisal → location where actually performed

Example:

Software development for UK client (performed remotely from India) → Place of supply: UK = ✅ Export
Training delivered in India for foreign delegates → Place of supply: India = ❌ Not export (domestic supply)

✅ Condition 4: Payment Received in Convertible Foreign Exchange (or INR as Permitted by RBI)

Acceptable currencies:

✅ USD, EUR, GBP, AUD, CAD, SGD, AED, etc.
✅ INR payment from Special Rupee Vostro Accounts (for select countries like Russia under RBI framework)
✅ INR payment from Nepal/Bhutan (permitted under FEMA)

Not acceptable:

❌ Payment in INR from regular Indian bank account of foreign client
❌ Cryptocurrency (not recognized as foreign exchange by RBI)
❌ Barter transactions (unless RBI permits)

Common issue:
Freelancers receiving payment via Payoneer/Wise in INR to Indian account.

Solution: Ensure payment comes as foreign inward remittance with proper FIRC/bank certificate.

✅ Condition 5: Supplier and Recipient Are NOT Merely Establishments of the Same Person

“Same person” test: Parent company and its branch/office = considered one entity.

Not export:

Indian HQ providing services to its own US branch = ❌ (internal transfer)
Indian subsidiary serving its foreign parent for no consideration = ❌

Is export:

Indian subsidiary charging arm’s length fees to foreign parent = ✅ (if other 4 conditions met)

Critical Rule:

If even ONE condition fails → NOT an export → Regular domestic supply → 18% GST applicable.

2. GST Rate for Export of Services

Rate: 0% (Zero-Rated Supply)

Legal Basis: Section 16 of IGST Act

But zero-rated ≠ exempt.

Critical difference:

Aspect	Zero-Rated (Export)	Exempt Supply
GST Rate	0%	0%
Can claim ITC refund?	✅ Yes	❌ No
Need to reverse ITC on inputs?	❌ No	✅ Yes (proportionately)
Can export without paying tax?	✅ Yes (with LUT)	N/A

Why this matters:

Export of services = Zero-rated → You can:

✅ Export without paying IGST (under LUT)
✅ Claim full ITC refund on inputs/input services used

Example:
Digital marketing agency exports services worth ₹10 lakhs/month.
Inputs (software, ads, hosting): ₹3 lakhs/month (₹54K GST paid).

Without export benefit: Would have to pay ₹1.8 lakh IGST + lose ₹54K ITC.
With export benefit: 0% tax + ₹54K ITC refund every month = ₹6.5 lakhs saved annually!

3. Two Ways to Export Services Under GST

Option A: Export WITH Payment of IGST (Then Claim Refund)

Process:

Charge 18% IGST on export invoice
Pay IGST to government
File shipping bill / export documentation
File refund application (Form RFD-01)
Wait 60-90 days for refund

When to use:

You have surplus ITC (input tax credits) exceeding export liability
First-time exporter testing the process
High-value one-time exports

Downside:

❌ Cash flow blockage (pay tax, wait for refund)
❌ Refund processing delays (often 3-6 months in practice)
❌ Documentation scrutiny

Option B: Export WITHOUT Payment of IGST (Under LUT) ⭐ RECOMMENDED

LUT = Letter of Undertaking

How it works:

File LUT on GST portal (Form RFD-11)
LUT valid for entire financial year
Export services without paying IGST (0% invoice)
Claim ITC refund on inputs (if any)

Benefits:

✅ No cash flow blockage
✅ Simpler compliance
✅ No refund application needed (just for ITC, if applicable)
✅ Faster processing

Eligibility:

✅ All exporters (no turnover limit)
✅ No bank guarantee required (removed in 2018)
✅ Can be filed online

4. LUT Filing: Complete Process (2025 Edition)

What is LUT?

Letter of Undertaking = A declaration to GST authorities that you’ll export goods/services without paying IGST and fulfill all export obligations.

LUT Filing Requirements:

Frequency: Once per financial year (April to March)

Form: RFD-11 (filed online on GST portal)

Documents needed:

✅ GSTIN
✅ Authorized signatory details (as per GST registration)
✅ Digital Signature Certificate (DSC) or EVC

No physical submission required (fully online since 2020).

Step-by-Step LUT Filing Process:

Step 1: Login to GST Portal (www.gst.gov.in)

Step 2: Navigate: Services → User Services → Furnish Letter of Undertaking

Step 3: Select Financial Year (e.g., 2025-26)

Step 4: Fill Form RFD-11:

Authorized signatory name
Designation
Declaration

Step 5: Sign using DSC or EVC

Step 6: Submit

Step 7: Receive ARN (Application Reference Number)

Processing Time: Instant to 3 working days (auto-approved in most cases)

Important LUT Rules:

✅ File BEFORE first export invoice of the FY
If you export before filing LUT → IGST becomes payable (even if client is foreign).

✅ One LUT covers entire FY (all GSTINs, all exports)

✅ Renew every April (not auto-renewed)

✅ Authorized signatory must match GST records
Common rejection: Form signed by person not authorized in GST registration.

✅ Separate LUT for each GSTIN (if multiple registrations)

LUT Violations & Penalties:

Scenario 1: Export without filing LUT
→ IGST liability + interest @ 18% p.a. + penalty

Scenario 2: LUT filed after export
→ Tax demand + penalty (can be compounded with proper explanation)

Scenario 3: Export proceeds not received within timelines
→ FEMA violation + GST scrutiny (LUT breach)

5. Export Invoice Requirements (GST Compliance)

Your export invoice must contain these elements for GST compliance:

Mandatory Fields:

✅ Invoice Title: “Tax Invoice” or “Export Invoice”

✅ Supplier Details:

Legal name (as per GSTIN)
GSTIN
Address

✅ Recipient Details:

Client name
Address
Country

✅ Invoice Number: Unique, sequential

✅ Invoice Date

✅ Description of Services

✅ SAC Code (Services Accounting Code):

Example: 998314 (Information technology consulting services)
Use 6-digit SAC from GST SAC list

✅ Quantity/Unit (if applicable)

✅ Rate/Amount:

Currency: USD/EUR/GBP etc.
INR equivalent (use SBI TT buying rate or contract rate)

✅ Place of Supply: “Outside India” or specific country

✅ Declaration:
“Supply meant for export under LUT without payment of IGST”

✅ Tax Rate: 0% or NIL

✅ IGST Amount: ₹0

✅ Total Invoice Value

✅ Payment Terms

✅ Bank Details (for foreign remittance)

Sample Export Invoice Declaration Text:

“This is an export of services in terms of Section 2(6) of IGST Act, 2017. Supply is being made under LUT without payment of integrated tax as per Rule 96A of CGST Rules, 2017. Place of supply is outside India.”

Common Invoice Mistakes:

❌ Showing 18% IGST when under LUT (creates confusion)
❌ No SAC code (GST portal rejects GSTR-1)
❌ Wrong place of supply (showing India instead of client country)
❌ No LUT reference
❌ Client address in India (fails export test)

6. Documents Required for Export of Services (Compliance Folder)

Maintain a digital + physical folder with:

Document 1: Export Invoices

All invoices with proper GST format.

Document 2: Foreign Inward Remittance Certificate (FIRC) / SWIFT

FIRC = Bank certificate confirming foreign exchange received.

Acceptable alternatives:

✅ FIRC (traditional)
✅ Bank’s Foreign Exchange Realization Certificate
✅ SWIFT message copy
✅ AD Code-stamped bank statement (for small amounts)

How to obtain:

Request from your bank’s forex department
Some banks auto-generate for amounts >$1,000
Smaller amounts: Bank statement with “SWIFT” or “Inward remittance” narration may suffice

Why critical:

GST refund applications require FIRC
FEMA compliance proof
Income Tax verification
Audit trail

Document 3: Service Agreement / Contract / Email

Proof that services were contracted by foreign client.

Can be:

Formal service agreement
Purchase order
Email exchange
Upwork/Fiverr contract (with actual client details)

Document 4: Proof of Service Delivery

Evidence that services were actually rendered:

Work completion certificate
Client acceptance email
Delivery screenshots (for digital services)
Timesheets (for hourly contracts)
GitHub commits (for software development)
Campaign reports (for marketing services)

Document 5: Bank Statements

Showing inward remittance matching invoice amounts.

Document 6: LUT Acknowledgment

Copy of filed LUT (Form RFD-11) with ARN.

Document 7: Working Papers / Reconciliation

Excel/software tracking:

Export invoices raised
Bank receipts
GSTR-1 reported amounts
Books of accounts entries
Differences (if any) with explanations

7. GST Return Filing for Service Exporters

Return 1: GSTR-1 (Monthly/Quarterly)

Table 6A: Exports (with payment of tax)
Use if you’re exporting with IGST payment (rare).

Table 6B: Exports (without payment of tax – under LUT/Bond)
⭐ Most service exporters use this table.

Details to enter:

Invoice number
Invoice date
Invoice value (₹)
Port code (use 000000 for services)
Shipping Bill number/date (for goods; can skip for services or enter invoice details)

Common mistakes:

❌ Reporting in Table 4 (taxable supplies) instead of Table 6B
❌ Wrong taxable value (should be INR equivalent)
❌ Forgetting to file GSTR-1 on time (late fee: ₹200/day)

Return 2: GSTR-3B (Monthly)

Table 3.1(b): Zero-rated supplies (export without payment of tax)

Enter total value of exports (without IGST).

Table 4: ITC claimed
Claim ITC on inputs/input services.

Table 6.1: ITC Reversal (if any)
Usually not required for pure exporters.

Return 3: GSTR-9 (Annual Return)

Table 8A: Exports without payment of tax
Table 10: ITC claimed

Due date: December 31 following FY end

8. ITC Refund Process for Service Exporters

If you have ITC accumulated (GST paid on inputs like software, hosting, ads, office rent), you can claim refund.

Refund Eligibility:

Formula:
Refund = (Export Turnover / Total Turnover) × Net ITC

Example:

Total turnover: ₹50 lakhs
Export turnover: ₹40 lakhs
Net ITC: ₹5 lakhs
Refund = (40/50) × 5 = ₹4 lakhs

Refund Process:

Step 1: File GSTR-1 and GSTR-3B for the month

Step 2: File Form RFD-01 (Refund Application)

Step 3: Select refund type: “Refund of unutilized ITC on account of exports without payment of tax”

Step 4: Upload supporting documents:

Export invoices
FIRC/SWIFT copies
Shipping bill (if applicable)
Bank statement
Statement of ITC claimed

Step 5: Submit digitally

Step 6: Refund processed within 60 days (in theory; often takes 90-180 days)

Step 7: Amount credited to bank account

Common Refund Rejections:

❌ Invoice-FIRC mismatch: Invoice value ₹10L, but FIRC shows ₹9.5L (client deducted payment gateway fees)
Solution: Explain difference with supporting docs.

❌ Delayed FIRC: Remittance received 6 months after invoice
Solution: File refund after receiving FIRC.

❌ ITC on ineligible inputs: Food, travel (not related to business)
Solution: Maintain input-service linkage; avoid claiming personal expenses.

❌ Missing SAC code in GSTR-1
Solution: Ensure all export invoices have correct SAC codes.

9. Income Tax Treatment of Export Income

Key Point: Export income is 100% taxable in India.

No exemption for export income (unlike some countries that exempt foreign-sourced income).

Rule 1: Foreign Currency Conversion

Convert foreign currency to INR using:

Telegraphic Transfer (TT) Buying Rate of State Bank of India on the date of receipt (Income Tax Rule 115).

Example:

Invoice: $5,000 on Jan 15
Received: Feb 10
SBI TT buying rate on Feb 10: ₹83.50
Taxable income: ₹4,17,500

Alternative: If you have a contract specifying conversion rate (e.g., forward contract), you can use that with proper documentation.

Rule 2: No TDS Deduction

Foreign clients don’t deduct TDS (they’re outside Indian tax jurisdiction).

Your responsibility:

✅ Pay advance tax quarterly (June 15, Sept 15, Dec 15, March 15)
✅ File ITR by July 31 (or applicable due date)

Advance tax calculation:
Estimate annual export income → apply tax slab → pay 15%/45%/75%/100% by each due date.

Rule 3: Presumptive Taxation (For Eligible Exporters)

Section 44ADA (Professionals)

Eligibility:

Professional services (consulting, freelancing, design, etc.)
Gross receipts ≤ ₹75 lakhs/year
No audit required

Tax calculation:
50% of gross receipts deemed as profit.

Example:

Export income: ₹60 lakhs
Deemed profit: ₹30 lakhs
Taxable at slab rates

Benefits:

✅ No need to maintain detailed books
✅ No audit
✅ Simple compliance

Section 44AD (Businesses)

Eligibility:

Turnover ≤ ₹3 crores
Business (not profession)

Tax calculation:
8% (digital receipts) or 6% (cash) of turnover deemed as profit.

Rule 4: GST vs. Income Tax Reconciliation (CRITICAL!)

Problem:
GST returns show ₹1 crore exports.
ITR shows ₹95 lakhs income.

Triggers:

❌ Scrutiny notice
❌ ITC freeze
❌ High-risk profiling
❌ Demand for explanation

Reasons for mismatch:

Timing differences (invoice in March, payment in April)
Currency fluctuations
Payment gateway deductions
Write-offs/bad debts

Solution: Maintain reconciliation statement in books showing:

GST export invoices
Income recognized in ITR
Differences with explanations

Rule 5: Deductions Available

Standard business deductions:

✅ Software subscriptions (Adobe, Figma, Notion, etc.)
✅ Internet & phone bills
✅ Co-working space rent
✅ Laptop, monitor depreciation
✅ Marketing expenses
✅ Professional fees (CA, lawyer)
✅ Bank charges
✅ Courier/logistics

Not deductible:

❌ Personal expenses
❌ Capital expenditure (except depreciation)

10. FEMA Compliance for Service Exporters

FEMA (Foreign Exchange Management Act) regulates all foreign exchange transactions.

Key FEMA Rules for Service Exporters:

Rule 1: Export Proceeds Must Be Received Within 9 Months

From the date of export (invoice date).

Exception: RBI may extend on application.

Violation penalty: Up to 3x the amount + ₹2 lakhs + ₹5,000/day.

Rule 2: Bank AD Code Reporting

Authorized Dealer (AD) bank must report all foreign inward remittances to RBI.

Your responsibility: Ensure bank has correct export invoice reference.

Rule 3: Use Business Bank Account

Don’t receive export payments in:

❌ Personal savings account
❌ Salary account
❌ Family member’s account

Use:

✅ Current account (if company/LLP)
✅ Business bank account linked to GSTIN

Rule 4: PayPal/Payoneer/Wise Compliance

Using payment aggregators?

Acceptable if:

✅ Aggregator account in your name/business name
✅ Linked to Indian business bank account
✅ Generates bank statement showing “Foreign Inward Remittance”

Not acceptable:

❌ Using someone else’s PayPal
❌ Withdrawing cash from ATM (no FIRC trail)

Rule 5: Export Declaration (If Required)

For services >$25,000/invoice:
Some banks require SOFTEX (Software Export) form or equivalent declaration.

Note: SOFTEX abolished in 2018, but some banks still ask for export declaration letter.

Common FEMA Violations by Service Exporters:

❌ Delayed receipt (beyond 9 months) → Compounding required
❌ No proper documentation → Bank reports to RBI → Notice
❌ Round-tripping (sending money out, bringing back as export) → Serious violation
❌ Mismatch between invoice currency and received currency → Scrutiny

11. Special Scenarios: SaaS, Freelancers, Agencies

Scenario 1: SaaS Companies

Is SaaS export of service?
✅ Yes, if:

Software accessed online (cloud-based)
No physical transfer (not downloading executable on device permanently)
Client outside India
Payment in foreign exchange

GST treatment:

0% under LUT
Report in GSTR-1 Table 6B

Common issue:
Indian customers accessing the same SaaS → must charge 18% GST for Indian customers, 0% for foreign.

Scenario 2: Freelancers (Upwork, Fiverr, Toptal)

Are you an exporter?
✅ Yes, if you’re providing services to clients outside India.

Platform payments:

Issue: Upwork pays you (Indian freelancer). Is Upwork the client?

Answer: No. Actual client (US company hiring via Upwork) is your recipient.

Invoice to: Actual client (their name, address must appear on invoice).

Platform fee: Your expense (deductible for Income Tax).

FIRC: Payment from Upwork/Payoneer to your bank = foreign inward remittance. Bank statement acts as FIRC for small amounts.

Scenario 3: Digital Marketing Agencies

Export if:

✅ Client is foreign company
✅ Services performed for their foreign market
✅ Payment in foreign currency

Not export if:

❌ Running ads for Indian branches of foreign companies targeting Indian customers

Example:

Running Facebook ads for US client targeting US audience = ✅ Export
Running ads for Apple India targeting Indian iPhone buyers = ❌ Domestic (18% GST)

Scenario 4: Consultants (CA, Lawyers, Management Consultants)

Export if:

Foreign client
Consulting for their business
Payment in foreign currency

Even if:

Meetings held in India (video calls)
Report delivered online

As long as: Place of supply rules indicate outside India.

12. Common Mistakes & How to Avoid Them

❌ Mistake 1: Not Filing LUT Before First Export

Impact: IGST becomes payable + interest + penalty.

Solution: File LUT in April (start of FY) even if you haven’t finalized clients yet.

❌ Mistake 2: Charging 18% GST on Export Invoice

Why wrong: If under LUT, should be 0%.

Impact: Client pays 18% extra → you must deposit to govt → apply for refund → months of delay.

Solution: Invoice at 0% with LUT declaration.

❌ Mistake 3: Not Collecting FIRC/SWIFT

Impact: Cannot prove foreign inward remittance → ITC refund rejected.

Solution: Request FIRC from bank within 30 days of receipt.

❌ Mistake 4: Reporting Export in Wrong GSTR-1 Table

Wrong: Table 4A (taxable supplies, 18% GST)

Right: Table 6B (zero-rated supplies, LUT)

Impact: GST liability created, ITC reversal, notices.

❌ Mistake 5: Mismatch Between Invoice and Payment Amount

Scenario:
Invoice: $5,000
Received: $4,800 (after payment gateway fees)

GST Portal Issue: FIRC shows lower amount → refund scrutiny.

Solution:

Show full $5,000 in GST invoice
Book $200 as “Payment Gateway Charges” separately
Maintain reconciliation

❌ Mistake 6: Not Maintaining SAC Code

Impact: GSTR-1 filing errors, refund rejection.

Solution: Use correct 6-digit SAC code for your service from GST SAC list.

❌ Mistake 7: Ignoring GST-ITR Reconciliation

Impact: Income Tax scrutiny, demand notices.

Solution: Monthly reconciliation; explain timing/currency differences in books.

❌ Mistake 8: Using Personal Bank Account

Impact: No FIRC, FEMA violation, no GST proof.

Solution: Open current account/business account linked to GSTIN.

❌ Mistake 9: Not Paying Advance Tax

Impact: Interest @ 1% per month on shortfall.

Solution: Calculate quarterly export income; pay advance tax by due dates.

❌ Mistake 10: Forgetting Annual LUT Renewal

Impact: April exports without LUT → IGST liability.

Solution: Set annual reminder for April 1; file LUT on April 2.

13. Founder-Friendly Compliance Checklist

✅ Before Starting Export Business:

Register for GST (if turnover >₹20L, or voluntary registration)
Open current/business bank account
Link bank account to GSTIN
Create export invoice template (with all mandatory fields)
Determine SAC code for your services
Understand client location (verify they’re outside India)

✅ At Start of Every Financial Year (April):

File LUT (Form RFD-11) before first export invoice
Receive acknowledgment with ARN
Update invoice template with new FY LUT reference (optional but good practice)

✅ For Every Export Transaction:

Raise invoice with:
- ✅ 0% GST rate
- ✅ LUT declaration
- ✅ Correct SAC code
- ✅ Place of supply: Outside India
Track invoice in your accounting software
Follow up for payment
Upon receipt:
- ✅ Match payment with invoice
- ✅ Request FIRC/SWIFT from bank
- ✅ File in “Export Documentation” folder

✅ Monthly Compliance:

Prepare reconciliation: Invoices vs. Bank receipts vs. Books
File GSTR-1 by 11th (or quarterly: 13th of month following quarter)
- ✅ Report all exports in Table 6B
File GSTR-3B by 20th
- ✅ Report zero-rated supplies in Table 3.1(b)
- ✅ Claim ITC in Table 4
Pay advance tax (if due in that month: June, Sept, Dec, March)

✅ Quarterly (If Applicable):

File ITC refund application (Form RFD-01) if accumulated ITC
Review pending client payments (ensure within 9 months per FEMA)

✅ Annual Compliance:

File GSTR-9 (Annual Return) by Dec 31
File Income Tax Return by July 31 (or applicable due date)
Reconcile:
- ✅ GST turnover (GSTR-9)
- ✅ ITR income
- ✅ Books of accounts
- ✅ Bank statements
Maintain documentation for 6+ years (GST/IT requirement)
Review if tax audit required (turnover >₹1 crore for 44AD; >₹50L if opting out of presumptive)

✅ FEMA Compliance:

Ensure all export proceeds received within 9 months
If delayed, apply to RBI for extension
Maintain FIRC for all remittances
Coordinate with bank if any AD Code reporting issues

14. Conclusion: Export Compliance = Tax Efficiency + Peace of Mind

Export of services is one of the most tax-efficient business models in India:

✅ 0% GST (no tax on sales)
✅ Full ITC refund (recover GST paid on inputs)
✅ Global clients (unlimited market)
✅ Foreign exchange earnings (builds reserves, supports economy)
✅ No TDS hassles (clients don’t deduct TDS)

But only when compliance is:

✅ Clean
✅ Documented
✅ Timely
✅ LUT-backed
✅ FEMA-compliant
✅ Reconciled across GST-Income Tax-Books

A well-managed exporter never faces:

Suspended ITC refunds
GST notices
FEMA penalties
Income Tax scrutiny
Cash flow blockages

Key Takeaways:

✅ All 5 conditions must be met for export of services classification
✅ File LUT every April before first export—save 18% GST
✅ Maintain FIRC/SWIFT for every foreign remittance—refund lifeline
✅ Report in GSTR-1 Table 6B correctly—avoid wrong tax liability
✅ Reconcile GST-ITR-Books monthly—prevent scrutiny
✅ Receive payment within 9 months (FEMA rule)—avoid penalties
✅ Use business bank account—no personal account mixing
✅ Pay advance tax quarterly—avoid interest
✅ Keep documentation for 6+ years—audit trail
✅ Engage export-savvy CA—specialized knowledge matters

FAQs: Export of Services (30 Most-Asked Questions)

Q1: What is “export of services” under GST?

A: Export of services = supply of services where: (1) supplier in India, (2) recipient outside India, (3) place of supply outside India, (4) payment in foreign exchange (or RBI-permitted INR), and (5) supplier-recipient not merely establishments of same person. If all 5 conditions met → 0% GST.

Q2: Do I need to pay GST on export of services?

A: No, if you file LUT (Letter of Undertaking). With LUT, you export at 0% GST without paying tax. Without LUT, you’d pay 18% IGST and then claim refund (not recommended due to cash flow blockage).

Q3: What is LUT and how do I file it?

A: LUT = Letter of Undertaking promising to export without paying IGST. Filed online via Form RFD-11 on GST portal. Must be filed every financial year (April) before first export. No bank guarantee needed. Processing: Instant to 3 days.

Q4: What happens if I export without filing LUT?

A: You become liable to pay 18% IGST + interest @ 18% p.a. + penalty. Even if client is foreign, GST law treats it as taxable if LUT not filed.

Q5: Can I claim ITC refund on export of services?

A: Yes. Export of services = zero-rated supply → you can claim refund of ITC (GST paid on inputs/input services). File Form RFD-01 after GSTR-1 and GSTR-3B. Refund = (Export turnover / Total turnover) × Net ITC.

Q6: What is FIRC and why is it important?

A: FIRC (Foreign Inward Remittance Certificate) = bank certificate confirming foreign currency received. Alternatives: SWIFT message, bank realization certificate. Critical for: ITC refund applications, FEMA compliance, Income Tax proof. Request from bank within 30 days of receipt.

Q7: What should my export invoice contain?

A: Mandatory fields:

✅ “Tax Invoice” / “Export Invoice”
✅ Supplier name, GSTIN, address
✅ Recipient name, address, country
✅ Invoice number, date
✅ Service description + SAC code
✅ Currency, amount (foreign + INR equivalent)
✅ Place of supply: Outside India
✅ Declaration: “Supply for export under LUT without payment of IGST”
✅ GST rate: 0% / NIL
✅ Payment terms, bank details

Q8: How do I report export of services in GSTR-1?

A: Use Table 6B: Exports (without payment of tax – under LUT/Bond).
Enter: Invoice number, date, INR value, port code (000000 for services).
Don’t use: Table 4 (taxable supplies—that’s for domestic 18% GST sales).

Q9: Is export income exempt from Income Tax?

A: No. Export income is 100% taxable in India at applicable slab rates (individuals) or flat rate (companies). No exemption for export income. Must file ITR and pay advance tax quarterly.

Q10: How do I convert foreign currency to INR for Income Tax?

A: Use SBI’s Telegraphic Transfer (TT) buying rate on the date of receipt (per Income Tax Rule 115). Example: Received $5,000 on Feb 10 → SBI TT rate on Feb 10: ₹83.50 → Income: ₹4,17,500.

Q11: Can I use presumptive taxation (Section 44ADA) for export income?

A: Yes, if:

Professional services (consulting, freelancing, design, etc.)
Gross receipts ≤ ₹75 lakhs/year
50% deemed profit (taxable)
No audit, simplified compliance

For businesses: Section 44AD (turnover ≤ ₹3 crores, 8%/6% deemed profit).

Q12: Do foreign clients deduct TDS on my export income?

A: No. Foreign clients are outside Indian tax jurisdiction—they don’t deduct TDS.
Your responsibility: Pay advance tax quarterly (June, Sept, Dec, March).

Q13: What are FEMA rules for service exporters?

A: Key rules:

Export proceeds must be received within 9 months (from invoice date)
Receive in business bank account (not personal)
Maintain FIRC/SWIFT for every remittance
Bank reports to RBI via AD Code
Penalty for violations: Up to 3x amount + ₹2L + ₹5K/day

Q14: Can I receive export payment in INR?

A: Generally no, unless:

✅ Payment from Nepal/Bhutan (permitted by FEMA)
✅ Payment from Special Rupee Vostro Accounts (for select countries like Russia per RBI framework)
❌ Regular INR from Indian bank account of foreign client = not export

Q15: I’m a freelancer on Upwork/Fiverr. Do I need GST registration?

A: If annual turnover >₹20 lakhs: Mandatory GST registration.
If <₹20 lakhs: Optional (but recommended for credibility + ability to claim ITC refund).

Upwork/Fiverr income = export of services (if clients are foreign) → eligible for 0% GST under LUT.

Q16: Who is my “recipient” for GST—Upwork or the actual client?

A: Actual client (the US company hiring you via Upwork).
Invoice should show: Client’s name, address, country (not Upwork’s).
Upwork is: Payment intermediary (like a payment gateway).

Q17: Can I use PayPal/Payoneer for receiving export payments?

A: Yes, if:

✅ Account in your name/business name
✅ Linked to Indian business bank account
✅ Bank statement shows “Foreign Inward Remittance”
✅ Can obtain FIRC/equivalent (for larger amounts, get bank certificate)

For small freelance payments (<$1,000): Bank statement with SWIFT/remittance narration often suffices.

Q18: Is my SaaS product export of service?

A: Yes, if:

✅ Cloud-based (accessed online, not downloaded)
✅ Customer outside India
✅ Payment in foreign exchange
✅ No physical transfer

GST: 0% under LUT
For Indian customers: 18% GST (domestic supply)

Q19: What if my client is an Indian company’s US subsidiary?

A: Separate legal entity = Export (all 5 conditions met).
Even though parent is Indian, subsidiary incorporated in US = foreign recipient → export of services.

Q20: What if I deliver services on-site in foreign country?

A: Still export of services if:

Recipient is foreign entity
Payment in foreign currency
Place of supply outside India (where services consumed)

Income Tax: Taxable in India (unless you become tax resident abroad or claim DTAA benefit—complex, needs expert).

Q21: What is SAC code and do I need it?

A: SAC (Services Accounting Code) = 6-digit classification code for services (like HSN for goods).
Mandatory on export invoices and in GSTR-1.

Example:

IT consulting: 998314
Marketing services: 998399
Design services: 998396

Find yours: GST SAC list on CBIC website.

Q22: How long does ITC refund take?

A: Legally: 60 days from application.
In practice: 90-180 days (often delayed due to scrutiny, documentation gaps).

Pro Tip: File refund application immediately after GSTR-3B; keep all documents ready (FIRC, invoices, bank statements).

Q23: Can I export services without GST registration?

A: If turnover <₹20 lakhs: Not legally required to register → no GST compliance → no refund eligibility.
But: Consider voluntary registration for:

Professional image (GSTIN on invoice)
ITC refund (if you pay GST on inputs)
Easier banking (some banks prefer GSTIN for forex transactions)

Q24: What if export payment is delayed beyond 9 months?

A: FEMA violation. Solutions:

Apply to RBI for extension (before 9-month deadline, explain genuine reasons)
If already delayed: Apply for compounding (penalty waiver/reduction)

Penalty if not regularized: Up to 3x amount.

Q25: How do I reconcile GST and Income Tax when currency fluctuates?

GST invoice: Use contract rate or prevailing rate on invoice date
Income Tax: Use SBI TT buying rate on receipt date

Example:

Invoice: $5,000 on Jan 15 → GST: ₹4,10,000 (rate: ₹82)
Received: Feb 10 → ITR: ₹4,17,500 (SBI rate: ₹83.50)
Difference: ₹7,500 (foreign exchange gain—taxable under Income Tax)

In books: Show ₹4,10,000 as revenue, ₹7,500 as “Foreign Exchange Gain.”

Q26: What if client deducts payment gateway fees—how to report?

Invoice: $5,000 (full amount)
Received: $4,800 ($200 deducted by PayPal/Stripe)
GST return: Report $5,000 (invoice value) in GSTR-1 Table 6B
Books: Revenue: $5,000; Expense: $200 (Payment Gateway Charges)
FIRC: Will show $4,800 → maintain reconciliation note

Q27: Can I export services to my own foreign branch?

A: No, if they’re merely establishments of same person (Condition 5 fails).
Example: Indian company’s US branch = same legal entity → internal transfer → not export → 18% GST (if service consumed in India) or no GST (if consumed in US, but can’t claim export benefit).

Q28: Do I need to file GSTR-2A/2B if I’m only exporting?

A: GSTR-2A/2B are auto-generated (showing your input purchases) → you don’t file them, just review.
For pure exporters: Review to ensure suppliers uploaded your invoices correctly → claim ITC in GSTR-3B.

Q29: What documents should I keep for GST audit?

A: Maintain for 6 years:

✅ Export invoices
✅ FIRC/SWIFT for every remittance
✅ LUT acknowledgment
✅ Bank statements (forex remittance pages)
✅ Service agreements/contracts
✅ GSTR-1, GSTR-3B, GSTR-9 (filed returns)
✅ Reconciliation statements (invoices-bank-returns)
✅ ITC refund applications + acknowledgments

Disclaimer: This blog is for informational purposes only and does not constitute legal, tax, or financial advice. GST, Income Tax, and FEMA regulations are subject to frequent amendments. Please consult a qualified Chartered Accountant or tax advisor for your specific situation. AdvoFin Consulting is not liable for any actions taken based solely on this content.