Key takeaways
What this article covers, in order:
- What does "zero-rated" actually mean?
- When does a service count as an export?
- LUT or IGST: the two routes
- How the LUT works
- Reporting exports in your returns
- Claiming the ITC refund under LUT
Rahul's first US client paid in dollars, and he was thrilled. Then his friend asked whether he'd charged 18% GST on the invoice, and suddenly he wasn't sure about anything. Here's the short version. Exports of goods and services from India are zero-rated under GST. You either export without paying IGST by furnishing a Letter of Undertaking (LUT), or pay IGST and claim it back as a refund. Either way, the tax shouldn't end up as your cost, and the input tax credit you paid on your purchases is recoverable too.
What does "zero-rated" actually mean?
It's not the same as exempt, and the difference is money.
An exempt supply carries no GST, but you also can't claim credit on the purchases that went into it. A zero-rated supply carries no GST for the foreign buyer, and you keep the right to the credit on your inputs. If you can't use that credit against domestic sales, you can claim it as a refund.
Under Section 16 of the IGST Act, two things are zero-rated: exports of goods or services, and supplies to SEZ units or developers for authorised operations.
When does a service count as an export?
Goods are fairly obvious: they physically leave India, with a shipping bill. Services need five conditions to all be true:
- You, the supplier, are located in India.
- The recipient is located outside India.
- The place of supply is outside India.
- You're paid in convertible foreign exchange, or in Indian rupees where the RBI permits.
- You and the recipient aren't just two establishments of the same person (a branch abroad, for example).
Most freelancers and agencies billing foreign clients for software, design, consulting or marketing meet these easily. The trap is condition 3. For some services, place-of-supply rules put the supply in India even when the client is abroad. Services performed on goods physically in India, or related to property in India, are typical examples. If your work has a physical, India-based element, check before you assume it's an export. This is a good one to run past a CA.
LUT or IGST: the two routes
| Export under LUT | Export with IGST paid | |
|---|---|---|
| IGST on the invoice | None | Charged at the applicable rate |
| Cash flow | No tax paid upfront | Tax paid upfront, refunded later |
| Refund you claim | Unutilised ITC on inputs | IGST paid on the export |
| How refund is claimed | Application on the portal (RFD-01) | Goods: generally processed through the shipping bill once returns are filed; services: RFD-01 |
| Paperwork upfront | LUT once a year (Form RFD-11) | None beyond normal invoicing |
| Best for | Most small exporters, especially services | Exporters with large accumulated ITC who prefer that route, or who can't furnish an LUT |
For most small exporters, the LUT route is simpler. Nothing comes out of your pocket at the time of export. Freelancers billing foreign clients in particular almost always go this way.
How the LUT works
The LUT is a declaration filed on the GST portal in Form RFD-11, under Services, then User Services, then "Furnish Letter of Undertaking". There's no fee. It covers one financial year, so the LUT for FY 2026-27 covers exports from 1 Apr 2026 to 31 Mar 2027, and you file afresh for FY 2027-28.
Most registered exporters can use it. Those prosecuted for tax evasion above the specified amount have to furnish a bond with a bank guarantee instead.
By furnishing an LUT, you commit to a couple of things. Goods must be exported within three months of the invoice date. For services, the foreign payment must come in within one year of the invoice. Miss these, and you pay the IGST with 18% interest. Extensions are possible in some cases, but plan around the basic limits.
Your export invoice should mention that the supply is meant for export under LUT without payment of IGST, along with the LUT reference. Many exporters also show the amount in foreign currency alongside rupees.
Forgot to file the LUT this year?
You can still file it now. It applies to exports from the date it's accepted. Exports already made without a valid LUT and without IGST paid are where it gets complicated, and you should talk to your CA about how to regularise them.
Reporting exports in your returns
Exports go into your regular returns; zero-rated doesn't mean invisible.
In GSTR-1, exports are reported in the exports table, marked as with or without payment of tax. For goods, you add the shipping bill number, date and port code when you have them. This information matters: for IGST-paid goods, the refund depends on GSTR-1 data matching the shipping bill.
In GSTR-3B, zero-rated supplies go in their own row of Table 3.1, separate from your domestic taxable sales. Fill it correctly or your refund application and your annual return won't line up.
If your aggregate turnover is above the e-invoicing threshold, export invoices need an IRN too, even though they're not domestic B2B.
Claiming the ITC refund under LUT
Here's where exporters leave money on the table. Say Shalini runs a small software studio in Pune that bills only foreign clients, around ₹60 lakh a year. She pays 18% GST on her office rent, laptops, software subscriptions and a contractor or two. With no domestic sales, that ITC just piles up in her credit ledger.
She can claim a refund of that accumulated ITC through RFD-01, for a tax period or a group of periods. The formula considers the ratio of zero-rated turnover to total turnover, so mixed businesses get a proportionate refund. Claims have to be made within two years of the relevant date, and supporting documents (invoices, foreign inward remittance proof for services, shipping bills for goods) need to be ready.
Refund processing involves an officer's review and sometimes queries. Keep your books clean and your bank realisation records tidy, and it goes much more smoothly. Many exporters have a CA handle refund applications.
Exporter's monthly checklist
- [ ] Valid LUT on file for the current financial year
- [ ] Export invoices endorsed "under LUT without payment of IGST", with LUT reference
- [ ] Services: all five export conditions met for each client
- [ ] Foreign payments tracked against invoices (one-year limit)
- [ ] Goods: exported within three months; shipping bill details captured
- [ ] Exports reported in GSTR-1 exports table
- [ ] Zero-rated supplies in the right row of GSTR-3B Table 3.1
- [ ] ITC on inputs claimed and tracked against GSTR-2B
- [ ] Refund periods and two-year deadline noted
How HelloBooks helps
HelloBooks doesn't file your LUT or your refund applications; you'll do those on the GST portal yourself or through your CA. What it handles is the bookkeeping and the regular returns underneath. You raise export invoices, keep foreign receipts matched to them with bank statement import (and Razorpay or other payment gateway reconciliation where you use it), track the ITC you've paid on inputs through GSTR-2B reconciliation, and file GSTR-1 and GSTR-3B for one GSTIN directly to the GST portal on the Free plan. Clean books make a refund application far easier for whoever prepares it, and your CA can be invited to work in the same books. If your turnover puts you inside e-invoicing, IRN generation for export invoices is on Pro (₹499/month). See GSTR-1 filing, GSTR-2B reconciliation and pricing.
FAQs
Do I charge GST to a foreign client?
If the supply qualifies as an export and you have a valid LUT, no. You invoice without IGST. Without an LUT, you charge IGST and claim it back as a refund.
Is an LUT valid forever?
No. It covers one financial year. File a fresh one for each year, ideally before the year starts.
Does a freelancer billing a US company need GST registration?
Exports of services are inter-state supplies under GST, and registration rules for such supplies have specific thresholds and exemptions for services. Check the current position with a CA, because the answer depends on your total turnover and the type of supply.
What if my foreign client pays late?
Under the LUT, payment for exported services should arrive within one year of the invoice date. If it doesn't, IGST becomes payable with interest unless an extension applies.
Can I claim a refund of GST I paid on my laptop and rent?
Yes, if you export under LUT and the ITC is eligible. The refund of unutilised ITC is claimed through RFD-01, within two years of the relevant date.
Does HelloBooks file LUTs or refund claims?
No. HelloBooks keeps your books and files GSTR-1 and GSTR-3B. LUT and refund applications are filed on the GST portal directly or by your CA.
Exporting is good business. Just make sure your first dollar invoice goes out under a valid LUT.
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