Export of Services under GST: Meaning, Rules & Refund Process

Export of services under GST refers to the supply of services from India to a recipient located outside India, provided certain conditions are met. These include that the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange or as permitted by the RBI, and the supplier and recipient are not merely establishments of the same legal entity. Export of services plays a crucial role in earning foreign exchange for the country and is treated favorably under GST law. In this article, we delve deeper into the export of services under GST.

GST Treatment on Export of Services

Under GST, the export of services is treated as a "zero-rated supply." This means GST is not levied on the export of services, and exporters are eligible to claim a refund of the GST paid on inputs and input services used for making such exports. Exporters can choose to export services without paying IGST by furnishing a Letter of Undertaking (LUT), or they can pay IGST on the export and claim a refund later. This ensures that exports remain tax-free and competitive in the global market. 

What is Zero-Rated Supply Means?

A zero-rated supply under GST means that the supply (export of goods or services) is taxed at 0%. Not only is no GST charged on the export invoice, but the exporter can also claim a refund of any GST paid on inputs and input services used to make the export. This is different from exempt supplies, where input tax credit is not available. Zero-rating ensures that the entire supply chain for exports is free from GST, making Indian exports more competitive internationally.

Since the export of services falls under the zero-rated supplies under GST, export suppliers don’t need to pay GST. 

GST Refund Mechanisms for Exporters

Exporters can recover GST paid on inputs/services through two main refund mechanisms:

• Export under LUT/Bond without payment of IGST, and claim refund of unutilized input tax credit (ITC).

• Export with payment of IGST, then claim a refund of the IGST paid on export.

• File refund applications and submit required documents (invoices, shipping bills, etc.) through the GST portal.

• Ensure all export details are correctly reported in GSTR-1 (Table 6A) and GSTR-3B returns for the relevant tax period.

Why IGST If Export of Services is Zero-Rated Supply?

Although exports are treated as zero-rated supplies under GST—meaning no GST is ultimately payable—the law still allows exporters the option to pay IGST on export invoices and then claim a refund. But why this formality, if no tax is to be paid?

Here’s why:

• To Establish Export Legitimacy: The option to pay IGST and claim a refund ensures that the transaction is a genuine export, not a domestic supply misrepresented to avoid tax.

• For Refund Eligibility of Input Tax Credit (ITC): Exporters can claim a refund of GST paid on inputs and input services. Whether exporting under LUT or paying IGST and claiming it back, a formal mechanism is needed to control and validate refund claims.

• Legal Compliance Requirement: Section 16 of the IGST Act provides two routes for zero-rated supplies:

• Export under LUT without IGST

• Export with IGST payment and refund This dual pathway gives flexibility to exporters while ensuring compliance.

• To Maintain an Audit Trail: Paying IGST and then claiming a refund creates a clear audit trail in the GST system. This is crucial for both transparency and preventing tax fraud.

Compliance Requirements for Exporters

Exporters must follow certain compliance steps to benefit from GST provisions:

• Obtain GST registration and Import Export Code (IEC) from DGFT.

• File GSTR-1 and GSTR-3B returns for all relevant periods, ensuring export details are accurate.

• Furnish a Letter of Undertaking (LUT) or bond to export without payment of IGST.

• Maintain proper export documentation, including invoices, shipping bills, and LUT/Bond acknowledgements.

• Keep records of foreign exchange realisation as proof of export payments.

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