GST on Export of Services from India (2026): LUT, Rupee Payments and Faster Refunds

A designer in Ludhiana billing a client in Toronto, a software team in Mohali working for a US start-up, a consultant in Delhi advising a firm in Dubai: all of them are exporting services, and all of them face the same GST questions. Do I charge 18% GST to a foreign client? Do I need to file anything before raising the invoice? What if the client pays in rupees? The 57th GST Council meeting on 8 October 2026 and the CBIC circulars and notifications issued in late October answer several of these questions and change the refund process from 1 November 2026. This guide explains the current position in plain language.

What counts as “export of services” under GST

Under section 2(6) of the IGST Act, 2017, a supply of services is an export only if all five conditions are met:

1. The supplier is located in India.
2. The recipient is located outside India.
3. The place of supply is outside India.
4. Payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI.
5. The supplier and recipient are not merely establishments of the same person (for example, an Indian branch and its own foreign head office).

Export of services is a zero-rated supply under section 16 of the IGST Act. That means no GST is finally borne on it, and the input tax credit (ITC) on your costs stays available or refundable. Place of supply is where many claims fail: for example, intermediary services (arranging supplies between two other parties for a commission) have their place of supply in India under section 13(8)(b), so they are generally not exports even when the client is abroad.

LUT: export without paying IGST

There are two ways to export a service:

• Without payment of IGST under a Letter of Undertaking (LUT), and then claim a refund of the unused ITC; or
• With payment of IGST, and then claim a refund of the IGST paid.

For most service exporters the LUT route is simpler because no tax money is blocked. The LUT is filed online in Form GST RFD-11 on the GST portal (Services > User Services > Furnish Letter of Undertaking). It is valid for one financial year, so the LUT for FY 2025-26 expired on 31 March 2026 and a fresh one is needed for FY 2026-27 before the first export invoice. The invoice should carry the note “Supply meant for export under LUT without payment of IGST”. Any registered person can use an LUT unless they have been prosecuted for tax evasion above ₹250 lakh.

Registration itself is needed once aggregate turnover crosses ₹20 lakh (₹10 lakh in specified special-category states). Export turnover counts towards this limit.

Getting paid: dollars, rupees and the new circular

CBIC Circular No. 263/09/2026-GST dated 26 October 2026 aligns the GST “payment received” condition with FEMA rules:

• Export proceeds received in repatriable rupee accounts permitted under FEMA, such as Special Non-Resident Rupee (SNRR) accounts or Rupee Vostro accounts, are valid consideration for export of services.
• Payments routed through an NRO account qualify only if they pass through a repatriable account such as SNRR or NRE.
• Where export receivables are set off against import payables in line with RBI directions, the payment condition is treated as met.

Practical tip: keep the bank’s FIRC or e-BRC (or the bank advice) for every receipt. It is the main evidence that the payment condition is satisfied.

Refunds: what changed from 1 November 2026

A refund of unused ITC on exports under LUT is claimed in Form GST RFD-01 within two years of the relevant date. From 1 November 2026:

• The officer must issue an acknowledgement or deficiency memo within 10 days (earlier 15 days). If nothing is issued in time, the application is deemed acknowledged.
• The 90% provisional refund for zero-rated supplies continues, and the Council has recommended that it be sanctioned automatically by the system on a risk basis.
• New statements and declarations are required with refund applications, including invoice-wise ITC details and a declaration about prosecution. Incomplete files will slow things down.
• For exporters of goods, the cap that limited zero-rated turnover to 1.5 times the value of like goods sold domestically has been removed.

The refund formula for exports under LUT remains: Refund = (Turnover of zero-rated supply × Net ITC) ÷ Adjusted total turnover.

Worked examples

Changes recommended but not yet in force

The Council has also recommended two changes that need amendments to the IGST Act, so they apply only once Parliament amends the law and they are notified:

• Removing the condition that the supplier and recipient must not be establishments of the same person. This would help Indian entities serving their own foreign branches or offices.
• Omitting section 13(3)(a), so that services on goods made physically available by a foreign client (such as repair or testing) take the place of supply of the recipient’s location.

Until then, the current conditions continue to apply.

Common mistakes to avoid

• Raising the first export invoice of the year before filing the fresh LUT.
• Treating commission or agency (intermediary) income from a foreign principal as an export.
• Not keeping FIRC/e-BRC records, or receiving money in a non-repatriable account.
• Missing the two-year time limit for the refund claim.
• Showing export turnover incorrectly in GSTR-1 and GSTR-3B, which causes mismatches in the refund application.

Disclaimer: This article is for general educational purposes only, based on the law as understood on the date of last update. It is not professional advice or an offer of services. Tax laws and rates change; please verify the current position and consult a qualified professional for your specific facts. Palak Batheja & Co. accepts no liability for actions taken on the basis of this article.

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