Export of Services Under GST: Definition, Eligibility & Refund Process

Exporters have too much on their plates. Managing clients, delivering quality services, ensuring timely payments, and maintaining compliance. 

Fortunately, India’s GST framework provides the much-needed relief for service exporters with its zero-rated supply benefits, input tax credit refunds, and simplified processes.

If you’re also an exporter and your knowledge of the export of services under GST is a little unclear, don’t worry, you’re not alone. It can get confusing at times. This article will simplify things for you by looking at what “export of services” means, the benefits, how the refund process works, and more.

As per Section 2(6) of the IGST Act, export of services has a very clear definition. It means the supply of any service when:

• The supplier of that service is based in India.
• The place where the service is supplied to is located outside of India. 
• The recipient or your client to whom you are supplying the particular service is located outside India.
• The payment received in exchange for the service supplied is made in a foreign currency or in INR if the RBI allows. 
• The supplier and recipient are not just different branches of the same entity. 

Only when all five conditions are met can a service be qualified as an export under GST.

Export of services under GST is treated as zero-rated supplies. This means that for the export of any service you do, you won’t have to pay GST, which is usually applied to sales of goods or services. This rule was brought into existence to promote India’s export of services in the international market, lower costs of production, and speed up export operations. 

In continuation of this approach, exporters are also eligible to claim input tax credit. So, any tax that you must’ve paid while purchasing raw materials will be returned to you once you file for the Input Tax Credit (ITC) refund. 

Normally, exports are considered inter-state supply and charged under IGST Act. In this case, you have two options:

1. You can export services either with payment of the IGST at the time of export, and then claim your refund of the IGST paid. 

2. You can furnish a Letter of Undertaking (LUT)/bond at the time of export without paying the IGST and claim a refund of Input Tax Credit.

Certain kinds of supplies happen inside India but are still treated as exports for GST purposes. They are known as deemed exports. Even though the buyers of the services are within India, these supplies get the same tax benefits as if you had exported them abroad. Supplies considered deemed exports include:

• Supplies made to individuals who are registered under the Advance Authorization scheme.

• Capital goods supplied to exporters under the Export Promotion Capital Goods Authorization (EPCG) scheme. 

• Supply of gold made by banks and PSUs under the Advance Authorization.

• Supplies that Export-Oriented Units (EOUs) or units in Technology Parks receive.

The place of supply rules of Section 13 of the IGST Act are used to determine if the service is qualified as an export. Some rules associated with this include:

• General rule: As is the case for most of the services, the place of supply is the location of the recipient. So, if the recipient is located outside India, by default, that service will be termed as export of service. However, if the location of the recipient is somehow not clear, the place of supply will be the location of the supplier.

• Services performed on goods: If a service involves working on goods, like repair, maintenance, or processing, the place of supply is decided based on the location of the goods at the time the service is actually performed. This means that even if the recipient is located abroad, it won’t be considered as an export of service if the goods are in India. 

• Individual-related service: In this case, the services that are usually offered to individuals, like training, medical care, etc, will be qualified as export if the individual is present outside India, even if they usually reside in India. 

• Event-related services: If the service is related to an event, the place of supply would be the location where the event takes place. And if the event is happening outside of India, it will be regarded as an export of services. 

• Immovable property services: Services like construction, maintenance, or surveying that are performed on an immovable property will only be considered export if that property is located outside India. If only the recipient of service lives abroad and the property is in India, the place of supply would be India, and it won’t be regarded as an export of service. 

When you are exporting your services in compliance with the GST rules, there are certain documents that you can’t miss. These include:

1. Export invoice: This should have all essential details of the export and the “Supply meant for export under Bond or LUT without payment of IGST” endorsement.

2. Letter of Undertaking (LUT)/Bond: This document comes in handy when you want to export without paying the IGST.

3. Bill of export:  This is usually needed for services that are linked with some kind of goods export.

4. Purchase order: This order defines the terms of service, value, delivery timeline, and payment terms to the foreign client.

5. Place of supply evidence: This evidence document will contain details like the client’s address and contact information to confirm that the recipient is from outside India.

6. Proof of payment: Documents like FIRA and BRC work as evidence for validating export of services and for claiming refunds.  

The whole procedure for export of services under GST conditions can be summed up in the following steps:

Step 1: Registration

The process begins by obtaining a valid GST registration. 

Step 2: Export contract

Next, enter into a contract or service agreement with the foreign buyer. This contract should specify service details, delivery, and payment terms.

Step 3: Invoice preparation

Generate GST-compliant export invoices that specify "supply meant for export under LUT without payment of IGST" or, if IGST is paid, mention accordingly. Also include recipient location, SAC code, and foreign currency details.

Step 4: Place of supply determination

In this step, confirm that the place of supply is outside India to qualify your service as an export.

Step 5: Payment receipt

Receive your payment in convertible foreign exchange or RBI permitted INR, and don’t forget to obtain FIRA as proof of the payment. 

Step 6: Filing LUT/bond

File a Letter of Undertaking (LUT)/bond on the GST portal to export without IGST payment.

Step 7: Return filing

File monthly GST returns. This would include GSTR-1 for outward supplies with export details and GSTR-3B for the summary.

Step 8: Refund claim 

Finally, you can claim your refund of the IGST paid or the unutilized input tax credit through the GST portal by submitting a refund application with supporting documents.

You can easily file for a GST refund in two ways:

1. Exporting without payment of IGST, where you claim a refund of ITC. The steps under this process are as follows:

• Furnish LUT/bond in Form GST RFD-11 on the GST Portal. Remember that the LUT is only valid for one financial year. 

• Next, file GSTR-1 and GSTR-3B. The former contains details on the sales of your exports and shows export invoices with zero IGST, while the latter is a summary return where you claim Input Tax Credit (ITC).

• Once the forms are filed, on the GST Portal, go to Services > Refunds > Application for Refund.

• On the refund type screen, choose "Exports of Services- without Payment of Tax (accumulated ITC)."

• Select the tax period for which you are claiming the refund. You can claim the refund for one or more tax periods in a single application.

• You will need to provide details like your turnover of zero-rated supplies, adjusted total turnover for the period, and bank account details for the refund credit.

• You also have to upload a statement of invoices related to the export of services. This you can usually do by using an offline utility provided by the GST portal. Here, FIRA/BRC will also be attached.

• The system will automatically calculate the maximum eligible refund amount, and the amount you claim cannot cross this calculated value.

• Once the application is filled out and supporting documents are attached, it is submitted on the portal.

• If it’s successfully submitted, an ARN is generated and sent to your registered email and mobile number. You can use this ARN to track the status of the refund application.

• The application, along with the uploaded documents, is assigned to the jurisdictional GST Refund Processing Officer. The officer will verify the details submitted in Form GST RFD-01 against the data filed in GSTR-1 and GSTR-3B.

• If the officer is satisfied with the application and documents, a final refund order will be issued in Form GST RFD-06, and the refund amount will be credited in your account.

• But if there are any issues, the officer may issue a deficiency memo in Form GST RFD-03, and you must re-file the application after correcting the issues.

2. Exporting with payment of IGST, where you claim a refund of IGST paid during your exports.

• Log in to the GST portal and click on the “Services” tab. From the drop-down, select “Refunds,” and then from the refunds menu, click on the “Application for Refund” option.

• On the refund type screen, you’ll be able to see an “Exports of services with payment of tax” option, select it. 

• Next, choose the year and the tax period for which the application has to be filed, and then click on the “Create” button. 

• You'll get a dialog box asking you to choose between Yes or No. If you are applying for a nil refund, click on Yes; otherwise, select No and continue. 

• Download “Statement 2” and fill in all the required fields. Once done, upload it back to the portal. 

• Choose the bank account you want the refund to be credited to. 

• Review all the details on the form and submit it using a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).

• Once successfully submitted, an Application Reference Number (ARN) will be generated that can be used for tracking the status of your refund on the GST portal.

The GST rules of zero-rated supplies and tax refund benefit the exporter in several ways.

1. Indian service providers become more competitive globally as they can now offer services without adding any extra tax costs to their international clients.

2. Refund of input tax credit improves the cash flow of exporters, which can be used in the production process. 

3. GST offers a single and unified system that replaces the complexities of the multiple indirect taxes that were charged earlier. 

While GST rules do simplify the exports, the process brings its own set of challenges. Common issues include:

1. Lack of understanding 

GST rules are no doubt complex. Which is why many exporters struggle in properly understanding them. As expected, this leads to errors in filing returns accurately and maintaining correct documentation for refund claims. 

2. Dual compliance

Apart from GST compliance, exporters also have to comply with international trade regulations. They have to make sure that every document used is consistent across all platforms. Ensuring consistency across GST returns, shipping bills, customs declarations, and invoices is not at all easy. 

3. Delayed refunds

Even though the GST rules are praised for their ITR refunds, the refund processing itself can sometimes take weeks, affecting your working capital and cash flow.

While GST has its advantages and challenges for service exporters, the key lies in managing it smartly. With the right practices, you can keep your export operations running smoothly in the global market. 

• Always keep accurate and updated records of export invoices, shipping bills, GST audits, LUTs, and ITC claims.

• File your returns on time to ensure there are no delays in the process and everything goes smoothly. 

• Make sure all the details entered while filing GSTR-1 and GSTR-3B forms are correct.

• Consult a GST law professional who can guide you through the finer details of GST compliance and keep you updated on any changes.

• Use GST filing software that can automate calculations, reduce errors, and speed up refund applications.

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