What Is Export of Services Under GST?
Export of services is a defined term under India's Goods and Services Tax law, not a label a business can claim just because its customer sits abroad. Section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017 lays down five conditions, and a supply of services qualifies as an export only if every one of them is satisfied at the same time. Get this classification right and the supply is a zero-rated supply under section 16 of the IGST Act — no GST is charged to the overseas customer, and the Indian supplier can recover the tax paid on its own inputs. Get it wrong, and the department can treat the same invoice as a normal taxable supply, raising a GST demand with interest on a transaction the business had already booked as GST-free.
For a foreign company's Indian subsidiary, branch, or liaison arrangement that bills a related party abroad — a common structure for shared services, software development, or back-office support — this classification is not a formality. It decides whether the Indian entity charges GST on inter-company invoices at all, and whether it can get back the GST it paid to its own vendors.
The Five Conditions Under Section 2(6) of the IGST Act
Section 2(6) defines "export of services" as the supply of any service when:
- the supplier of service is located in India;
- the recipient of service is located outside India;
- the place of supply of the service is outside India;
- the payment for the service has been received by the supplier in convertible foreign exchange (or in Indian rupees, wherever the Reserve Bank of India has permitted this); and
- the supplier and the recipient are not merely establishments of a distinct person, as explained in Explanation 1 to section 8 of the IGST Act.
The fourth condition was widened in 2019 to allow settlement in Indian rupees for arrangements the Reserve Bank of India has specifically permitted; absent such a permission, foreign exchange realisation remains the rule. All five conditions must hold together — a service billed to an overseas company but paid for in rupees through no RBI-permitted route, or one whose place of supply lands back in India under one of the IGST Act's special rules, falls outside the definition even if the customer is genuinely foreign.
One of those special rules has changed, and in exporters' favour. Section 13(8)(b) of the IGST Act used to fix the place of supply of intermediary services at the location of the supplier. An Indian commission agent, sales representative or broker who arranged a supply between two other parties therefore failed condition (iii) and could not treat its commission as an export, however that commission was paid. Section 157 of the Finance Act, 2026 omitted that clause with effect from 30 March 2026. Intermediary services now fall back to the general rule in section 13(2), under which the place of supply is the location of the recipient. An Indian intermediary billing an overseas principal can therefore qualify as an export of services, provided the other four conditions in section 2(6) are met. Guidance written before that change says the opposite and should not be relied on.
The "Distinct Person" Trap for Indian Subsidiaries
Condition (v) is the one that most often catches foreign-owned Indian companies. Explanation 1 to section 8 of the IGST Act says that where a person has an establishment in India and another establishment outside India, those two establishments are treated as "establishments of distinct persons" — meaning a supply between them looks, on its face, like a transaction within a single legal entity rather than an export to an outside party. Explanation 2 extends this to a branch, agency, or representational office, which is treated as an establishment of the person operating it in that territory.
Read literally, this created years of uncertainty over whether an Indian subsidiary invoicing its own foreign parent — or a sister concern in the same group — could ever be an "export," since both sides ultimately trace back to one corporate group. The Central Board of Indirect Taxes and Customs (CBIC) resolved this in Circular No. 161/17/2021-GST, dated 20 September 2021. The circular clarifies that a company incorporated in India under the Companies Act, 2013 and a foreign company incorporated outside India are separate legal persons, and therefore separate legal entities, so they are not treated as merely establishments of a distinct person under Explanation 1 to section 8. The circular is explicit that this analysis applies only to a subsidiary, sister concern, or group company that is itself incorporated in India — not to a branch, liaison office, or representative office of the foreign company, which Explanation 2 treats as the foreign company's own establishment in India and therefore remains barred by condition (v).
In short: an Indian subsidiary can export services to its own foreign parent, but an Indian branch office of that same foreign parent cannot — the corporate form, not just the economic substance, decides the outcome.
Zero-Rating Under Section 16 — How the Refund Works
Section 16(1) of the IGST Act defines "zero rated supply" as either the export of goods or services or both, or a supply of goods or services or both for authorised operations to a Special Economic Zone (SEZ) developer or unit. Under section 16(2), credit of input tax may be availed for making zero-rated supplies even though the output itself carries no tax, and notwithstanding that the supply may be an exempt supply — this is what separates zero-rating from a plain GST exemption, where input tax credit is blocked.
The mechanics changed on 1 October 2023, when the Finance Act, 2021 amendments to section 16 were brought into force by Notification No. 27/2023-Central Tax. Advice written before that date is out of date, and this is the single most common error in secondary guidance on export refunds.
Section 16(3) — the bond or Letter of Undertaking (LUT) route. As now worded, section 16(3) provides that a registered person making a zero-rated supply is eligible to claim a refund of unutilised input tax credit, without payment of integrated tax, under a bond or Letter of Undertaking. This is the standard route. The earlier version of section 16(3), which gave every exporter a free choice between supplying under an LUT and paying integrated tax up front, was substituted and no longer applies. A proviso requires a supplier of zero-rated goods who fails to realise the sale proceeds within the time limit under the Foreign Exchange Management Act, 1999 to deposit the refund back with interest; that proviso is confined to goods and does not bite on an exporter of services.
Section 16(4) — the with-payment route, now grounded in a notification. Paying integrated tax on the export invoice and claiming a refund of that tax is no longer a free-standing election in the Act. Section 16(4) instead lets the Government, on the Council's recommendation, notify the class of persons, and the class of goods or services, that may use it. That changes the plumbing rather than the availability. Notification No. 01/2023-Integrated Tax, dated 31 July 2023 and in force from 1 October 2023, notifies "all goods or services (except the goods specified in column (3) of the TABLE below) as the class of goods or services which may be exported on payment of integrated tax and on which the supplier of such goods or services may claim the refund of tax so paid." Every one of the 25 excluded entries in that Table is a good — pan masala, branded and unbranded tobacco products, and mint and peppermint essential oils. No service is excluded, so an exporter of services remains free to choose the with-payment route. Notification No. 05/2023-Integrated Tax, dated 26 October 2023, later added a second limb covering suppliers to SEZ developers and units for authorised operations.
In practice the LUT route is what most service exporters use in any event, since it avoids funding integrated tax out of working capital on every invoice. The LUT is furnished to the department and covers qualifying export supplies made in the period it relates to, rather than being executed afresh for each invoice.
Claiming the Refund: Documents, Formula and Timeline
A refund claim is filed electronically in FORM GST RFD-01 under rule 89 of the CGST Rules, 2017. For a claim on account of export of services, rule 89(2)(c) requires a statement giving the invoice numbers and dates together with the relevant Bank Realisation Certificate or Foreign Inward Remittance Certificate — in practice, the bank's proof that the payment actually arrived from abroad. Rule 89(2)(m) separately calls for a certificate in Annexure 2 of FORM GST RFD-01, issued by a chartered accountant or a cost accountant, confirming that the incidence of the tax has not been passed on to any other person, where the amount of refund claimed exceeds ₹2,00,000. Its proviso, however, disapplies that certificate for cases covered by section 54(8)(a) of the CGST Act, which is the clause covering refunds of tax paid on the export of goods or services. An exporter of services therefore does not normally have to furnish it. Separately, the proviso to section 54(4) lets an applicant claiming less than ₹2,00,000 file a declaration instead of documentary evidence that the incidence was not passed on.
For an exporter using the LUT route, the refundable amount of unutilised input tax credit is computed under the formula in rule 89(4) of the CGST Rules: Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover. The credit is apportioned to the export turnover in the same proportion that export turnover bears to the business's total turnover for the period, not claimed rupee-for-rupee against a single invoice.
Timing matters as much as documentation. Section 54(1) of the CGST Act requires the application to be filed before the expiry of two years from the "relevant date." For export of services, Explanation 2(c) to section 54 fixes the relevant date as the date the supplier receives payment in convertible foreign exchange (or RBI-permitted rupees), where the service was completed before that payment arrived — or the date the invoice was issued, where payment was received in advance of invoicing. This means the two-year clock typically starts running from when the money lands, not from the date of the invoice or the date of supply, which trips up exporters who track their own filing deadlines from the wrong event. On the department's side, section 54(7) requires the refund order to issue within 60 days of a complete application, and section 54(6) allows a provisional refund of 90% of the total amount claimed ahead of final verification. The words "excluding the amount of input tax credit provisionally accepted" were omitted from section 54(6) with effect from 1 October 2023, so the 90% is computed on the whole claim. Section 54(14) bars any refund under section 54(5) or section 54(6) where the amount works out to less than ₹1,000.
Why This Matters for Foreign Companies and Investors
Export-of-services status is central to the economics of the Indian subsidiary structures foreign investors most commonly use — captive IT and R&D centres, global capability centres, back-office units, and outsourced professional services, typically billing a related entity abroad on a cost-plus or fee basis. If the arrangement fails even one condition in section 2(6), the Indian entity must charge GST on its inter-company invoices, and the foreign recipient — not GST-registered in India — has no way to claim that tax back. It becomes a real, unrecoverable cost on top of the transfer-pricing markup. Getting the LUT route and refund mechanics right, by contrast, keeps the Indian delivery centre GST-neutral on export revenue while still recovering GST paid to Indian vendors and landlords.
A Practical Example
An Indian company, wholly owned by a US parent, provides software development services exclusively to that US parent under a service agreement, invoicing monthly in US dollars. The Indian company is located in India (condition i); the US parent, the recipient, is located outside India (condition ii); under the default place-of-supply rule the place of supply is the recipient's location, outside India (condition iii); payment arrives by wire transfer into the company's account, evidenced by an FIRC from its bank (condition iv); and because the Indian company is separately incorporated under the Companies Act, 2013, Circular 161/17/2021-GST confirms it is not "merely an establishment of a distinct person" relative to its US parent (condition v). The supply qualifies as an export of services. Filing an LUT lets the company invoice its parent without charging IGST, and it can then claim a refund of the GST paid on its office rent, software licences, and other inputs, computed under the rule 89(4) formula and filed within two years of each payment's receipt.
Common Mistakes
- Treating any foreign-currency invoice as automatically exempt — all five conditions must be met together; foreign billing alone does not make a supply an export.
- Confusing a branch office with a subsidiary — Circular 161/17/2021-GST protects supplies from an Indian-incorporated subsidiary to its foreign parent, not supplies from an Indian branch or liaison office of that same foreign company, which Explanation 2 to section 8 treats as the foreign company's own establishment.
- Missing the FIRC or Bank Realisation Certificate — without bank evidence of the actual foreign remittance, a refund claim under rule 89(2)(c) cannot be substantiated even if the underlying supply genuinely qualifies.
- Measuring the two-year limit from the invoice date — for most service exporters the clock in section 54(1) runs from the date payment is received, per Explanation 2(c) to section 54, not from the date of supply or invoicing.
- Relying on pre-2026 advice about intermediary services — the special rule in section 13(8)(b) that fixed the place of supply of intermediary services at the supplier's location was omitted by section 157 of the Finance Act, 2026 with effect from 30 March 2026. Intermediary services now take the section 13(2) default of the recipient's location, so commission billed to an overseas principal is no longer shut out of the export definition on that ground.
Frequently Asked Questions
Can an Indian subsidiary treat services billed to its foreign parent company as an export?
Yes, provided all five conditions in section 2(6) of the IGST Act are met. CBIC's Circular No. 161/17/2021-GST specifically confirms that a company incorporated in India and its foreign parent are separate legal persons, so condition (v) — that the two sides not be "merely establishments of a distinct person" — does not disqualify the supply.
Does the same treatment apply to an Indian branch office of a foreign company?
No. Explanation 2 to section 8 of the IGST Act treats a branch, agency, or representational office as an establishment of the company that operates it. A supply from that branch to its own foreign head office remains a supply between establishments of the same person and does not qualify as an export of services.
Must payment always be received in foreign currency to qualify as an export of services?
Ordinarily, yes — condition (iv) in section 2(6) requires payment in convertible foreign exchange. Settlement in Indian rupees only satisfies this condition where the Reserve Bank of India has specifically permitted rupee settlement for that arrangement; absent such a permission, INR receipt does not meet the condition.
What is the deadline for claiming a GST refund on exported services?
Section 54(1) of the CGST Act sets a two-year limit from the "relevant date." For export of services, Explanation 2(c) to section 54 fixes that date as when payment is received in convertible foreign exchange (or RBI-permitted rupees), unless payment arrived in advance, in which case the relevant date is the invoice date instead.
Can an exporter of services choose between the LUT route and paying IGST and claiming a refund?
In practice, yes, although the legal route changed on 1 October 2023. Section 16(3) of the IGST Act now provides directly for supply under a bond or Letter of Undertaking without payment of integrated tax, with a refund of unutilised input tax credit. The pay-and-claim-refund option moved to section 16(4), which operates through notification: Notification No. 01/2023-Integrated Tax notifies all goods or services as eligible except a listed set of excluded goods, and every excluded entry is a good, so no service is shut out. Most service exporters still prefer the LUT route, since it avoids tying up working capital in tax paid on every invoice.
See also: Goods and Services Tax (GST), FIRC (Foreign Inward Remittance Certificate), EEFC Account, Input Tax Credit (ITC), and SEZ (Special Economic Zone).
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