Every service exporter in India ends up at the same fork in the road. You can pay IGST on every invoice you raise and claim it back later, or you can file a LUT (Letter of Undertaking) and never pay it in the first place. Most guides on this topic treat that choice as a footnote. It isn’t. It’s the whole story, because the two routes lead to genuinely different cash flow and compliance experiences, and getting it wrong either costs you working capital or lands you in a compliance mess months down the line.

Here’s what actually happens on each path, and where the real friction shows up.

Why Exports Are Zero-Rated

Under Section 16 of the IGST Act, exports of services are treated as zero-rated supply. In plain terms, no GST is meant to apply to the transaction itself. For a service to qualify as an export, a few conditions need to hold. The supplier has to be located in India, the recipient outside India, the place of supply has to fall outside India, and payment has to be received in convertible foreign exchange, or in rupees where the RBI specifically permits it.

Zero-rated doesn’t mean the tax simply disappears from the system though. It means the exporter has a choice in how that zero rating gets applied, and that choice is the fork mentioned above.

Route 1: Pay IGST, Then Claim It Back

The first option is to pay IGST on export invoices as though they were ordinary domestic supplies, and then apply for a refund of that tax afterward. This route exists and some exporters do use it, but it comes with an obvious cost. The tax leaves your account the moment you raise the invoice, and it stays locked up in the refund process, sometimes for weeks or months, before it comes back. For a services business running on a tight working capital cycle, that gap can be a real problem, especially at scale, where every invoice adds to the pile sitting in limbo.

Route 2: File an LUT and Skip IGST Entirely

The second option, and the one most services exporters end up choosing, is to file a LUT through Form GST RFD-11. An LUT is a formal declaration to the GST department that the exporter will meet all export related obligations under GST law. Once it’s filed and accepted, the exporter can raise invoices to overseas clients without charging IGST at all. No tax leaves, so there’s nothing to wait on getting back.

Filing itself is straightforward. It’s done entirely online through the GST portal, generally takes a matter of minutes, and is signed using a Digital Signature Certificate for companies and LLPs, or an Aadhaar linked EVC for others. Once accepted, the exporter receives an Application Reference Number confirming the LUT is active.

For SaaS, IT, and consulting businesses invoicing clients abroad regularly, this is usually the more practical route by a wide margin, since it avoids the working capital drag entirely rather than managing it through refunds.

The Realisation Deadline Nobody Reads Closely Enough

Here’s the part that gets skipped in most guides on this topic. An LUT isn’t just a one way permission to skip IGST. Under Rule 96A of the CGST Rules, filing an LUT comes with a specific commitment attached. The commitment is that the exporter agrees to actually receive payment for that export in convertible foreign exchange, or in permitted rupee terms, within a set window of the invoice date, generally one year.

Miss that window, and the zero rating on that particular invoice collapses. The exporter becomes liable to pay the IGST that was never charged in the first place, along with interest, and generally has a short period, often around 15 days, to make that payment once the deadline has passed. The LUT protects the outgoing side of the transaction. It’s the incoming payment, actually getting paid by the overseas client within the deadline, that keeps that protection intact.

This is worth building into invoice tracking as a standing process, not something to notice only when a client payment runs unusually late.

LUTs Expire Every Year

An LUT is valid only for the financial year in which it’s filed, running April to March. It has to be refiled fresh each year, and the practical trap here is timing. If a business forgets to file the new year’s LUT before its first export after April 1st, every invoice raised from that date is treated as taxable at the full IGST rate until the new LUT is filed and accepted. Filed mid year, an LUT generally applies from the date of filing forward rather than retroactively, so invoices raised earlier in the year before the new LUT went through can still attract IGST liability.

Building LUT renewal into a fixed annual compliance calendar, ideally completed before the financial year even starts, removes this risk entirely.

Claiming GST Refund on Export Services: How RFD-01 Actually Works

Whether you’re claiming back IGST paid under Route 1, or claiming a refund of accumulated but unused input tax credit while exporting under an LUT, the mechanism runs through Form RFD-01 on the GST portal.

For the accumulated ITC route, which is the more common scenario for LUT filers, the refundable amount is calculated using the formula prescribed under Rule 89(4) of the CGST Rules.

Refund Amount = (Turnover of Zero-Rated Supply ÷ Adjusted Total Turnover) × Net ITC

Net ITC here means the input tax credit availed during the relevant period, minus any ITC that’s been reversed. Adjusted Total Turnover excludes exempt supplies and any supplies where no ITC is available in the first place. Getting these inputs right matters. Errors in this calculation are a common reason refund claims come back reduced or trigger further scrutiny later.

A few practical requirements sit alongside the formula. Both GSTR-1 and GSTR-3B need to be filed for the period the refund covers before RFD-01 can even be submitted, since the system cross-checks zero-rated turnover against those returns. Exporters also need an FIRC or BRC from their bank, documentation confirming the foreign exchange was actually received, to support the claim. Certain categories of input tax credit, such as those tied to motor vehicles or club memberships under Section 17(5) of the CGST Act, are blocked credits and shouldn’t be included in the claim at all.

Once filed, a properly documented claim is generally expected to be processed within a defined window, with interest accruing automatically if the refund is delayed beyond that period.

The Intermediary Trap

There’s one classification issue worth understanding even if it doesn’t apply to every business, because when it does apply, it can undo the entire export treatment.

Under Section 13(8) of the IGST Act, if a service is considered “intermediary” in nature, meaning the provider is acting as an agent or broker arranging a supply between two other parties rather than supplying the service directly as principal, the place of supply is deemed to be the location of the supplier in India, not the overseas client’s location. In that case, the transaction doesn’t qualify as an export at all, regardless of where the client sits or how the invoice is worded.

This has been a genuinely contested area, with real litigation around where the line falls, and it disproportionately affects agencies, consultants, and businesses that facilitate or arrange services rather than deliver them end to end. If there’s any ambiguity about whether a service arrangement could be read as intermediary in nature, this is a case where getting a professional opinion before relying on export treatment is worth the cost of asking.

Final Takeaway

The LUT route solves a real problem, tax sitting locked up in the refund cycle while a business waits to get its own money back. But it isn’t a one time filing you can set and forget. It comes with an ongoing commitment to collect payment within a defined window, an annual renewal requirement, and in some cases a classification question that determines whether the export treatment applies at all. Exporters who build these into a standing compliance routine rather than reacting to them when something goes wrong tend to keep both the cash flow benefit and the compliance record clean at the same time.

FAQ'S

Log in to the GST portal, go to Services, then User Services, and select Furnish Letter of Undertaking. Choose the relevant financial year, fill in Form GST RFD-11 with witness details, and sign using a Digital Signature Certificate or Aadhaar-linked EVC to receive your Application Reference Number.

A service qualifies as an export when the supplier is located in India, the recipient is outside India, the place of supply falls outside India, and payment is received in convertible foreign exchange or permitted rupee terms. If the service is classified as intermediary in nature under Section 13(8) of the IGST Act, it generally won’t qualify, regardless of where the client is based.

A properly filed, complete refund application is generally expected to be processed within 60 days. If the refund is delayed beyond that window, interest accrues automatically on the outstanding amount until it’s paid out.

Common reasons include miscalculating the Rule 89(4) refund formula, including blocked credits such as those under Section 17(5) in the claim, mismatches between the refund claim and GSTR-1/GSTR-3B data, and missing FIRC or BRC documentation confirming foreign exchange receipt. Services later reclassified as intermediary in nature, or export payments not realised within the Rule 96A deadline, are also frequent causes of rejection.

An LUT isn’t legally mandatory. Without one, you can still export services, but you’ll need to pay IGST on each invoice upfront and claim it back through the refund process afterward. Filing an LUT simply lets you skip that upfront payment and the wait that comes with it.