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A customer abroad, a foreign-currency invoice or work performed online does not by itself make a software transaction an export under Indian GST. For a service to qualify, it must satisfy all five conditions in the IGST Act’s export test—including the place-of-supply and payment rules—and the parties must not simply be establishments of the same legal person in different territories. Qualifying exports are zero-rated, but classification and refund eligibility depend on the transaction and applicable procedures.
First identify what you are supplying
“Software” can describe a service, goods, or a transaction that needs more specific classification. That distinction affects which GST rules apply. The CBIC IT/ITES FAQ treats software development, design, programming, customization, adaptation, upgrades, enhancement and implementation as services. It describes pre-developed or pre-designed software supplied on storage media, or made available through encryption keys, as goods under heading 8523. This is the FAQ’s published guidance; the applicable tariff classification and the facts of a particular supply still matter.
The same FAQ gives an 18% answer to the question about the rate on IT services. That is not a safe blanket rate for every product, licence, mixed transaction or item described casually as software. Check the current rate notifications, classification and effective date before invoicing or relying on a rate. A contract that combines development work, software access and other deliverables may need analysis of what is actually supplied rather than a decision based on the label on the invoice.
Use the five-part test before calling a service an export
Under section 2(6) of the Integrated Goods and Services Tax Act, a service is an export only when every condition below is met. A foreign customer or foreign-currency payment cannot make up for a failed condition.
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- The supplier is in India. Identify the GST supplier making the supply, not just the team or brand performing the work.
- The recipient is outside India. Determine who receives the service under the contract and in substance. A foreign parent, contracting entity or billing address may not settle which establishment is the recipient.
- The place of supply is outside India. Apply the relevant place-of-supply rule to the service and recipient. The general IT/ITES rule and its limits are discussed below.
- Payment is received in convertible foreign exchange, or in INR where permitted by the Reserve Bank of India. The permitted-rupee qualification is specific; an INR receipt is not automatically sufficient.
- The supplier and recipient are not merely establishments of a distinct person. A supply between establishments of the same legal person in different territories can fail this export condition. Separate names, invoices or locations do not alone establish that the recipient is an unrelated customer.
These requirements are cumulative. If any one is not met, the transaction does not qualify as an “export of services” under section 2(6), even if the customer is abroad and the work is commonly described as offshore software development.
Place of supply: start with the recipient, then check for exceptions
For IT/ITES services, the CBIC FAQ summarizes the general rule as the location of the recipient. It also notes an exception where the recipient is unregistered and the supplier does not have the recipient’s address on its records. The applicable statutory category and the facts matter, so do not apply the general rule without checking whether a special rule governs the service.
Intermediary work is a separate risk
The place-of-supply result can differ for intermediary services, for which a supplier-location rule may apply. The IGST Act’s definition excludes a person who supplies the goods or services on its own account from being an intermediary. The CBIC FAQ’s example concerns a foreign firm facilitating an Indian company’s software supply abroad; it should not be read as saying that ordinary software development or outsourcing is inherently intermediary service. Examine the actual role: supplying the service on one’s own account is different from arranging or facilitating a supply between other parties.
Establish who receives the work
For group arrangements, record which establishment contracted for and receives the service, and whether the Indian supplier and overseas recipient are establishments of the same legal person. An overseas affiliate is not automatically the same as a branch or other establishment of the Indian supplier, but the legal relationship—not the group brand or invoice format—controls this part of the test.
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How common arrangements differ
| Arrangement | What to establish | GST export implication |
|---|---|---|
| Bespoke development or implementation for a foreign customer | Whether the supply is a service; who receives it; place of supply; payment route; and whether the parties are distinct establishments. | Can qualify if all five section 2(6) conditions are met. A foreign customer alone is not enough. |
| Pre-developed software supplied on media or through an encryption key | Whether the transaction matches the CBIC FAQ’s goods description and the applicable tariff classification. | Do not apply the service export test or IT-services rate automatically; determine the goods treatment and relevant rules. |
| Work facilitating another party’s software supply | Whether the supplier acts as an intermediary or supplies its own service on its own account; then identify the applicable place-of-supply rule. | A special intermediary rule may prevent the place of supply from being outside India. The particular role and statutory category must be assessed. |
| Service between related overseas and Indian establishments | Whether both sides are establishments of the same legal person, rather than separate entities in a group. | If they are distinct establishments of the same person, the section 2(6) export condition is not met. |
| Supply to an SEZ unit or developer | Whether the recipient and supply meet the statutory SEZ requirements and which procedure applies. | Section 16 includes qualifying supplies to SEZ units or developers within zero-rating; this is a distinct route from proving an export of services. |
Zero-rated does not mean “no GST process”
Section 16 of the IGST Act treats exports and supplies to SEZ units or developers as zero-rated supplies. It allows input tax credit subject to restrictions under the CGST Act and the applicable rules. A zero-rated supply is therefore not simply the same as an exempt supply: eligible input tax credit and a refund may be available through the prescribed route, but the conditions and documentation still apply.
LUT or bond route and eligible ITC refund
For exports made under a letter of undertaking (LUT) or bond without payment of integrated tax, the refund rules provide a route to claim eligible unutilized input tax credit. The refund is subject to the prescribed computation and filing requirements; eligibility is not automatic just because an invoice is to a foreign customer. The CBIC refund rules provide the RFD-01 application framework and the formula for calculating eligible unutilized ITC for LUT/bond exports. Check the current rules and the applicable section 16 restrictions for the claim.
Registration and claim readiness
CBIC’s IT/ITES FAQ says a person whose outward supplies are all export services needs GST registration to claim refunds. That point is specifically about claiming refunds; check the current registration rules for the exporter’s circumstances rather than treating it as a complete statement of every registration obligation or threshold. Keep the LUT, returns, invoices and refund support aligned with the actual supplies and the route used.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.When a rupee payment can meet the export condition
Section 2(6)(iv) allows payment in convertible foreign exchange or INR wherever the RBI permits it. CBIC Circular 202/14/2023-GST clarifies that proceeds received in INR from balances in designated Special Rupee Vostro Accounts can meet the payment condition, subject to the relevant RBI permissions and Foreign Trade Policy conditions. This is a qualified route, not a general rule that any domestic INR transfer or rupee-denominated invoice satisfies the export test. Retain evidence showing the payment route and the conditions relied on.
Practical checks before invoicing or claiming a refund
- Scope and classification: Describe the actual deliverables and establish whether the transaction is development or another service, pre-developed software supplied as goods, an IP-use permission, or a combination needing classification.
- Recipient and establishment: Match the contract, work recipient and relevant establishment; verify whether the customer is a separate legal entity or an establishment of the same person.
- Place of supply: Document the recipient’s location and assess whether an intermediary or another special rule changes the general recipient-location treatment.
- Payment trail: Retain evidence of receipt in convertible foreign exchange or the specific RBI-permitted INR route used, including the relevant conditions where relying on a Special Rupee Vostro Account.
- Zero-rating and refund procedure: Confirm the applicable LUT/bond and refund route, eligibility of input tax credit, returns and prescribed filing support under current rules.
- Rate and legal currency: Verify current rate notifications, statutory text, RBI conditions and refund procedures before applying a rate or filing. These rules can change; the CBIC FAQ’s 18% answer should be checked against the rate applicable to the exact transaction and date.
Because the result can turn on the contract, recipient establishment, service actually supplied, payment mechanism and current rules, an exporter with a group arrangement, facilitation role, mixed software supply or material refund claim may benefit from transaction-specific advice from a qualified Indian GST practitioner.
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