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First confirm that the service qualifies as an export
A foreign client or an invoice in foreign currency does not, on its own, make a service an export. Section 2(6) of the IGST Act requires all five conditions to be met:
- The supplier is located in India.
- The recipient is located outside India.
- The place of supply is outside India.
- Payment is received in convertible foreign exchange.
- The supplier and recipient are not merely establishments of a distinct person under the Act.
Place of supply depends on the service and applicable statutory rules; exceptions such as intermediary services can affect the result. Check the contract, recipient establishment and actual service before choosing a tax route. See section 2(6) of the IGST Act.
How the two zero-rating routes compare
CBIC describes two routes for a zero-rated export of services: export under a bond or Letter of Undertaking (LUT) without payment of IGST, or payment of IGST followed by a refund claim. CBIC sectoral FAQs
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| Consideration | LUT or bond, without IGST | Pay IGST, then claim refund |
|---|---|---|
| Tax paid on export invoice | No IGST is paid upfront, subject to a valid LUT or bond and compliance with its conditions. | IGST is paid on the export supply. |
| Refund sought | Eligible unutilised ITC relating to zero-rated supplies, subject to the refund rules and formula. | The IGST paid on the export supply. |
| Cash-flow effect | Avoids funding export IGST upfront; recovery of accumulated ITC can still take time and is limited by eligible credit and the prescribed formula. | Requires funding the IGST while the refund is pending. |
| Service-payment condition established in the cited rules | Payment in convertible foreign exchange must be received within one year of the invoice date, unless the Commissioner allows a further period. If it is not received by the deadline, tax and interest are payable within the following 15 days. | The cited materials do not establish a comparable service-payment condition specific to this route. Check current law, refund rules and the facts before filing. |
| Core records | LUT filed before supply, export evidence, payment records and support for eligible ITC. | Export invoice and return data showing IGST paid, plus evidence supporting the refund. |
When LUT may suit your business
LUT is commonly attractive when paying IGST upfront would strain working capital. Instead of paying tax on each export invoice and waiting for that amount to be refunded, you seek a refund of eligible accumulated ITC. That is not necessarily a refund of all credit in your ledger: the amount is subject to the rules, eligible net ITC and the refund formula.
The formula uses export-of-services turnover for the relevant period. Under the refund rules, that turnover includes payments received during the period and completed export services paid for in advance in an earlier period, less advances received for export services not completed during the period. See the CBIC refund rules.
If you have little eligible unutilised ITC, the LUT route may yield a smaller refund than expected. Estimate the eligible credit and formula-based amount using your records before deciding; do not assume that the total ITC balance is refundable.
Meet the LUT payment deadline
Rule 96A requires a registered person exporting without payment of integrated tax to furnish a bond or LUT in Form GST RFD-11 before export. For services, payment in convertible foreign exchange must be received within one year from the invoice date, unless the Commissioner allows a further period. If the condition is not met, tax due and interest must be paid within 15 days after the deadline. Track invoice dates, receipts and any approved extension. Rule 96A.
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Paying IGST may fit an exporter that can fund the tax until a refund arrives and prefers to claim a refund of the tax paid rather than seek a refund of accumulated ITC. Compare the expected refund claim with the cash tied up, your available credit and the evidence needed to match the export with the tax payment. The route is not automatically faster, more profitable or more certain; the cited sources do not establish comparative processing times or success rates.
Choose using these practical checks
- Validate export status. Test all five statutory conditions, especially the place-of-supply rule for your service and the relationship between supplier and recipient.
- Estimate the LUT refund. Identify eligible unutilised ITC and apply the relevant refund rules to the period’s service-export turnover.
- Check cash available. If you pay IGST, assess whether you can carry that outlay while the refund is pending. With LUT, account for the fact that accumulated ITC recovery can also take time.
- Confirm payment evidence and timing. For LUT exports of services, monitor foreign-exchange receipt against each invoice’s one-year deadline, or an approved extension.
- Reconcile the paperwork. Ensure invoices, returns, export and payment records, LUT acknowledgement and refund evidence agree. Check current GST portal instructions and rules before filing.
Invoice wording and refund filing
The invoice rules prescribe an endorsement matching the route selected:
- LUT or bond: “SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF IGST”
- IGST paid: “SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST”
CBIC’s refund rules provide for electronic applications in Form GST RFD-01, with evidence appropriate to the refund category. Keep contracts, evidence of the recipient and place of supply, invoices, payment records, LUT acknowledgement, return data and ITC support aligned. Confirm live portal instructions and current form requirements before filing. Refund rules and invoice rules.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.If you filed the LUT late
Rule 96A’s default requirement is to furnish the LUT or bond before export. CBIC Circular 37/11/2018-GST says substantive zero-rating benefits may not be denied where the export is established and that delayed LUT filing may be condoned, with the LUT facility allowed after the fact depending on the circumstances. This is a fact-specific clarification, not a reason to plan on filing late. Read Circular 37/11/2018-GST.
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