A zero-rated supply is a taxable supply on which the final GST burden is nil, and export of services is one. Section 16 of the IGST Act treats export of services as zero-rated, so you can bill a foreign client without GST and still keep your input tax credit. You get there by one of two routes: export under a Letter of Undertaking (LUT) without paying IGST, or pay IGST and claim it back as a refund.
Key takeaways
- Zero-rated is not the same as exempt. Exempt supplies lose input tax credit; zero-rated supplies keep it.
- Your service only counts as an export if all five conditions in Section 2(6) of the IGST Act are met.
- Under LUT, you charge no IGST and may claim a refund of unused input tax credit.
- Under the IGST-paid route, you charge and pay IGST, then claim a refund of that IGST.
- The EDF is a separate FEMA declaration. Zero-rating does not remove your EDF obligation, and the EDF does not change your GST position.
Zero-rated versus exempt versus nil
These three words get used interchangeably in casual conversation, and that causes real mistakes.
| Type | GST charged to customer | Input tax credit on your costs | Typical example |
|---|---|---|---|
| Zero-rated supply | None (under LUT) or refundable | Available | Export of services meeting Section 2(6) |
| Exempt supply | None | Not available for that supply | Certain notified services |
| Taxable at a positive rate | Yes, at the applicable rate | Available | A domestic consulting invoice |
The difference in the middle column is the whole point. An Indian agency that pays GST on software subscriptions, rent and professional fees can recover that tax even though its export invoices carry no GST. If exports were merely exempt, that input tax would become a cost.
When a service is actually an export
Zero-rating only applies to an "export of services" as defined in Section 2(6) of the IGST Act. All five conditions must hold:
- 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, or in Indian rupees where RBI permits.
- The supplier and recipient are not merely establishments of a distinct person.
Condition 3 trips up the most people. Place of supply rules decide where a service is treated as supplied, and some categories, notably intermediary services, can end up with a place of supply in India even when the client is abroad. If that happens, the invoice is not an export and zero-rating does not apply. Our article on place of supply for export of services goes deeper.
Condition 4 links GST to FEMA. You need payment in the right form, and you need evidence of it, which is why your FIRA or bank advice matters for GST as well as for closing the EDF.
Route 1: export under LUT
This is the default for most service exporters. You file Form GST RFD-11 on the GST portal for the financial year, and once accepted, you can raise export invoices without IGST. Each invoice should carry the wording "Supply meant for export under LUT without payment of IGST".
What you get:
- No cash outflow on export invoices.
- Your accumulated input tax credit can be claimed as a refund, since you have little or no output tax to set it against.
What to watch:
- Renew the LUT for each financial year before you raise the first export invoice of that year.
- If the export conditions turn out not to be met, for example payment never arrives in foreign exchange, GST consequences can follow. Ask your CA.
Our guide on filing the LUT on Form GST RFD-11 walks through the steps.
Route 2: pay IGST and claim a refund
Here you charge IGST on the export invoice, pay it (often using your input tax credit), and then claim a refund of the IGST paid.
Why anyone would choose this:
- Some exporters do not have an LUT in place yet when they invoice.
- Some prefer to use their input tax credit against IGST rather than file an input-credit refund.
The trade-off is working capital and paperwork. You are effectively lending money to the government until the refund arrives.
Worked example: same month, two routes
Mehr Analytics Pvt Ltd, Hyderabad, invoices a Dubai client USD 10,000 (about ₹8,40,000) for data engineering in November 2026. In the same month it pays ₹1,20,000 GST on cloud tools, rent and a contractor.
Under LUT: - Export invoice: ₹8,40,000, IGST nil. - Input tax credit of ₹1,20,000 accumulates. - Mehr files a refund claim for unused input tax credit, subject to the GST refund rules.
Under IGST-paid: - Export invoice: ₹8,40,000 plus IGST at the applicable rate. Mehr would confirm the rate for its SAC with its CA. - Mehr pays that IGST, using the ₹1,20,000 credit and cash for the balance. - It then claims a refund of the IGST paid on the export.
Either way, the client in Dubai pays only the USD 10,000. And either way, Mehr also files its November EDF with its AD bank by 30 December 2026, because GST and FEMA run in parallel.
This is general information, not legal or tax advice; refund mechanics and rates depend on your facts and current notifications.
How zero-rating and the EDF connect
They are separate laws with separate forms, but the data overlaps:
- The SAC code on your GST invoice should match the SAC in EDF Part 2B.
- The foreign-currency amount on the invoice should match the EDF row.
- The FIRA or bank advice that proves realisation for the EDF also supports the Section 2(6) payment condition for GST.
- An open EDPMS entry or a missing eBRC can cause friction in a GST refund claim.
Keeping one invoice register that feeds both your GST return and your monthly EDF is the simplest way to stay consistent.
Frequently asked questions
Is export of services exempt from GST?
No. Export of services is a zero-rated supply under Section 16 of the IGST Act, not an exempt supply. The practical difference is that zero-rated supplies keep input tax credit, while exempt supplies do not.
Do I need an LUT to make a zero-rated supply?
No, but it is the more common route. Without an LUT, you can pay IGST on the export invoice and claim a refund. With an LUT filed on Form GST RFD-11, you invoice without IGST from the start.
What wording should an export invoice under LUT carry?
It should state "Supply meant for export under LUT without payment of IGST". Our export invoice generator includes this line automatically when you select the LUT option.
Can a payment in rupees still qualify as a zero-rated export?
Section 2(6) allows payment in Indian rupees where RBI permits it. If a foreign client pays in INR, ask your CA and bank whether that arrangement meets the condition, and note that EDF realisation timelines are 12 months for rupee invoices.
Does filing an EDF prove my supply is zero-rated?
No. The EDF is a FEMA declaration and does not change GST obligations. Zero-rating depends on meeting the Section 2(6) conditions; the EDF and FIRA help as supporting records but do not decide the GST question.
Bottom line
Zero-rating lets you sell services abroad without GST while keeping your input credit, provided the five export conditions are met and you pick the LUT or IGST-paid route deliberately. Raise compliant invoices with the free export invoice generator and keep your monthly EDF in step.
This guide is general information for Indian businesses, not legal or tax advice. Rules and bank processes change — confirm specifics with your AD bank or chartered accountant.