GST on IT Exports and Software Services 2026 — Zero-Rated Supply, LUT, and Refunds

If you provide software development, IT consulting, or any technology services to clients outside India, your exports are treated as zero-rated supplies under GST. This means you do not charge GST on your invoices to foreign clients — and you can still claim a full refund of GST paid on your inputs. Here is the complete guide for FY 2025-26.

What Is Zero-Rated Supply?

Under Section 16 of the IGST Act, exports of goods and services are zero-rated supplies. Zero-rated means:

• No GST charged on the export invoice
• Full ITC (Input Tax Credit) available on inputs used for the export
• You can claim a refund of accumulated ITC or IGST paid

This is different from GST-exempt supplies, where you cannot claim ITC.

Does Your IT Service Qualify as Export?

For a service to qualify as export of services under GST, all five conditions under Section 2(6) of the IGST Act must be met:

1. Supplier is in India — you are registered in India
2. Recipient is outside India — your client is a foreign entity
3. Place of supply is outside India — determined by the place of supply rules
4. Payment received in convertible foreign exchange — USD, EUR, GBP, etc. (or INR from a foreign bank account)
5. Supplier and recipient are not merely establishments of the same entity — not a branch of the same company

If all five conditions are met, your service is an export and zero-rated.

Place of Supply for IT Services

For B2B services (to a foreign business), the place of supply is the location of the recipient — outside India. This qualifies as export.

For B2C services (to a foreign individual), the place of supply rules are more complex. Generally, for IT and software services, the place of supply is the recipient's location if they are outside India.

Common IT services that qualify as exports:

• Software development and maintenance
• IT consulting and project management
• Cloud services and SaaS to foreign clients
• Data analytics and AI/ML services
• BPO and KPO services
• Digital marketing for foreign clients

Two Ways to Export Without Paying GST

Option 1: Letter of Undertaking (LUT)

File a Letter of Undertaking (LUT) in Form GST RFD-11 on the GST portal before starting exports. With an LUT:

• You export without paying IGST
• You claim a refund of accumulated ITC on inputs
• Better cash flow — no upfront tax payment

LUT is valid for one financial year. Renew it before April 1 each year.

Who can file LUT? Any registered taxpayer who has not been prosecuted for tax evasion exceeding ₹2.5 crore in the preceding 5 years.

How to file LUT:

1. Login to GST portal → Services → User Services → Furnish Letter of Undertaking (LUT)
2. Select the financial year
3. Fill in the declaration and submit
4. Download the acknowledged LUT

Option 2: Export with Payment of IGST

Pay IGST on the export invoice and claim a refund later. This is simpler but ties up working capital. The refund is processed within 60 days of filing.

Most IT exporters prefer the LUT route to avoid cash flow issues.

How to Claim ITC Refund Under LUT

When you export under LUT, you accumulate ITC (GST paid on inputs like software subscriptions, office rent, professional services). Claim this refund via:

Rule 89 — Refund of Accumulated ITC:

1. File GSTR-1 and GSTR-3B for the relevant period
2. Apply for refund in Form RFD-01 on the GST portal
3. Select "Refund of ITC on account of exports without payment of tax"
4. Upload supporting documents (export invoices, bank realization certificates)
5. Refund processed within 60 days

Refund amount formula: Refund = (Turnover of zero-rated supply / Adjusted total turnover) × Net ITC

GST Registration Threshold for IT Exporters

If your annual turnover from IT exports exceeds ₹20L (₹10L for special category states), you must register for GST. Even if you are below the threshold, voluntary registration is beneficial to claim ITC refunds.

Freelancers note: If you are a freelancer providing services to foreign clients and your annual income exceeds ₹20L, GST registration is mandatory. Below ₹20L, registration is optional but recommended for ITC benefits.

Invoicing for IT Exports

Your export invoice must include:

• Your GSTIN
• Invoice number and date
• Client's name and address (outside India)
• Description of services
• Currency and amount (in foreign currency)
• Statement: "Supply meant for export under LUT without payment of IGST"
• LUT reference number

Do not charge IGST on the invoice if you have filed an LUT.

Foreign Currency Realization

Payment must be received in convertible foreign exchange within the time prescribed:

• Services: Within 1 year from the date of invoice (extendable)
• Goods: Within 9 months from the date of export

If payment is not received within the prescribed time, the export loses its zero-rated status and IGST becomes payable.

GST Returns for IT Exporters

FEMA Compliance

IT exporters must also comply with FEMA (Foreign Exchange Management Act):

• Receive payment through banking channels
• File SOFTEX form for software exports above USD 25,000 (via STPI or RBI)
• Maintain records of foreign currency receipts

Frequently Asked Questions

Do I charge GST to my foreign client?

No. If your service qualifies as export (all 5 conditions met), you invoice at 0% GST. Your client pays only the service fee in foreign currency.

What if my foreign client pays in INR?

Payment in INR from a foreign client's Indian bank account (Vostro account) is treated as foreign exchange for GST purposes. Payment in INR from a domestic bank account does not qualify as export.

Can a freelancer claim GST refund on laptop and software purchases?

Yes. If you are GST-registered and export services under LUT, you can claim ITC refund on GST paid for business purchases — laptop, software subscriptions, internet, office rent, etc.

Is GST applicable on royalties received from foreign companies?

Royalties for software licensed to foreign companies are treated as export of services if the place of supply is outside India. Zero-rated under LUT.

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