Exports, whether of goods or services, receive special treatment under India’s GST law. They are classified as zero-rated supplies, ensuring exporters do not bear the tax burden built into their inputs.
However, the process for obtaining this benefit differs between goods and services. The refund route, required documents, processing mechanism and certain restrictions vary depending on whether the exporter supplies goods or services.
What are exports under GST?
Under the Integrated Goods and Services Tax Act (IGST Act), exports are treated as zero-rated supplies, not exempt supplies. This distinction is important and affects refund eligibility directly.
Under the zero-rated category, the GST rate is 0%, input tax credit (ITC) is available in full, and refunds can be claimed. Under the exempt category, the GST rate is also 0%, but ITC is not available.
In addition to physical exports, supplies made to a Special Economic Zone (SEZ) developer or SEZ unit are also treated as zero-rated supplies under GST.
What qualifies as export of services under GST?
Section 2(6) of the IGST Act defines export of services. A supply of services qualifies as an export only if all the following conditions are satisfied simultaneously:
- The service provider must be located in India under the GST law.
- The service recipient must be located outside India. The place of supply, determined under Sections 12 or 13 of the IGST Act, must also be outside India.
- The exporter must receive payment in convertible foreign exchange, or in Indian Rupees where the Reserve Bank of India (RBI) permits it (for example, under FEMA regulations for specific countries).
- The supplier and recipient must not be merely establishments of the same legal entity (as per Explanation 1 to Section 8 of the IGST Act). An Indian branch and its foreign head office are considered distinct persons under GST, and services between them generally do not qualify as export of services even if other conditions are met.
If even one condition is not met, the supply will not qualify as an export of services.
What qualifies as export of goods under GST?
Export of goods is defined separately under Section 2(5) of the IGST Act. Under this section, the goods must actually cross Indian territory and move to a foreign country. Exports of goods are zero-rated under Section 16 of the IGST Act.
What are the recognised refund routes for exporters?
A registered person making zero-rated supplies (whether goods or services) can claim a refund under either of two statutory options:
- Export without payment of IGST: The exporter finishes a Letter of Undertaking (LUT) or bond and claims a refund of accumulated un-utilised ITC under Section 16(3) of the IGST Act.
- Export with payment of IGST: The exporter pays IGST at the time of export and subsequently claims a refund of the IGST paid.
It is important to note that while both routes are available to goods and service exporters, the processing mechanism differs significantly between the two, a distinction covered in the sections below.
The LUT must be furnished on the GST portal before undertaking exports in a financial year. Without a valid LUT, exports cannot be made without payment of IGST.
Refund process and documentation for the export of goods
For goods exported with payment of IGST, the shipping bill filed at customs is treated as the application for refund under Rule 96 of the CGST Rules. The Indian Customs EDI System (ICES) automates much of this process, so IGST refund claims for exported goods often pass through the customs and shipping bill channel.
Customs authorities cross-verify export documents, such as shipping bill, bill of lading or airway bill, export invoice, against GST returns filed in GSTR-1 and GSTR-3B. Discrepancies can delay or invalidate refunds. Exporters must ensure that values and identifiers match across all documents and returns.
For exports made under LUT or bond, the refund is of unutilised ITC and is processed under Rule 89(4) of the CGST Rules. That rule uses a statutory formula to compute the refundable portion of accumulated ITC attributable to zero-rated supplies.
Refund of unutilised ITC is not permitted where the goods exported are subject to export duty, an anti-double-benefit safeguard introduced by amendment.
Refund process and documentation for the export of services
For service exporters, proof of payment in convertible foreign exchange, or in INR where permitted by the RBI, is critical. A Foreign Inward Remittance Certificate (FIRC) or Bank Realisation Certificate (BRC) issued by the bank, or equivalent bank remittance certificates, are commonly used to prove receipt. Where payment is received in INR and permitted by the RBI, exporters must retain RBI or bank certification as evidence.
Unlike goods exporters, service exporters cannot use the automatic shipping bill route. Service exporters must apply electronically through Form GST RFD-01 and provide bank remittance evidence, invoices, contracts and other supporting documents. Form RFD-01A may be used in specific cases where the electronic route is not available.
Service exporters may export under LUT or pay IGST and claim a refund (the same two routes available to goods exporters), but the refund is processed through the GST portal rather than through the customs channel.
Conclusion
Exporters should first correctly classify their supply as goods or services and verify that all legal conditions for zero-rating are satisfied. Complete documentation must be maintained: shipping bill details for goods and FIRC or BRC evidence for services. The appropriate refund route, LUT or IGST payment, should be chosen based on cash flow and compliance capacity. Regular reconciliation of returns and export records is essential for smooth GST refunds.
TallyPrime supports export compliance by enabling accurate export invoicing, GST return preparation, refund documentation and reconciliation in one place, reducing the risk of the discrepancies that most commonly delay or invalidate export refunds.
