The Freelancer Who Forgot to File an LUT — and Locked Up Rs 90,000 in IGST

"I export software services to a US client. Do I really have to charge GST on a foreign invoice?" This is one of the most common questions freelancers and small IT firms ask — and the answer trips up plenty of them. The short version: exports are zero-rated, but only if you do the paperwork. Skip one annual form and you could end up paying 18% IGST out of pocket and waiting months to get it back.

Why Exports Are Zero-Rated (But Not Tax-Free by Default)

Under Section 16 of the IGST Act, exports of goods and services are treated as "zero-rated supplies." That means the supply is taxable at a rate of zero — but the law gives you two routes to actually achieve that benefit:

• Option 1: Export with payment of IGST, then claim a refund of the tax paid.
• Option 2: Export without payment of IGST by furnishing a Letter of Undertaking (LUT) in Form GST RFD-11.

Most service exporters prefer Option 2. You don't block working capital, you don't charge your foreign client tax they can't claim, and there's no refund chase. But you can only use this route if a valid LUT is in place before you raise the export invoice.

Here's where the freelancer went wrong. He raised invoices through the year assuming exports were automatically tax-free, never filed an LUT, and at filing time discovered he was technically liable to pay IGST on those supplies. Rs 90,000 got tied up until he sorted out the position.

What Counts as Export of Services

To qualify as export of services, broadly all of these must be true: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange (or INR where the RBI permits), and the two parties aren't merely branches of the same entity. If you fail the foreign-exchange test — say you get paid into a domestic wallet in rupees from an Indian intermediary — it may not qualify as an export at all.

Practical Tips to Get the LUT Right

1. File your LUT at the start of every financial year. An LUT is valid for one financial year only. File a fresh one in April for the new year — don't assume last year's carries over. You submit it online on the GST portal under Services, and it is usually accepted without physical verification.

2. File before you invoice. The LUT must cover the period in which you make the export. If you raise an export invoice in May but only file the LUT in July, the earlier supplies are exposed. Make LUT filing your first compliance task of the year.

3. Keep your FIRC or bank realisation proof. Foreign Inward Remittance Certificates or equivalent bank statements prove you received payment in foreign currency. You'll need these to defend the zero-rated treatment if questioned.

4. Report exports correctly in returns. Show zero-rated supplies under the dedicated table in GSTR-1 (the export/SEZ section) and reflect them in GSTR-3B under zero-rated outward supplies. Mis-classifying them as ordinary B2B sales causes mismatches.

FAQ Within the FAQ: Is There Any Income Threshold for LUT?

No. There is no turnover threshold for filing an LUT — any registered exporter can file one. As long as you have a GST registration and haven't been prosecuted for tax evasion above the prescribed limit, you are eligible. The benefit isn't restricted to large exporters.

What NOT to Do

Don't treat export invoices as simply "out of GST" and ignore the LUT — zero-rating is a benefit you must claim correctly, not a default. Don't charge your overseas client IGST when you actually intended the no-payment route. And don't forget to renew: a lapsed LUT in the new financial year quietly puts you back on the hook for IGST.

If you export services or goods, log in today and check whether a valid LUT exists for the current financial year. If not, file Form RFD-11 before your next export invoice — it takes minutes and saves you a refund headache later.