The Freelancer Who Paid GST on Exports: Why Your LUT Filing Can't Wait

"I raised an invoice to my US client and paid 18% IGST on it — was that right?" This is one of the most common questions I hear from freelancers and small IT service exporters. The honest answer is usually: you didn't have to lock up that cash at all. You simply missed filing a one-page form called the LUT.

Let's clear this up so your export earnings stay in your bank account instead of the government's.

Exports Are Zero-Rated, Not Tax-Free

Under Section 16 of the IGST Act, export of goods and services is treated as a "zero-rated supply." That means the outward supply attracts a 0% effective tax, and you can still claim input tax credit on your purchases.

But zero-rated does not mean you do nothing. The law gives you two routes:

1. Export under a Letter of Undertaking (LUT) — supply without paying any IGST.
2. Export on payment of IGST — pay the tax first, then claim a refund.

Most freelancers and service exporters should pick option 1. Filing the LUT (Form RFD-11 on the GST portal) lets you invoice your foreign client without charging or paying a single rupee of IGST — no cash blocked, no refund paperwork.

What actually counts as an "export of service"

Section 2(6) of the IGST Act sets five conditions. All must 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 (or INR where RBI permits).
• The supplier and recipient are not merely two establishments of the same person.

If you're a designer in Pune billing a client in London and getting paid in USD, you tick every box.

Practical Tips to Get It Right

1. File your LUT at the start of every financial year. The LUT is valid for one financial year only. File a fresh one in April so you're covered from day one. If you export in May without a valid LUT, you technically must pay IGST on those invoices.

2. Mark export invoices correctly. On the invoice, state clearly "Supply meant for export under LUT without payment of integrated tax" and quote your LUT reference. Report these under the export tables in GSTR-1 with the correct type — with or without payment of tax.

3. Keep your FIRC or bank realisation proof. GST officers and your CA will want evidence that payment came in foreign exchange. Save the Foreign Inward Remittance Certificate or the bank advice for each receipt.

4. Don't ignore your ITC. Even with zero output tax, you accumulate credit on things like software subscriptions, laptops, or office rent. You can claim a refund of this unutilised ITC under the zero-rated supply route.

FAQ: What If I Already Paid IGST by Mistake?

If you invoiced with IGST because you had no LUT, don't panic. Exports on payment of IGST are perfectly legal — you can claim a full refund of the tax paid. The refund is usually processed through the shipping bill route for goods, or via a refund application for services. It just means extra effort and a wait for your cash. Filing the LUT next year avoids the whole cycle.

What NOT to Do

• Don't charge your foreign client CGST/SGST or IGST assuming "tax is tax." Wrong tax heads on export invoices create reconciliation headaches and mismatch notices.
• Don't treat export receipts as exempt supply and forget your ITC — zero-rated is very different from exempt, and you'd be throwing away refund-eligible credit.
• Don't assume last year's LUT still works. An expired LUT is the single biggest reason exporters end up paying tax they never owed.
• Don't skip reporting exports in your returns just because the tax is nil. Non-reporting can flag your GSTIN during scrutiny.

Exporting your skills or products should be a cash-flow win, not a compliance trap. Log in to the GST portal today, check whether your LUT for the current year is active, and file Form RFD-11 if it isn't. If you're unsure about your ITC refund position, sit with your CA before your next quarter closes.