Arjun quit his MNC job last May. His main client is a Y Combinator-backed Delaware SaaS company building developer tools. They pay him $4,500/month via Wise into his ICICI savings account. He also takes occasional Indian consulting gigs — about ₹3-4L over the year.
For nine months he didn't charge anyone GST. Then a friend warned him: "bro, you crossed ₹20L last quarter — you've been making zero-rated supplies, you should have filed LUT, what about your input GST?"
Arjun's actual questions: Should I have charged 18% GST on my US invoices? What's an LUT? Am I in trouble?
- Services to a foreign client, paid in foreign exchange, qualify as export of services under Sec 2(6) of IGST Act. These are zero-rated supplies — GST rate 0% (not exempt — that's different).
- Two ways to do export: (a) with IGST and claim refund, or (b) under LUT — no IGST charged. Almost everyone picks LUT — simpler, no cash blocked.
- LUT = Letter of Undertaking, Form RFD-11, electronic, valid for one FY. File once per year before any export.
- For freelancers crossing ₹20L turnover (services threshold), registration becomes mandatory. Once registered, LUT is the standard route for foreign clients.
- You still claim full ITC on inputs (laptop, internet, cloud, software, office rent) — and if exports dominate, you'll have an ITC pile-up that becomes refundable.
What "export of services" actually means
Sec 2(6) of the IGST Act gives the five-part test. All five must be true:
- Supplier is in India. Arjun lives in Bengaluru → ✓.
- Recipient is outside India. Delaware SaaS company → ✓.
- Place of supply is outside India. For most services, place of supply = location of recipient (Sec 13(2) of IGST Act). Delaware. → ✓.
- Payment received in convertible foreign exchange. Wise / Stripe / SWIFT — all qualify. (Or in INR where RBI permits, but the simple safe case is foreign exchange.) → ✓.
- Supplier and recipient are not "establishments of distinct persons" — i.e., Arjun isn't billing his own foreign subsidiary. → ✓.
All five pass for Arjun → his US billings are export of services.
Zero-rated vs exempt — they sound the same, they aren't
Zero-rated
Exports + SEZ
Rate is 0%. You charge no GST. You can still claim full ITC on inputs. If ITC accumulates, you get it refunded. This is what Arjun's US billings are.
Exempt
Healthcare, education
Rate is also 0%. But you cannot claim ITC on inputs used for these supplies. Hospitals, schools, agricultural produce — exempt. ITC on their inputs is a sunk cost.
Non-GST
Petrol, alcohol
Outside GST entirely. Other taxes apply (VAT / excise / state levies). Not relevant to a digital freelancer.
The difference between zero-rated and exempt matters enormously. Zero-rated is the friendliest category — you collect no output GST, but you get every rupee of input GST back.
The two roads to zero-rating
Issue invoice with 18% IGST. Customer pays the GST. You deposit it to government. Then you file Form RFD-01 to claim it back. The IGST you collected becomes refundable once the export is realised and you have FIRC. Cash is blocked for typically 30-90 days.
File Form RFD-11 (Letter of Undertaking) on the GST portal at the start of the FY. Then issue all export invoices with 0% IGST and the note "Supply of services for export under LUT — no IGST charged". No cash block, no refund process. You still claim ITC normally.
Most freelancers and SaaS exporters pick route B. The only reason to take route A is if you've forgotten to file LUT at the start of the FY — in which case you have to charge IGST and claim refund for that year's exports.
The LUT — actual process
- Log in to GST portal → Services → User Services → Furnish Letter of Undertaking (RFD-11).
- Select FY (the LUT covers one financial year).
- Enter two witness names + addresses (any two adults — friends / family work).
- Submit with DSC or EVC.
- LUT is issued within 24 hours, downloadable as PDF.
- Quote LUT number on all export invoices for that FY.
Eligibility: any registered taxpayer who has not been prosecuted under GST law for tax evasion above ₹250 lakh. Practically, every clean freelancer qualifies.
If you do export of services before filing LUT for that FY, those specific invoices may need IGST charged and refund claimed afterwards. Many freelancers learn about LUT in October after invoicing without IGST since April — and then have to retrofit. File LUT in April every year, before your first export of the FY. It's 10 minutes; saves much pain.
Arjun's actual numbers
- US client: $4,500 × 9 months = $40,500 ≈ ₹33.6L (at ~₹83/USD)
- Indian B2B clients: ₹3.8L (charged 18% IGST/CGST+SGST, ₹68k collected)
- Aggregate turnover: ₹37.4L — above ₹20L threshold (services), so registration is mandatory
- His inputs (with GST): laptop ₹1.2L (18% = ₹21.6k), AWS bills ₹3.6L (18% = ₹64.8k), home-office internet ₹15k (18% = ₹2.7k), accounting software ₹6k (18% = ₹1.1k). Total ITC available: ~₹90k
With LUT in place:
- US invoices: ₹33.6L at 0% — no IGST collected, no payment to govt.
- Indian invoices: ₹3.8L at 18% — ₹68k IGST/CGST+SGST collected, deposited in monthly GSTR-3B.
- ITC claimable: ~₹90k.
- Net cash flow: ₹68k collected − ₹90k claimed = ₹22k refund. Refundable via RFD-01 after FY end.
Without LUT (charged IGST on US invoices):
- Would have needed to bill US client ₹33.6L + 18% = ₹39.6L. Customer pushes back ("we don't pay Indian taxes").
- Alternatively, absorb GST internally — bills $4,500 with 18% included → effective revenue = $3,814/month. Big cut.
- Then claim ₹6L refund from govt — 60-90 day wait.
Route B (LUT) is obviously the right call.
FIRC, FEMA, and proof of export
Two pieces of documentation matter:
- FIRC (Foreign Inward Remittance Certificate) — issued by your bank for each foreign remittance you receive. Confirms USD was converted to INR. Banks issue automatically or on request. This is your proof that consideration was received in convertible foreign exchange — required if there's ever a GST audit.
- FEMA / FIRMS reporting — for services exports, the bank does the AD reporting under Master Direction. You don't file separately. But you must declare the purpose code correctly when receiving funds (P0801, P0802, etc.).
For Wise / Stripe / Payoneer flows, the receiving bank still issues FIRC against your account. Just ask your relationship manager — most banks will email a consolidated FIRC monthly or quarterly.
What if your client is a foreign company with an Indian arm?
This is where the "establishments of distinct persons" test bites. If the foreign company has an Indian branch/subsidiary that uses your service, the place of supply may shift to India. Then it's not an export — it's a domestic supply with 18% GST.
The safe test: ask the client "is this service consumed by your US team or your Indian team?" If the answer is "we'll route the deliverable to our Indian engineering team", you may have a domestic supply. If the answer is "purely consumed in the US/EU/Singapore", it's an export.
OIDAR — the other direction (mostly not Arjun's problem)
OIDAR = Online Information and Database Access or Retrieval. When a foreign company supplies services to Indian individual consumers (Netflix, Adobe Creative Cloud, Spotify Premium for individuals), special rules require the foreign supplier to register and pay Indian GST. Sec 14 of IGST Act.
For Arjun supplying TO a foreign business — OIDAR doesn't apply (this is B2B export, normal Sec 13 default). OIDAR is the reverse flow and would matter only if Arjun were importing a foreign-consumer service.
Quick answers
Not mandatory under Sec 22 for services below ₹20L. However: (1) you can't claim ITC on your laptop / AWS bills without registration, (2) your client may not need an Indian tax invoice but having a GSTIN signals legitimacy. Many freelancers register voluntarily at ₹10-15L for the ITC alone.
EEFC accounts hold foreign currency before conversion. The remittance still satisfies the "convertible foreign exchange" requirement under Sec 2(6). FIRC is generated when funds finally convert to INR. Most freelancers don't use EEFC; standard NRO/savings is simpler.
RBI permits some service exports to be paid in INR (Sec 2(6)(iv) of IGST Act amended to include INR where permitted by RBI). But practically, banks need an A2 form and clear convertible-foreign-exchange documentation. Default to foreign currency; ask your bank before accepting INR cross-border.
You don't have to add their VAT — that's their responsibility in their jurisdiction. Your invoice is the supplier's tax invoice from India's perspective. Issue it under LUT with 0% GST, in their preferred format. If they want a separate quote with VAT for their books, that's their accountant's exercise.
For a freelancer / professional, you can opt for presumptive scheme u/s 44ADA if gross receipts < ₹75L (recently raised). 50% of gross is deemed profit. File ITR-4. Above ₹75L, file ITR-3 with actual books. See our ITR for freelancers guide.
When you might want help
Two situations: (1) You've started taking foreign clients and want clean LUT + invoice + FIRC paperwork from day one. (2) You've been billing foreign clients for a year without registration / LUT — we'll structure the catch-up filing and refund claim for that year.
Freelancer with foreign clients?
GST registration + LUT filing + monthly GSTR-1/3B + RFD-01 refund claim. Fixed monthly fee. Including ITR-4 / ITR-3 at year-end.
"Arjun" and the numbers shown are composite illustrations. Your specific export classification will depend on actual recipient location, service type, and consumption pattern.