India’s IT and ITES companies play a big role in the country’s economy. Many of these businesses provide services to clients outside India. These are called export of service, and under GST, they can get GST refund on input tax credit (ITC) even if they don’t pay any tax on the export.
This blog explains how such companies can export services without paying IGST using a Letter of Undertaking (LUT) and still claim GST refunds easily.
Who Can Export Without Paying GST?
Exporters have two options under GST:
- Export with payment of IGST and claim a refund later
- Export without payment of IGST under an LUT and claim a refund of ITC
Most IT and ITES companies prefer the second option because it saves working capital.
What Is an LUT?
An LUT (Letter of Undertaking) is a document filed online through the GST portal. It allows registered businesses to export of service without paying IGST. You must renew it every financial year.
If your company hasn’t been caught for tax fraud over ₹2.5 crore, you are eligible to file an LUT.
What Qualifies as Export of Service?
For a service to count as an export under GST, it must meet all five conditions:
- The service provider is in India
- The client is located outside India
- The place of supply is outside India
- Payment is received in foreign currency or in INR as allowed by RBI
- The supplier and client are not branches of the same company
If all conditions are met, your services are treated as exports and become zero-rated under GST.
What Can You Claim as Refund?
When you export under LUT, you can claim a refund on unutilized ITC for:
- Goods and services used to deliver the export
- Input services like rent, internet, software tools, and professional fees
Note: You cannot claim refunds on capital goods or blocked credits (like employee food bills).
List of Documents You Need
To apply for a refund, keep these documents ready:
- LUT approval copy
- Filed GSTR-1 and GSTR-3B returns for the relevant months
- Export invoices
- FIRC or BRC (proof of foreign payment receipt)
- Statement 3 (invoice-wise export summary)
- ITC ledger showing available credit
Organizing these documents in advance can speed up your refund process.
How to Calculate the Refund?
Refund is calculated using this formula:
Refund = (Zero-rated turnover × Net ITC) ÷ Adjusted total turnover
This ensures that you get a refund only on the portion of ITC related to exports.
When to Apply?
You must apply for the refund within 2 years from the date you receive payment in foreign currency.
Delaying the application might lead to rejection or loss of eligibility.
Mistakes You Should Avoid
While applying for a GST refund under LUT, avoid these common errors:
- Forgetting to renew the LUT every year
- Claiming ineligible or blocked ITC
- Data mismatch between GSTR-1 and invoices
- Not submitting payment proofs like FIRC or BRC
- Declaring wrong turnover amounts
Fixing these issues later takes time, so it’s best to get it right the first time.
Final Thoughts
If you are exporting GST service as part of the IT/ITES industry, you don’t need to pay IGST on export. With a valid LUT, you can export without tax and still claim a refund of your input credits.
This not only helps in saving cash flow but also improves compliance. Make sure your documentation is in place, and apply for the refund within the deadline.
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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
Published on: July 15, 2025