GST on Overseas Sales for Indian SaaS: Full Guide

This guide explains how Indian Software-as-a-Service (SaaS) companies should handle Goods and Services Tax (GST) when selling to customers outside India. You’ll learn the key distinction between exporting services and supplying to overseas branches, how to claim zero-rated benefits, and the documentation you need to avoid paying GST on foreign revenue. Before you begin, confirm your business is registered for GST and has a valid Import Export Code (IEC), as both are essential for most export-related GST benefits.

What You’ll Need

• GST registration certificate (regular or composition scheme – note composition scheme cannot claim export refunds)
• Import Export Code (IEC) from DGFT
• Foreign inward remittance certificates (FIRC) or bank statements showing receipt in convertible foreign exchange
• Copies of contracts or agreements with overseas customers
• Invoices issued for the overseas sales
• GST software or portal access to file GSTR-1 and GSTR-3B
• Copy of your bank account details for refunds

Step-by-Step

1. Determine the place of supply. Under IGST Act, the place of supply for services to a recipient outside India is the location of the recipient. If your customer is located outside India and you are providing B2B services, the place of supply is outside India, making the supply an export. However, if the recipient is an overseas branch or related entity, the place of supply is still outside India, but the transaction may be treated as a “supply� under section 7(5) of the IGST Act, which requires payment of GST unless it qualifies as a zero-rated supply.
2. Verify the export criteria. Your supply qualifies as an export of services only if: (a) the supplier is in India, (b) the recipient is outside India, (c) the payment is received in convertible foreign exchange, and (d) the supply is not a supply of services that is specifically excluded. For software services, ensure you are not providing services to a recipient who is in India but using the software overseas – that would be domestic supply.
3. Choose between LUT or payment of IGST. To export without paying IGST, file Form GST RFD-11 (Letter of Undertaking) on the GST portal. This allows you to export without paying IGST and then claim a refund of accumulated ITC. Alternatively, you can pay IGST on the export invoice and later claim a refund of that IGST. Most SaaS companies prefer LUT because it improves cash flow.
4. File the LUT. Log in to the GST portal, go to Services > Refunds > Letter of Undertaking. Fill in the details for the financial year. The LUT is valid for one financial year and must be renewed. Ensure you have a valid IEC and no pending refunds or demands that would disqualify you.
5. Issue export invoices. Create an invoice for the overseas customer with the same details as a domestic invoice, but clearly mark it as “Supply meant for Export�. Include the LUT number (if using LUT) or mention that IGST is payable. Use the invoice as proof for shipping and for claiming refunds.
6. Receive payment in foreign currency. Ensure the payment is received in convertible foreign exchange. If you receive payment in INR from an overseas customer (e.g., through a foreign bank account), it may still be considered convertible if it’s from a foreign source, but it’s safer to receive in USD, EUR, GBP, etc. Keep FIRC or bank statements as evidence.
7. File GSTR-1 and GSTR-3B. Report export invoices in GSTR-1 under the “Exports� table (Table 6A for zero-rated supplies). In GSTR-3B, report the value of zero-rated supplies in Table 3.1(b) and claim ITC as usual. If you paid IGST on exports, report it in Table 3.1(a) and later claim refund.
8. Claim refund of unutilized ITC. If you exported under LUT, you can claim a refund of the Input Tax Credit (ITC) that remains unutilized after offsetting your output GST liability. File Form GST RFD-01 on the portal. The refund is typically 90% of the claimed amount is sanctioned provisionally, and the rest after verification. You must file the refund within two years from the end of the quarter in which the export took place.
9. Maintain proper records. Keep all export documents – invoices, LUT, FIRC, contracts, and shipping bills (if any) – for at least six years. The department may request these during audit or refund processing.

Common Mistakes

• Not filing LUT before exporting. If you export without LUT, you must pay IGST and then claim refund; missing the LUT deadline means you’ll have to pay tax upfront.
• Treating related-party transactions as exports. If you provide services to your own overseas branch, it is not an export but a “supplyâ€� under section 7(5). You must treat it as a zero-rated supply only if you meet the conditions; otherwise, you may have to pay GST on it.
• Receiving payment in INR from overseas. While the law allows receipt in convertible foreign exchange, receiving in INR from a foreign bank account may be acceptable, but it’s risky. Ensure the currency is convertible and keep proof.
• Ignoring ITC refund timelines. Refund applications must be filed within two years from the end of the quarter of export. Missing the deadline means losing the refund.
• Not updating LUT annually. LUT is valid for one financial year. Forgetting to renew it will force you to pay IGST on exports.

Tips

• Use LUT for cash flow. Always prefer LUT over paying IGST and refund, as it avoids blocking working capital.
• Keep a digital record of FIRC. Banks often provide FIRC in PDF format; store them systematically for each export invoice.
• Reconcile export data with GSTR-1. Ensure your export invoices appear in GSTR-1 and match your books. Mismatches can delay refunds.
• Consult a GST expert for related-party transactions. If you have an overseas subsidiary, the rules are complex; professional advice is worth the cost.

Troubleshooting

Refund application is rejected or pending. Check that you have filed all returns (GSTR-1, GSTR-3B) for the period. Ensure your LUT is valid. Provide all supporting documents – FIRC, invoices, and a reconciliation statement. If rejected, file a fresh application with corrections.

You forgot to file LUT. You can still export by paying IGST and then claim refund. The refund process is similar but requires filing RFD-01 with details of IGST paid. It’s slower but works.

Payment received in INR from overseas. If the payment is from a foreign bank account in INR, it may be considered convertible if it’s from a foreign source. To be safe, ask the customer to pay in a convertible currency. If you already received INR, keep proof of the foreign source and consult a professional.

GST department demands tax on export. If they claim your supply is not an export (e.g., because the recipient is in India), you need to prove the place of supply. Provide the contract, IP address of the customer, and any other evidence. If it’s a related-party issue, you may need to show that the services are actually consumed outside India.

Frequently Asked Questions

Q: Do I need to pay GST on SaaS exports?
A: No, if you meet the export conditions and file LUT, you can export without paying IGST. You can also pay IGST and claim refund, but LUT is better.

Q: What is a Letter of Undertaking (LUT)?
A: It’s a bond filed with the GST department that allows you to export without paying IGST. It’s valid for one financial year and must be renewed.

Q: Can I claim refund of ITC on inputs used for exports?
A: Yes, if you export under LUT, you can claim refund of unutilized ITC (input tax credit) on inputs and input services used for exports.

Q: What if I have a branch office overseas?
A: Services to your own branch are considered a supply under section 7(5) of IGST Act. You can treat it as zero-rated if you meet the conditions, but it’s not an export. You must document the value and may need to pay GST if not zero-rated.

Q: How long do I have to claim a refund?
A: You must file the refund application within two years from the end of the quarter in which the export took place.

Q: Do I need an Import Export Code (IEC)?
A: Yes, having an IEC is mandatory to claim export benefits and to file LUT. You can obtain it from the DGFT website.

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