India GST Export of Services: 5 Tests for Eligibility

India’s GST law zero-rates the export of services, meaning you can supply services to a foreign client without paying GST, and still claim refunds of input tax credits. But not every cross-border supply qualifies — the law applies five cumulative tests to decide eligibility. If you pass all five tests, your service is an export under GST; fail any one, and it is treated as a domestic supply or an inter-state supply, which changes your tax liability entirely.

What the Law Says

The core provision is Section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017. It defines “export of services” by laying down five conditions, all of which must be satisfied. The Central Board of Indirect Taxes and Customs (CBIC) also clarified the meaning of “place of supply” and “consideration in convertible foreign exchange” through notifications and circulars. Understanding these five tests is essential because a mistake here can lead to demand of tax, interest, and penalty, or a rejection of your refund claim.

The Five Tests Explained

Here are the five conditions, each explained with what it means in practice:

1. The supplier must be located in India. Your business must be established in India — having a place of business, registered office, or habitual residence here. This is usually straightforward for Indian companies and LLPs.
2. The recipient must be located outside India. The person who receives the service must be outside India. For an individual, it means they are not a resident of India; for a company, it means the place of business where the service is received is outside India. Merely having a foreign address is not enough — the actual place of consumption must be abroad.
3. The payment must be received in convertible foreign exchange. The consideration for the service must be received in a currency that is freely convertible, such as USD, EUR, GBP, or JPY. Payments in Indian rupees to a foreign buyer are not eligible, unless specifically permitted by the RBI. This test is strictly applied at the time of filing the refund claim.
4. The supplier and recipient must not be merely establishments of the same person. If you are supplying services to your own branch or office outside India, that does not count as an export. The supplier and recipient must be distinct persons. For example, an Indian software company providing services to its own US subsidiary is not an export — it is an inter-unit transfer. However, if you supply to a separate legal entity (even if it is your group company), it can qualify.
5. The place of supply must be outside India. Under the IGST Act, the place of supply for services is determined by rules — generally, for B2B services, it is the location of the recipient; for B2C, it is the location of the recipient if the recipient is outside India. If the place of supply is within India, the service is not an export even if the recipient is abroad.

How to Determine the Place of Supply

The place of supply (POS) is the trickiest test. For most services, the POS is the location of the recipient. But there are exceptions: for services related to immovable property, the POS is where the property is located; for restaurant and hotel services, it is where the service is performed; for transportation of goods, it is the destination. For online information and database access or retrieval (OIDAR) services, the POS is the location of the recipient. You must check the specific POS rules under Section 13 of the IGST Act to ensure your service falls outside India.

Common Mistakes and Misconceptions

One common mistake is assuming that receiving payment in foreign currency is enough. You also need the recipient to be outside India and the place of supply to be outside India. For example, if you provide consultancy to a foreign company but the service is used in India, the POS may be India, and it will not be an export. Another misconception is that you can receive payment in rupees from a foreign client and still claim export benefits — that is only allowed if the RBI has specifically permitted it, such as for certain SEZ units. Also, many businesses forget that the supplier and recipient must be distinct persons — supplying to your own foreign branch is not an export.

How to Claim Refund of Input Tax Credit

Once you have confirmed that your supply meets all five tests, you can claim a refund of unutilized input tax credit (ITC) on exports. The process is: file Form GSTR-1 for the outward supplies, GSTR-3B for the return, and then file Form RFD-01 on the GST portal. You must also submit a statement of zero-rated supplies and a declaration that you have not availed the option to pay tax on the export with payment of IGST (i.e., you are exporting without paying tax). The refund is generally processed within 60 days, but it can take longer if there are discrepancies.

Alternatives: Paying IGST on Exports

You have a choice: you can export services without paying IGST and claim a refund of ITC, or you can pay IGST on the export and then claim a refund of that IGST. The second option is often used when you have a large ITC balance and want to avoid blocking working capital. However, if you choose to pay IGST, you must ensure that you actually pay the tax and then file a refund claim. Most exporters prefer the zero-rated route because it avoids cash outflow.

Frequently Asked Questions

Do I need to register under GST to export services?

Yes, you must be a registered taxpayer to export services and claim refunds. Even if your turnover is below the threshold, you need to register to claim the benefit of zero-rating.

What if I receive payment in Indian rupees from a foreign client?

Generally, you must receive payment in convertible foreign exchange. However, the RBI has allowed receipt in rupees for certain cases, such as when the buyer is a foreign entity and the payment is made through a special account. You should check the current RBI regulations.

Can I export services to my own foreign subsidiary?

No, because the supplier and recipient are not distinct persons. The service is treated as a supply between related parties, and it may not qualify as an export unless the subsidiary is a separate legal entity and the place of supply is outside India.

What is the time limit for claiming a refund?

You must file the refund claim within two years from the end of the financial year in which the export took place. For example, for exports in FY 2024-25, the deadline is March 31, 2027.

Is software development for a foreign client always an export?

Not always. If the software is customized and the place of supply is determined by the recipient’s location, it is likely an export. But if the software is used in India or the recipient is in India, it is not.

What happens if I fail one of the five tests?

If you fail any test, the supply is not an export. It will be treated as an inter-state supply (if the place of supply is outside India but other conditions fail) or an intra-state supply (if the place of supply is in India). You will need to pay GST accordingly, and you cannot claim the refund benefits.

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