GST On Export Of Services — What Every Freelancer Working With Foreign Clients Must Know Okay So If

GST on Export of Services — What Every Freelancer Working With Foreign Clients Must Know

Okay so if you're a freelancer or consultant who works with clients outside India — someone who pays you in dollars or pounds or euros — then honestly this blog is just for you.

Because this is one area where even people who think they understand GST get completely confused. And the confusion is totally valid. The rules around export of services are a little different from regular GST and most people dont even know what applies to them and what doesnt.

So lets just go through it properly. With a real example because that always makes it easier.

Meet Arjun — A Freelance Web Developer Who Was Doing Everything Wrong

Arjun is a freelance web developer from Pune. He has a couple of Indian clients but most of his work comes from clients in USA and UK. They pay him in dollars directly to his bank account.

Last year his total income was around ?25 lakhs. Out of that about ?18 lakhs came from foreign clients.

He had registered for GST because his income had crossed ?20 lakhs. And since he didnt know any better he was charging 18% GST on his foreign client invoices also. Same as his Indian clients. And paying that GST to the government every single month.

When his CA finally looked at his returns properly he said — Arjun yaar tu bahut zyada tax de raha hai jo tujhe dena hi nahi tha.

And Arjun just stared at him for a few seconds.

So What is Actually the Rule Here?

Under GST, export of services is treated as what they call a zero rated supply.

Now this is where most people get confused. Because zero rated and exempt sound like the same thing but they are actually very very different.

Exempt means GST doesnt apply on your service — but you also cant claim back any GST you paid on your own business expenses. So you get nothing back.

Zero rated means the GST rate on your supply is zero — but you can still claim a refund of whatever GST you paid on your business expenses. So you're getting the benefit without the extra burden.

Big difference. And most freelancers dont know this.

For your services to qualify as export of services under GST these four things need to be true —

• You the service provider are sitting in India
• Your client receiving the service is outside India
• The payment is coming in foreign currency — dollars, pounds, euros etc
• The place of supply is outside India

If all four of these are ticking — your invoices to foreign clients are zero rated. No GST on them at all.

Okay So What Should Arjun Actually Do?

There are two ways to handle this and i'll explain both —

Option 1 — Export Under LUT

LUT is Letter of Undertaking. Sounds very official but honestly its just a simple form you fill on the GST portal at the start of every financial year. Takes maybe 10-15 minutes if you have all your details ready.

Once you file the LUT you can raise invoices to your foreign clients with zero GST. Clean invoice, no tax on it. And whatever GST you paid on your own expenses — laptop, software subscriptions, internet bills — you can apply for a refund of all of that from the government.

This is what most freelancers and exporters do. And honestly once its set up its very simple.

Option 2 — Export With Payment of IGST

This option is where you charge IGST on your export invoices, pay it to the government and then apply for a refund later.

The problem with this is you're basically giving the government your money upfront and then waiting and following up to get it back. Creates unnecessary cash flow issues. Most people just avoid this and go with the LUT route.

Arjun filed his LUT, stopped charging GST on his foreign invoices and applied for a refund of all the extra GST he had already paid. His CA sorted it out in a few weeks and Arjun got back a decent amount he had overpaid.

One More Thing — FIRC

Okay so this one a lot of freelancers genuinely dont know about.

Whenever you receive money from a foreign client your bank gives you something called a FIRC — Foreign Inward Remittance Certificate. Its basically just a document that proves you received money from outside India in foreign currency.

Keep every single one of these. Save them properly. Because whenever you apply for a GST refund on your export transactions or if there's ever any scrutiny — the department asks for these FIRCs as proof.

Arjun had never even heard of a FIRC before his CA mentioned it. Luckily he was able to get them from his bank retroactively but its always better to just save them as they come.

Bottom Line

If you're a freelancer getting paid in foreign currency here's all you really need to remember —

• Your services are export of services — GST rate on them is zero
• File a LUT every year on the GST portal — its free and very simple
• Stop charging GST to your foreign clients
• Claim back the GST you paid on your own business expenses
• Save all your FIRCs every time a foreign payment comes in

Thats it honestly. Once this is set up properly its very smooth. And you stop paying tax that you were never supposed to be paying in the first place.

Working with foreign clients and not sure if your GST is being handled correctly? Our team at [Firm Name] has helped a lot of freelancers sort exactly this out — just reach out and we'll make it simple for you.