🚢✈️ A clear guide for exporters under India’s GST regime

India’s Goods and Services Tax (GST) regime has significantly reshaped the landscape of indirect taxation. For exporters, the rules are notably favorable, aiming to make Indian goods and services more competitive in the global market. But understanding how GST applies—and doesn't apply—on exports is key to staying compliant and optimizing tax benefits.

Understanding Export Under GST

Exports, under GST, are classified into two types:

1. Export of Goods – Physical movement of goods from India to a place outside India.

2. Export of Services – Supply of services where the recipient is located outside India and consideration is received in convertible foreign exchange or in Indian rupees (where permitted by the RBI).

As per Section 2(5) and Section 2(6) of the IGST Act, these are considered inter-State supplies, and therefore governed by IGST (Integrated GST).

Are Exports Taxable Under GST?

Here’s the key point: Exports are treated as "zero-rated supplies."

This means:

• The export is taxable, but the tax rate is 0%, and

• The exporter is eligible for input tax credit (ITC) on the inputs used in the export.

Two Routes to Export Under GST

Exporters can choose one of the following two routes to export goods/services:

1. Export with Payment of IGST

Under this method:

• The exporter charges IGST on the invoice.

• The IGST is paid at the time of export.

• The exporter then claims a refund of the IGST paid.

🔹 Pros: Quicker refund process.
🔹 Cons: Cash flow gets blocked temporarily until refund is processed.

2. Export without Payment of IGST (Under Bond/LUT)

In this method:

• No IGST is charged on the invoice.

• A Letter of Undertaking (LUT) or Bond is submitted to the GST department.

• The exporter claims a refund of accumulated ITC.

🔹 Pros: No upfront tax payment, better for working capital.
🔹 Cons: Slightly longer refund process in some cases.

Conditions for LUT/Bond

• Only exporters not prosecuted for tax evasion exceeding ₹250 lakh in the last five years can file an LUT.

• Others need to furnish a Bond with bank guarantee or security.

The LUT must be renewed annually and filed in Form GST RFD-11 through the GST portal.

Input Tax Credit (ITC) on Exports

Exporters are entitled to claim ITC on:

• Goods or services used in the export process,

• Capital goods used in production or service delivery.

This ITC can be:

• Refunded under the LUT/Bond method, or

• Adjusted if IGST was paid on exports.

🚨 Note: If the ITC is used for any exempt or non-taxable supplies (except exports), the refund may be restricted proportionately.

What is Not Eligible?

• ITC on goods/services used for personal consumption.

• ITC on blocked credits under Section 17(5) of the CGST Act (e.g., motor vehicles, works contract services, etc.)

Refund Process Simplified

Here’s how the refund process works:

1. File GST returns (GSTR-1 and GSTR-3B).

2. File refund application in Form RFD-01 online.

3. Upload relevant supporting documents (e.g., shipping bills, BRC/FIRC, invoices).

4. Refund is generally processed within 60 days of application.

Common Mistakes to Avoid

• Delays in filing LUT or incorrect Bond details.

• Incorrect classification of services/goods.

• Errors in matching shipping bills with GSTR-1.

• Not maintaining export documentation properly.

Final Thoughts

India's GST framework encourages exports by making them tax-free at the point of supply while allowing refunds on input taxes. The dual approach—export with or without tax payment—offers flexibility to exporters. With proper planning, exporters can significantly optimize their working capital and compliance efficiency.

So whether you're shipping apparel to Europe or offering IT services to a client in the US, understanding these GST rules ensures you stay profitable and compliant.