🎯 GST for Service Exports With Non-Payment in Foreign Currency

Understanding Tax Implications When You Export Services Without Receiving Foreign Exchange

🌐 Introduction

In India, services provided to clients outside the country often qualify as exports of services and enjoy GST exemptions or zero-rated status. But what happens when payment is not received in foreign currency?

This is where confusion arises — especially for freelancers, consultants, and IT service providers who may receive payments in INR through PayPal, Wise, or other means.

Let’s break it down.

📌 Definition of Export of Services (As Per GST Law)

As per Section 2(6) of IGST Act, a service is considered an export only if the following 5 conditions are met:

1. The supplier is located in India

2. The recipient is located outside India

3. The place of supply is outside India

4. Payment for such service is received in convertible foreign exchange (or in INR if allowed by RBI)

5. Supplier and recipient are not merely establishments of the same entity

✅ All five conditions must be satisfied to treat a service as an “export.”

💡 Issue: What if You Don’t Receive Payment in Foreign Currency?

Many Indian freelancers and businesses:

• Offer services to clients abroad

• But receive payments in INR, either via Indian platforms or PayPal auto-conversion.

In such cases:

• Condition 4 fails — no convertible foreign exchange is received.

So, the service is NOT treated as export and:

• Will not be zero-rated

• Will be treated as domestic/interstate supply

• GST is payable unless specifically exempt

⚠️ Common Examples

🧾 Documentation Required for Export of Services

Even if foreign exchange is received, businesses must maintain:

• Invoice with foreign client’s details

• FIRC (Foreign Inward Remittance Certificate) or Bank Realization Certificate (BRC)

• Agreement/contract with the overseas client

• Shipping bill (in case of software exports)

📤 GST Filing and Refund

If services qualify as export:

• File LUT (Letter of Undertaking) on GST Portal to export without payment of tax

• Claim refund of unutilized ITC (Input Tax Credit)

If services don’t qualify as export:

• Charge IGST @ 18%

• File GST returns as regular domestic supply

🔁 Can INR Payments Still Be Considered Exports?

Yes — only if allowed by RBI. For example:

• Export of services to Nepal or Bhutan where payment is legally allowed in INR.

• If RBI explicitly permits INR for specific export transactions.

📌 Key Takeaways

• Export of services is zero-rated only if paid in convertible foreign exchange or RBI-approved INR

• INR payments via Indian platforms disqualify the transaction as export

• GST becomes applicable @ 18% if export conditions are not fulfilled

• Always keep proper documentation like FIRC, contracts, etc.

✅ Pro Tips for Freelancers & Service Providers

• Open Export-oriented PayPal/Payoneer accounts to ensure foreign currency receipt

• File LUT annually to export services without paying GST upfront

• Maintain clean invoice trail and communication with foreign clients

• Keep bank certificates to prove foreign inward remittance

🎯 Conclusion

GST on service exports in India is a beneficial regime — but only when done correctly. If you’re not receiving payment in foreign currency or RBI-permitted INR, your services may not be considered exports, and GST will apply.

Be sure to consult with a tax expert, maintain records, and structure your payments accordingly to maximize benefits and stay compliant.