Exporting services from India in 2026 is zero-rated only if five strict GST conditions are met. Learn the LUT, FIRC, and place of supply rules before you bill abroad.
Indian freelancers, SaaS founders, and consulting firms billing foreign clients in 2026 often assume that dollar invoices are GST-free by default. They are not. The Finance Act 2026 has retained the rigorous five-condition test for export of services under Section 2(6) of the IGST Act, and the CBIC has stepped up data-matching with FIRC remittances, AD bank reports, and ICEGATE feeds. Get one condition wrong and your zero-rated supply silently becomes an 18 percent taxable supply with interest and penalty.
When a Service Actually Qualifies as Export
Under Section 2(6) of the IGST Act, a service is an export only when all five conditions are satisfied — and the test is cumulative, not alternative.
- The supplier of service is located in India
- The recipient is located outside India
- The place of supply is outside India under Section 13 of the IGST Act
- Payment is received in convertible foreign exchange or in INR where permitted by the RBI
- The supplier and recipient are not merely establishments of a distinct person
The Most Common Traps in 2026
- Receiving payment via PayPal or Stripe in an Indian INR wallet without obtaining an FIRC — RBI now requires e-FIRC for every export remittance
- Operating as an Indian branch of a foreign parent and treating intra-group billing as export — disqualified under the distinct-person rule
- Place of supply traps: services relating to immovable property in India, performance-based services rendered in India, and online information database access services have special rules
- Filing LUT in Form RFD-11 late or letting it lapse on 1 April, leading to IGST being chargeable on every invoice
LUT vs IGST Refund Route
Exporters can either supply under a Letter of Undertaking without paying IGST or pay IGST upfront and claim a refund. The LUT route is now the default for established service exporters because the refund route involves Form RFD-01, additional bank account validation through PFMS, and longer cycles. A fresh LUT must be filed at the start of every financial year — including FY 2026-27 — through the GST portal.
What Happens If You Get It Wrong
If the CBIC reclassifies your invoice as a taxable intra-state supply, you owe CGST and SGST at 9 percent each, plus 18 percent annual interest under Section 50 and a penalty of up to 10 percent of the tax under Section 73 or 100 percent under Section 74 for suppression. With aggregator portals reporting cross-border collections to GSTN, mismatched data triggers automated ASMT-10 notices.
Conclusion
Treat the export-of-services test with the seriousness it deserves. File your LUT on day one of the financial year, secure e-FIRCs for every remittance, and document the place of supply analysis in writing. A small upfront discipline keeps your zero-rated status intact and saves you from a six-figure GST liability later.
