GST and International Trade

GST and International Trade in India: A Practical Guide for FY 2026-27

Under India's GST framework, exports are zero-rated — meaning you owe no GST on outbound supplies and can recover all input-side GST either as a refund or through exemption under an LUT. Imports attract IGST (creditable as ITC) plus customs duty (not creditable). Getting this right in FY 2026-27 means filing Form RFD-11 before your first shipment, aligning GSTR-1, GSTR-3B and ICEGATE data monthly, and actively working the DGFT incentive stack alongside your GST compliance rhythm. Every section below gives you a procedure you can act on today.

What "Zero-Rated" Actually Means — and What It Does Not

Under Section 16 of the IGST Act, 2017, a zero-rated supply is one on which the effective GST rate is zero and the supplier retains the full right to claim input tax credit (ITC). This is categorically different from an exempt supply, where ITC is blocked under Section 17(2) of the CGST Act.

Zero-rated status applies to:

• Export of goods from India
• Export of services from India
• Supply to a Special Economic Zone (SEZ) unit or developer

The practical consequence: you collect no GST from your foreign buyer or SEZ customer, yet you recover all the GST embedded in your raw materials, logistics, packaging, and professional services. That recovered GST becomes working capital — provided you claim it correctly and on time.

The two routes to achieving this outcome are the LUT route (refund of unutilised ITC) and the IGST-payment route (pay IGST on the export invoice, then claim a full refund). Choosing the wrong one for your profile costs you cash unnecessarily.

The LUT Route vs. the IGST-Payment Route: Choosing for Your Business

LUT route: You export without charging IGST. At the end of each refund period — typically monthly — you claim unutilised ITC via Form RFD-01. No IGST outlay ever occurs. Cash-flow efficient for businesses with significant input-side credits.

IGST-payment route: You charge the applicable IGST rate (e.g., 18%) on your export invoice, remit it through GSTR-3B, and then claim the full amount back. The refund is largely auto-processed through the ICEGATE–GSTN integration and typically credited within 7–10 working days for goods exports.

Decision framework:

• High ITC accumulation (manufacturing or tech services with large vendor costs) → LUT route, claim ITC refund
• Minimal ITC but regular high-value goods exports → IGST-payment route, auto-processed refund is faster and predictable
• Mixed domestic and export portfolio with balanced ITC → LUT route to eliminate IGST cash outlay entirely

Filing Form RFD-11 (LUT): Step by Step

File a fresh LUT at the beginning of each financial year. For FY 2026-27, file from 1 April 2026 before your first export shipment. The portal does not allow backdating.

1. Log in to the GST portal (gst.gov.in) → Services → User Services → Furnish Letter of Undertaking (LUT)
2. Select Financial Year: 2026-27
3. Complete the declaration: confirm you are not a prosecuted exporter, verify GSTIN and authorised signatory details
4. Upload a supporting document if prompted (this is rare for exporters with an established track record)
5. Submit with DSC (Digital Signature Certificate) or EVC (Electronic Verification Code)
6. Download the system-generated acknowledgement — the LUT reference number must be quoted on every export invoice for the year

Critical: If goods are shipped before the LUT is filed, IGST is legally due on that shipment. Retroactive LUT filing does not cure the liability. Missing April 1 is an entirely avoidable cost.

Exporting Goods: The Document Chain That Drives Refunds

A GST refund on goods exports is only as strong as the data trail connecting your GSTR-1 to the customs system (ICEGATE). Four documents must align perfectly in value, HSN code, and entity identifiers:

1. Export invoice — HSN code at 8 digits, GSTIN, LUT reference, foreign currency amount and INR equivalent, consignee details
2. Shipping bill (filed on ICEGATE) — must carry the identical GSTIN and invoice number as your GST invoice
3. GSTR-1, Table 6A — each export invoice reported with shipping bill number, port code, and date; ICEGATE and GSTN auto-match these fields nightly
4. FIRC or Bank Realisation Certificate (BRC) — documentary proof of foreign exchange receipt from your Authorised Dealer bank; essential for ITC refund claims and for treating the supply as a completed export under FEMA

Where exporters lose refunds: The most frequent ICEGATE–GSTN mismatch is invoice value in INR. Your accounting system may book the export at the invoice date exchange rate; your clearing agent may file the shipping bill using a different RBI reference rate. Even a Rs. 1,000 discrepancy on a Rs. 50 lakh shipment suspends the auto-match and holds the entire refund. Standardise on the RBI reference rate on the invoice date across all documents.

File Form RFD-01 within two years of the relevant date (which for goods is the date shown on the shipping bill). File monthly — do not allow multiple months of ITC to pile up in unclaimed status.

Exporting Services: Five Conditions That Must All Be Met

Export of services is zero-rated under Section 2(6) of the IGST Act, but only when all five of the following conditions are simultaneously satisfied:

1. The supplier is located in India
2. The recipient is located outside India
3. The place of supply is outside India (determined under Section 13 of the IGST Act)
4. Payment is received in convertible foreign exchange — or in INR where the RBI specifically permits, such as trade with Nepal or Bhutan
5. The supplier and recipient are not merely establishments of a distinct person under Explanation 1 to Section 8 of the IGST Act

Condition 5 is the one that most reliably trips up multinational groups. A Bengaluru entity billing its Singapore holding company does not qualify as export of services if both entities are treated as establishments of the same legal person. In that scenario, GST applies as if it were a domestic supply, at the full applicable rate.

Documentation checklist for service exports:

• Service agreement or statement of work in foreign currency
• Tax invoices denominated in foreign currency, with "Exported under LUT — IGST: Nil" noted where applicable
• FIRC for each receipt of foreign exchange, obtained from your Authorised Dealer bank
• SOFTEX form filed with RBI via STPI, SEZ authority, or AD bank — mandatory for IT and IT-enabled services above the prescribed threshold
• Bank account statement confirming FX conversion

Importing Goods and Services: IGST, Customs Duty, and Your ITC

Goods Imports

At the border, your total tax outlay on an import consists of several layers:

• Basic Customs Duty (BCD) — rate varies by 8-digit HSN, as notified in the Customs Tariff; not creditable as ITC
• Social Welfare Surcharge (SWS) — 10% calculated on BCD; not creditable
• IGST — charged on the assessable value inclusive of BCD; fully creditable as ITC in your GSTR-3B
• Other cesses (Health and Education Cess, Agriculture Infrastructure and Development Cess, etc.) — mostly not creditable; verify per notification

The creditable slice — only IGST — appears in your GSTR-2B auto-populated from ICEGATE Bills of Entry. BCD, SWS and cesses are sunk costs and must be factored into your landed-cost model, not your ITC projection.

Non-negotiable hygiene: Ensure the GSTIN on the Bill of Entry matches your registered GST entity exactly. A mismatch between the importer GSTIN and the entity claiming ITC permanently forfeits that credit, with no rectification mechanism available post-year.

Reverse Charge on Imported Services

Under Section 5(3) of the IGST Act, when you receive services from a supplier located outside India, you pay IGST under the reverse charge mechanism (RCM). The liability sits entirely with the Indian recipient.

Key rules:

• RCM IGST must be paid in cash from your electronic cash ledger — you cannot offset it using existing ITC balance
• Once paid, the same amount becomes available as ITC in the following month's GSTR-3B (subject to standard Section 16 conditions)
• No tax invoice comes from the foreign vendor; you must issue a self-invoice by the end of the month in which the service was received
• Report under GSTR-3B Table 3.1(d) and claim the corresponding ITC in Table 4

The equalisation levy (on specified digital purchases from non-resident platforms) is a separate statute, not a GST levy, and does not generate ITC — but it frequently appears on the same foreign vendor invoice as the service covered by RCM. Keep the two obligations distinct in your accounts payable workflow.

DGFT Schemes in FY 2026-27: Turning Compliance into Recoverable Cash

GST zero-rating recovers your domestic input taxes. DGFT schemes address the duties and levies that live outside the GST chain — fuel surcharges, electricity duty, mandi cess, state VAT on unrebated residual inputs. Together they can materially reduce your effective cost of exporting.

RoDTEP (Remission of Duties and Taxes on Exported Products)

RoDTEP reimburses taxes embedded in the export supply chain that cannot be offset through GST or CENVAT. Benefits are issued as transferable electronic scrips credited to your ICEGATE account and usable for payment of customs duty on future imports (or sold to another importer).

The benefit is product-specific, declared at the time of shipping bill filing. No separate DGFT application is required. Check the current RoDTEP rate schedule (as notified by the Ministry of Commerce) against your 8-digit HSN before each shipment — rates are updated periodically, and shipping on an outdated assumption costs you the delta.

Advance Authorisation

Advance Authorisation allows duty-free import of inputs in the proportion required to manufacture and export a specified product. GST on such imports is also exempt as per relevant IGST notifications. The scheme suits manufacturers with stable input–output ratios.

Discipline required: fulfil your export obligation within the stipulated period (typically 18 months from issuance, extendable with fees) and obtain your Export Obligation Discharge Certificate (EODC). Failure triggers a customs duty demand on all imports made under the authorisation, plus interest and penalty — an amount that can easily exceed the original duty saving several times over.

EPCG (Export Promotion Capital Goods)

EPCG permits import of capital goods at zero BCD against an export obligation of six times the duty saved, to be fulfilled within six years. IGST on the import is still payable but creditable.

Evaluate EPCG whenever you are planning capital investment for an export-facing manufacturing line. The duty saved on a Rs. 5 crore machinery import at, say, 7.5% BCD = Rs. 37.5 lakh — significant seed capital for the next investment cycle, with a six-year horizon to meet the export commitment.

RoSCTL for Apparel and Made-Ups

RoSCTL reimburses state and central levies embedded in garment and made-up exports — a sector where input-side levies are not fully captured by RoDTEP. Scrips are transferable and usable for customs duty payment. If you operate in apparel, verify both RoDTEP and RoSCTL eligibility per shipment; they cover different levy components and may both apply.

SEZ Supplies and EOU Treatment

Supplies to an SEZ unit or developer are zero-rated under Section 16(1)(b) of the IGST Act — exactly the same treatment as an export. You either supply under LUT (no IGST, claim ITC refund via RFD-01) or pay IGST on the supply and claim it back.

Supplies by an SEZ unit to the Domestic Tariff Area (DTA) are treated as imports by the DTA buyer: the DTA entity pays customs duty and IGST on the goods entering India from the SEZ. SEZ units largely operate outside the GST territory for their authorised operations.

100% Export Oriented Units (EOUs) are a distinct category. EOUs sit inside the customs territory but are granted deemed-export status for certain domestic procurements. When a domestic supplier sells to an EOU, that supplier can claim refund or rebate under the deemed-export scheme — the EOU itself does not pay customs duty on eligible procurement but standard GST compliance (registration, returns) still applies.

FTA and Preferential Origin: The Emerging Competitive Edge

India's FTA network in 2026 includes the UAE CEPA (operative since 2022), Australia ECTA/CECA, and the EFTA TEPA (signed 2024). UK FTA negotiations are ongoing; EU discussions continue. Each agreement reduces or eliminates tariffs in the partner country on eligible Indian exports.

The compliance chain for claiming FTA benefits:

1. Classify your goods at the 8-digit HS code level
2. Identify the applicable rule of origin under the specific agreement (wholly obtained, substantial transformation, value-addition threshold — these differ materially between agreements)
3. Obtain a Certificate of Origin (CoO) from the designated issuing agency (DGFT, Export Promotion Council, or approved chamber) per shipment — not per contract
4. Maintain your Bill of Materials, production records and third-party supplier declarations for at least three to five years — partner-country customs authorities conduct retroactive origin audits

The downside of corner-cutting: If a UAE or Australian customs authority retrospectively finds that preferential origin certificates were issued without genuine compliance with rules of origin, the foreign buyer faces a duty demand. Under most export contracts, that creates a direct contractual liability back to you as the Indian supplier. FTA utilisation is a strategic compliance programme, not an opportunistic tickbox.

Worked Example: Refund Maths for a Mid-Size IT Services Exporter

Scenario: A Bengaluru-based software firm (Karnataka GSTIN) for Q1 FY 2026-27 (April–June 2026):

Under LUT route:

• No IGST charged on export invoices
• ITC available: Rs. 14,50,000
• Less ITC applied against domestic output liability: Rs. 3,20,000
• Unutilised ITC eligible for refund via RFD-01: Rs. 11,30,000
• Refund sanctioned within 60 days of RFD-01 acknowledgement; at 6% p.a. interest if GSTT authority delays beyond that

Under IGST-payment route (alternative):

• IGST of Rs. 32,40,000 paid in cash with GSTR-3B
• Refund auto-processed via ICEGATE–GSTN integration: Rs. 32,40,000 typically credited within 7–10 working days
• Domestic ITC of Rs. 14,50,000 less domestic liability Rs. 3,20,000 = Rs. 11,30,000 carried forward

Verdict: The IGST route returns a larger cash amount faster but requires upfront deployment of Rs. 32,40,000 every quarter. For a company with tight working capital, the LUT route eliminates the outlay and converts the cash saved into operational runway — though the refund quantum (Rs. 11,30,000) is smaller because only unutilised ITC, not the full notional IGST, is returnable.

Common Mistakes That Block Refunds and Attract Scrutiny

1. LUT not filed before the first April shipment Outcome: IGST mandatory on every shipment until LUT is filed; no retroactive cure.

2. INR value mismatch between shipping bill and GSTR-1 Table 6A Outcome: ICEGATE–GSTN auto-match fails; refund held for manual adjudication. Resolution typically takes 3–6 months and requires a formal rectification request.

3. BRC not obtained from the bank within FEMA timelines Outcome: Export cannot be treated as complete; ITC refund or IGST refund denied or recovered.

4. RCM on imported services neither paid nor credited Outcome: Tax demand, interest and 100% penalty on the RCM liability; ITC permanently lost if the two-year claim window closes.

5. HSN code inconsistency across GST returns, shipping bill and DGFT application Outcome: Flags in scrutiny, GST audit and DGFT scheme verification; EODC filing complications. Use the identical 8-digit code across every document touching the same product.

6. Treating intra-group cross-border services as zero-rated exports Outcome: If supplier and recipient are establishments of a distinct person, the supply is domestic. Demand raised at full rate plus interest from the invoice date.

7. Not reconciling GSTR-2B import credits with Bills of Entry monthly Outcome: ITC on imports overstated or missed; GSTR-9 reconciliation reveals discrepancies that invite desk scrutiny and assessment notices.

Compliance Calendar: FY 2026-27

Key Takeaways

• Zero-rated is not the same as exempt. Zero-rated preserves your ITC; exempt kills it. Every export transaction should be reported as zero-rated — never as exempt — in your GSTR-1.
• File your LUT on 1 April every year before any shipment departs. This is the single highest-return 10-minute compliance task of the financial year.
• The ICEGATE–GSTN data match is the refund gatekeeper. Mismatches between the shipping bill value and GSTR-1 Table 6A are the leading cause of refund delays; reconcile every month, not at year-end.
• RCM on imported services is a cash-timing issue, not a tax cost — provided you self-invoice in the month of receipt, pay in cash via GSTR-3B, and claim the credit the next month.
• DGFT schemes (RoDTEP, Advance Authorisation, EPCG, RoSCTL) are additive to GST zero-rating. They cover duties and levies outside the GST net. Treat DGFT utilisation as a quarterly financial exercise, not an afterthought.
• FTA preferential-origin benefits require a genuine document trail. A retroactive origin challenge by a partner-country customs authority converts your buyer's duty demand into your contractual liability.
• Build the monthly rhythm and protect it: GSTR-1 filing → GSTR-3B payment → RFD-01 refund application → ICEGATE reconciliation → BRC follow-up. Exporters who run this cycle without interruption accumulate fewer stuck refunds, cleaner audit positions, and meaningfully better working capital throughout the year.