GST on Import and Export of Services: A Detailed Overview

In today’s interconnected economy, services are traded across borders just as frequently as goods. This globalization of services has brought with it a number of tax challenges, particularly in the context of India’s Goods and Services Tax (GST) regime. Understanding how GST applies to the import and export of services under GST is essential for businesses operating across borders. This blog provides a detailed overview of the applicable provisions, compliance requirements, and strategic insights on set-off and carry forward of losses related to these transactions.

Understanding the Basics: What Qualifies as Export or Import of Services?

Under GST law, the place of supply and the location of the recipient are key in determining whether a service qualifies as an import or export.

• Import of Services occurs when the supplier is located outside India, but the recipient is in India and the service is used in India.

• Export of Services under GST refers to when the service provider is located in India, the recipient is located outside India, and the service is provided outside Indian territory.

For a transaction to qualify as an export of services under GST, it must fulfill five key conditions:

1. Supplier is located in India.

2. Recipient is located outside India.

3. The place of supply is outside India.

4. The payment is received in convertible foreign exchange or in Indian rupees as permitted by RBI.

5. The supplier and recipient are not merely establishments of the same person.

GST on Export of Services

The export of services under GST is treated as a zero-rated supply under Section 16 of the IGST Act. This means that while the services are taxable, the tax rate is 0%, allowing businesses to claim input tax credit (ITC) on inputs used to provide the service.

There are two main routes to export services:

1. Export under Bond/LUT without payment of IGST – In this method, the exporter furnishes a Letter of Undertaking (LUT) and can export services without charging GST. The exporter can then claim a refund of the unutilized ITC.

2. Export with payment of IGST – In this scenario, GST is charged on the export invoice, and the exporter can later claim a refund of the paid IGST.

This provision significantly benefits service providers dealing with international clients, as it ensures that the tax burden doesn’t hinder global competitiveness.

GST on Import of Services

When services are imported into India, the liability to pay GST falls on the recipient under the Reverse Charge Mechanism (RCM). Businesses receiving services from outside India are required to pay IGST on the taxable value of the imported service.

For example, if an Indian company hires a foreign consultant, the Indian company must pay GST under RCM even though the service provider is not located in India. This amount can be claimed as ITC, subject to eligibility, thereby ensuring tax neutrality.

Set-Off and Carry Forward of Losses

One of the lesser-discussed yet important areas of GST compliance is the set-off and carry forward of losses, especially related to the export of services under GST. Since exports are zero-rated, many exporters accumulate ITC which they are unable to utilize against output GST.

Set-Off Mechanism

The GST regime allows businesses to adjust ITC against their output tax liability in a hierarchical order:

• IGST credit → IGST liability

• IGST credit → CGST liability

• IGST credit → SGST liability (and vice versa, in that order)

For exporters of services, since there is usually no output GST liability (zero-rated), this ITC remains unutilized and can be claimed as a refund. This ensures working capital is not blocked due to accumulated credits.

Carry Forward of Losses

If refund claims are delayed or partly disallowed, these credits remain in the electronic credit ledger and can be carried forward to subsequent tax periods. Proper documentation and compliance are critical to ensure that these credits are not lost or questioned during audits.

Challenges in Compliance

Despite clear legal provisions, the export of services under GST often faces several compliance challenges:

• Delayed refunds: Exporters sometimes face delays in receiving refunds of accumulated ITC or IGST paid.

• Classification issues: Determining the place of supply or recipient location can be complex for services like software development or consulting.

• Documentation: Missing FIRC/BRC certificates or LUTs can lead to denial of benefits.

To mitigate these challenges, businesses must maintain robust documentation, reconcile invoices with shipping and payment documents, and file returns on time.

Key Documentation Required

To claim benefits on the export of services under GST, certain documentation is essential:

• Copy of LUT or Bond

• Export invoice with GSTIN

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

• Proof of service delivery outside India

• Relevant entries in GSTR-1 and GSTR-3B

Practical Tips for Exporters

1. Always file LUT in advance to avoid unnecessary tax liability.

2. Track all refunds proactively and respond promptly to GST notices.

3. Use automated reconciliation tools to match ITC and returns.

4. Consult a tax expert for determining place of supply in complex transactions.

Recent Updates and Clarifications

The government has issued several circulars to clarify grey areas in the export of services under GST, particularly regarding intermediary services and export to SEZ units. The recent push towards automation in refund processing has also helped ease delays, although manual verification still applies in many cases.

Conclusion

Understanding the GST implications on import and export of services under GST is essential for any business operating internationally. With zero-rated treatment for exports and reverse charge for imports, GST seeks to maintain neutrality in cross-border transactions. However, compliance demands careful attention to documentation, refund procedures, and the set-off and carry forward of ITC.

Whether you’re a startup offering digital services abroad or an established firm working with global clients, optimizing your GST strategy for imports and export of services under GST can improve your cash flow and reduce compliance risks. Stay updated, stay compliant—and make the most of the benefits the law offers.