LUT for export of services: how sole proprietors and OPCs invoice overseas clients without 18% IGST

The answer

Exports of services are zero-rated under Section 16 of the IGST Act. File a Letter of Undertaking on Form GST RFD-11 once each financial year, invoice your foreign client without IGST, and receive payment in convertible foreign exchange within the FEMA realization window. Your FIRA or FIRC is the proof the payment came in. The e-BRC is a separate DGFT document, needed mainly for DGFT-side claims.

Key takeaways

• LUT means invoice at 0% IGST with no cash blocked. Without one, you pay 18% IGST upfront and claim it back as a refund later.
• It is free, online, and valid for one financial year (April to March). Renew every year, ideally before your first export invoice.
•  Five conditions make it an export (Section 2(6) IGST Act). Miss one, especially payment in convertible foreign exchange, and it can be treated as a domestic supply.
• Under an LUT, if payment is not realised within the FEMA window from the invoice date, the IGST becomes payable with interest.
• FIRA and FIRC prove the money arrived. The e-BRC ties it to a specific export on DGFT. Most solo service exporters work day to day with FIRA or FIRC.
• Sole prop vs OPC changes the paperwork, not the rule. Both can file an LUT.

What an LUT actually is

In plain terms, an LUT is an annual promise to the GST department: “I will export these services without charging IGST, and if I do not meet the export conditions, I will pay the tax with interest.” It comes from Rule 96A of the CGST Rules.

It is not an exemption and it is not a loophole. The export is genuinely taxed at 0%; the LUT just removes the step where you pay 18% first and wait for a refund. Any GST-registered exporter can file one, except someone prosecuted for tax evasion above ₹2.5 crore under GST or the earlier laws. For a solo consultant, freelancer, or small firm this will almost never apply. The alternative for those who cannot file an LUT is a bond backed by a bank guarantee.

First, do you even need GST registration?

An LUT needs a GSTIN, so this comes first. Service exporters below the ₹20 lakh aggregate turnover threshold are generally not required to register, under Notification No. 10/2017 (Integrated Tax). Two situations push many small exporters to register anyway:

• You want to claim input tax credit on business expenses, or use the LUT route for clean export documentation.
• Reverse-charge GST on imported services. Paying for foreign software subscriptions used for your business (design tools, cloud compute, video conferencing) can create a GST liability under reverse charge, which can trigger mandatory registration regardless of turnover. Ask your CA whether this applies to you.

So “under ₹20 lakh means no GST” is not a safe blanket rule. Check your own situation.

The 5 conditions that make it an export of services

Section 2(6) of the IGST Act says a service counts as an export only if all five hold:

• You, the supplier, are located in India.
• Your client is located outside India.
• The place of supply is outside India. For most remote professional services to a foreign business, it is. Some service categories have special place-of-supply rules.
• You receive payment in convertible foreign exchange, or in Indian rupees where the RBI permits it.
• You and your client are not merely establishments of the same person; billing your own foreign branch does not count.

Condition four is where FIRA and FIRC come in. They are how you show it was met.

Sole proprietor vs OPC: what changes

The GST rule is identical. The paperwork differs.

The last two rows cause real trouble for OPC owners. If a client pays a personal account for an invoice raised by the company, the payment proof does not match the invoicing entity, which can put the zero-rating at risk.

The process, in numbered steps

What the Indian exporter does

1. Confirm GST registration. If registered, note the GSTIN. If not, decide with a CA whether to register (see the ₹20 lakh section above).
2. Log in at gst.gov.in and go to Services → User Services → Furnish Letter of Undertaking (LUT). Select the financial year being filed for.
3. Tick the declarations (that you will export within the time allowed, follow GST rules, and pay tax with interest if you do not). Add two independent witnesses: name, address, occupation.
4. Sign and submit with EVC or DSC. The acknowledgement generates an ARN (Application Reference Number). Save it; that ARN is the proof the LUT is accepted.
5. On every export invoice: no IGST, and add the endorsement “Supply meant for export under Letter of Undertaking without payment of integrated tax.” Report these invoices as exports without payment of tax in GSTR-1.
6. Track realisation. Each invoice must be paid within the FEMA window prescribed by RBI, measured from the invoice date. If payment slips past that window, the IGST becomes payable with 18% annual interest from the invoice date.
7. Renew the LUT at the start of each new financial year, before the first export invoice.

What the overseas client does

1. Receives the invoice without IGST and pays the face value in a freely convertible currency, or in INR through an RBI-permitted channel.
2. Includes the invoice number in the remittance memo so the exporter’s bank or platform can tag the payment to the right invoice, purpose code and FIRA.
3. Is not required to file any Indian form or handle GST or LUT paperwork. The compliance sits entirely on the Indian side.

Documents to keep, with the purpose code

For every export invoice, hold the following on file. The GST officer, your CA, or your AD bank may ask for them at refund, assessment or FEMA reconciliation.

• LUT acknowledgement (the ARN from RFD-11), valid for the financial year.
• Export invoice with the LUT endorsement, no IGST charged, and the foreign client’s legal name, address and country.
• Statement of Work or contract, showing scope, deliverables and payment terms.
• FIRA or FIRC, showing the RBI purpose code the bank recorded against the receipt.
• Bank statement or payment-platform statement showing the credit in foreign currency, and any fees separately.
• EDF reference from the monthly Export Declaration Form filing with the AD bank.

Purpose code

The RBI purpose code sits on the FIRA and classifies the receipt for FEMA reporting. Common codes for sole prop and OPC service exporters: P0802 (software consultancy and implementation), P0807 (off-site software product exports, including SaaS), P1006 (business and management consultancy), P1007 (advertising and marketing), P1005 (accounting and bookkeeping), P1015 (tax consulting), P1017 (publishing). Confirm the correct code with your bank or payment provider at onboarding, so every FIRA carries the classification that matches the invoice.

LUT vs no LUT: the cash-flow impact across invoice bands

At an illustrative rate of ~₹94 per USD, and ignoring platform and bank fees, the LUT saves cash on every invoice. The gap widens sharply as invoice size grows because the 18% IGST scales linearly with revenue.

What the bands show

• Route B is not illegal. The IGST refund exists for exactly this case. But for a solo business, ₹85,000 to ₹8.5 lakh parked with the government per invoice is a serious cash-flow hit, and it repeats on every export.
• The refund is available but takes weeks to months to arrive, during which the exporter is out of pocket.
• The LUT filing itself takes about ten minutes once a year and costs nothing.

The realisation window and what happens if the client pays late

Under the FEMA regulations, services exported from India must be realised within the window prescribed by RBI from the invoice date. A longer window applies where the invoice is raised or settled in Indian Rupees through an RBI-permitted channel. The exact period has been revised over time, so confirm the current window with your AD bank or your CA.

If payment is not received inside that window and you are on an LUT, the IGST on the invoice becomes payable with 18% annual interest, running from the invoice date. Late-paying clients are not only a cash-flow problem then, they are a GST problem. Two practical defences: keep a simple invoice-date to payment-date tracker, and request an extension from your AD bank in writing before the window closes, citing the reason.

Missed the LUT and already invoiced? CBIC Circular No. 37/11/2018-GST allows the delay in furnishing an LUT to be condoned where exports are established. Condonation is case-by-case, so speak to a CA rather than assuming it is automatic.

FIRA vs FIRC vs e-BRC: which document proves what

Three documents, three jobs. This is the part that confuses almost everyone.

Rule of thumb: for most solo service exporters, FIRA or FIRC is the everyday proof. The e-BRC matters when DGFT is involved, mainly for goods exporters and anyone claiming DGFT-linked benefits.

Common mistakes and myths

• “Freelancers and sole props cannot file an LUT.” They can, as long as they are GST-registered. The LUT is not reserved for companies.
• “I filed last year, so I am covered.” An LUT lasts one financial year. It lapses on 31 March.
• “The client paid in INR, but they are abroad, so it is still an export.” Not automatically. Condition four needs convertible foreign exchange, or INR only where the RBI permits it.
• “The platform took its cut, so my FIRA does not match the invoice.” Fees reduce what lands. Keep the invoice, the platform statement and the FIRA together, and ask your CA how to record the difference.
• “I am an intermediary, so I cannot zero-rate.” This changed. Section 13(8)(b) of the IGST Act was omitted, so intermediary services to foreign clients can now qualify as exports, subject to the usual conditions.
• Paying an OPC invoice into a personal account. The payment proof will not match the invoicing entity, and the zero-rating is at risk.