Who this is for
- IT and software firms — development, support, SaaS and managed services billed to overseas customers.
- Consulting and professional practices with foreign clients.
- Captive and group service entities serving a foreign parent or affiliate.
- Agencies and support operations that were treated as intermediaries and paid 18% on foreign-exchange earnings.
The question everything turns on
A supply is an export only where all five of these hold. Fail one and the entire supply is domestic:
| # | Condition | Where it fails |
|---|---|---|
| 1 | Supplier located in India | Rarely an issue |
| 2 | Recipient located outside India | Where the contracting party is not who actually receives the service |
| 3 | Place of supply outside India | Specific rules that override the default — performance-based services, services on goods made available, events, immovable property |
| 4 | Payment in convertible foreign exchange | Documentation, or receipt that cannot be tied to specific invoices |
| 5 | Not two establishments of the same person | Branch and head office structures |
Conditions 3 and 5 are where genuine exports are lost. The fifth is the one people find least intuitive, because it does not depend on anything commercial: a subsidiary supplying its foreign parent is two persons and can export; a branch supplying its own head office is one person and cannot, whatever the invoice says. For a captive operation, that was decided when the entity was structured.
✅ What changed on 30 March 2026
The largest of the place-of-supply overrides has been removed. Section 13(8)(b) fixed the place of supply for intermediary services at the supplier’s location — India — so a firm arranging or facilitating business for an overseas principal was treated as making a domestic supply at 18%, on income earned entirely in foreign exchange.
It was omitted with effect from 30 March 2026. Place of supply now falls back to the recipient’s location, so those services can qualify as exports and be zero-rated.
Two things to be precise about. The change is prospective — it does not convert past supplies or, by itself, reopen closed periods. And zero-rating is not automatic: the other four conditions still have to be met. Earlier periods stand on the arguments that already existed, including the constitutional challenges to the provision, and those are worth examining separately where a demand is live or a period is still open. See the intermediary trap is gone.
The letter of undertaking
Two routes to zero-rate: export under a letter of undertaking without paying IGST, or pay IGST and reclaim it. The first is right in almost every case — the second locks up working capital for the length of the refund cycle for no benefit.
Firms end up on the paying route by accident rather than choice, because no valid undertaking was in place when the exports happened. The mechanics that matter:
- It is filed for a financial year.
- It must be in place before the exports it covers.
- It does not apply retrospectively. A gap between one year’s expiry and the next year’s filing is real exposure for exports made in that window.
Renewing at the start of each financial year is the cheapest control in this area, and forgetting it is among the most common and most avoidable errors.
Getting the credit back
Zero-rated is not exempt. Exempt supplies carry no credit; zero-rated supplies preserve it — which is what makes accumulated input credit refundable.
The claim is computed by formula, not by tracing invoices, and it returns less than the ledger balance: net input credit scaled by the ratio of zero-rated turnover to total turnover, so domestic revenue dilutes it. Claims are lost on three things, and rarely on entitlement:
- Foreign exchange receipt evidence. For goods, a shipping bill corroborates that the export happened. For services there is no equivalent — the bank realisation evidence does all of that work, so it has to be traceable invoice by invoice.
- Turnover figures that do not tie to the returns they are drawn from.
- Limitation. The oldest periods expire first and should be filed first — the opposite of the instinct to start with the best-documented recent period.
Firms now zero-rating after the intermediary change have credit accumulating on the new footing from 30 March 2026, which is claimable — see the refund file.
Beyond GST
A services practice has three other recurring questions:
- Presumptive or books. For a professional practice, declaring 50% of receipts is simpler but cheaper only where the real cost ratio is below 50% — and a practice that has taken on staff and premises is often still filing on the basis that suited it three years ago. See income tax and ITR filing.
- TDS on what you pay out. Classifying vendor payments between professional fees and contract work still decides the rate, and the exposure for getting it wrong sits with you as deductor, not the vendor — which is why vendors never raise it and it surfaces on assessment years later.
- ESOPs for your team. Taxed at exercise as salary and again at sale as capital gains, with a deferral available only to employees of eligible start-ups. Where the options are over a foreign parent’s stock, the Schedule FA disclosure carries the heavier risk.
What to send
- Contracts with overseas clients, identifying the recipient and what is actually being supplied
- A sample of export invoices and the letter of undertaking reference, if one is in force
- Bank realisation evidence for a recent period, so the invoice-level trace can be checked
- The group structure, where the client is a related entity — condition five will be asked about
- The credit ledger position, if a refund is in contemplation
The position is established against the contracts rather than against how the arrangement is described internally, and set down in writing before a return takes it. For the tax side of a securities portfolio rather than a services business, see capital gains and portfolio taxation.