29 May 2026If your business exports services from India — IT, consulting, legal, accounting, design, engineering — you are making a zero-rated supply under the GST framework. That means you should not be bearing any GST cost at all. Yet a large number of service exporters are either unaware of their refund entitlement or have filed claims that were rejected on procedural grounds.
At Regi Tom Antony And Associates, we handle GST refund claims for service exporters regularly. The rules are clear; the execution is where most businesses go wrong. This guide will walk you through the entire framework so you can claim what you are owed.
The Legal Framework: Zero-Rated Supply Under the IGST Act
Export of services is a zero-rated supply under Section 16 of the Integrated Goods and Services Tax Act, 2017. The term "export of services" is defined under Section 2(6) of the IGST Act and requires satisfaction of five conditions simultaneously:
- The supplier of service is located in India
- The recipient of service is located outside India
- The place of supply of the service is outside India
- The payment for service has been received in convertible foreign exchange (or Indian rupees wherever permitted by RBI)
- The supplier and recipient are not merely establishments of a distinct person
All five conditions must be met. If your transaction fails any one of these — for example, if payment is received in Indian rupees from a foreign entity without RBI permission — it may not qualify as export of services, and your refund claim can be rejected.
Two Routes for Claiming GST Refund on Export of Services
Under Section 16(3) of the IGST Act, an exporter has two options:
Route 1 — Export Under LUT/Bond (Without Payment of IGST): You execute a Letter of Undertaking (LUT) under Rule 96A of the CGST Rules before each financial year. You then export services without collecting or paying IGST. You can subsequently claim a refund of the accumulated Input Tax Credit (ITC) sitting in your electronic credit ledger that has not been utilised due to the zero-rated outward supplies. This refund is claimed under Rule 89 of the CGST Rules.
Route 2 — Export With Payment of IGST: You pay IGST on the export invoice and then claim a refund of that IGST paid. This route is less commonly used for services because it creates a cash flow burden, but it is available and refund can be claimed under Rule 96 of the CGST Rules.
For most service exporters, Route 1 (LUT + accumulated ITC refund) is the preferred approach since it avoids the need to pay and recover tax.
Who Is Eligible — and Common Disqualifiers
Eligibility for the LUT route requires that the exporter has not been prosecuted for tax evasion exceeding ₹2.5 crore. Any registered person can file for a LUT; it is a straightforward online process on the GST portal under the User Services section.
Common reasons why refund claims are rejected or held up:
- Foreign exchange not received within the prescribed time: FEMA requires that export proceeds be realised within 9 months. GST officers cross-check this. If your BRC (Bank Realisation Certificate) or FIRC (Foreign Inward Remittance Certificate) does not match the invoice timeline, expect scrutiny.
- Mismatch between GSTR-1 and GSTR-3B: The zero-rated turnover declared in GSTR-1 must match what is shown in Table 3.1(b) of GSTR-3B. Any variance creates a flag.
- ITC reversal not properly accounted: If you have any exempt supplies mixed with zero-rated supplies, the proportionate ITC reversal under Rule 42/43 must be done before computing the refund. Skipping this is the single most common reason for partial rejection.
- Blocked credits included in claim: ITC on items falling under Section 17(5) of the CGST Act — such as motor vehicles, food and beverages, club memberships — is blocked. Including these in your refund claim will get those credits denied.
- Incorrect categorisation of place of supply: For intermediary services, the place of supply under Section 13(8) of the IGST Act is the location of the supplier in India — meaning the supply is not technically an export. This has been a major litigation point and remains contentious. If your service has any intermediary character, take CA advice before claiming.
The RFD-01 Process Step by Step
All GST refund applications are filed through Form RFD-01 on the GST portal. Here is the process for accumulated ITC refund (Route 1):
Step 1 — Confirm Your LUT is Active: Log in to GST portal → Services → User Services → Furnish Letter of Undertaking (LUT). Ensure the LUT for the current financial year is filed and accepted before you begin exporting.
Step 2 — Compute the Refund Amount: The refund of accumulated ITC is calculated using the formula prescribed in Rule 89(4) of the CGST Rules:
Refund Amount = (Turnover of Zero-Rated Supply / Adjusted Total Turnover) × Net ITC
Net ITC is the ITC availed during the relevant period minus ITC reversed. Adjusted Total Turnover excludes exempt supplies (not zero-rated) and supplies where no ITC is available. This formula requires careful computation; errors here directly reduce your refund or lead to recovery notices later.
Step 3 — Ensure GSTR-1 and GSTR-3B Are Filed: RFD-01 can only be filed for completed return periods. Both GSTR-1 and GSTR-3B for the refund period must be filed. The system cross-validates the zero-rated turnover against your returns.
Step 4 — File RFD-01: Log in → Refunds → Application for Refund → Select "Refund of ITC on account of Export of Services without payment of Tax" → Select tax period → The portal auto-populates certain fields from your returns → Upload supporting documents.
Step 5 — Upload Supporting Documents: You must upload:
- Copy of invoices for export of services in the refund period
- BRC/FIRC for foreign exchange received (or CA certificate for INR receipts where RBI permitted)
- LUT copy
- Statement of export invoices (Annexure-B, auto-generated)
- Computation of refund amount with workings
- CA certificate certifying the computation (required for claims above ₹2 lakh per Rule 89(2)(l))
Step 6 — Track the Application: After filing, the application goes to the refund processing officer. Acknowledgement in RFD-02 is issued within 15 days. A deficiency memo (RFD-03) may be issued if documents are incomplete. Provisional refund of 90% (RFD-04) is typically issued within 7 days of acknowledgement. Final order (RFD-06) follows after verification.
Timelines and Interest on Delayed Refunds
Under Section 54 of the CGST Act, refund applications must be filed within 2 years from the relevant date. For export of services, the relevant date is the date of receipt of foreign exchange. Do not let claims lapse — many exporters lose significant amounts simply because they file after the 2-year window.
If the GST department does not issue your refund within 60 days of the refund application date, you are entitled to interest at 6% per annum under Section 56 of the CGST Act from the date immediately after the expiry of 60 days until the date of refund. In practice, claiming interest requires a separate communication and sometimes a formal demand — but you are legally entitled to it.
Special Situations That Need CA Guidance
OIDAR Services: Online Information Database Access and Retrieval (OIDAR) services to non-taxable online recipients in India are taxable. If you are also providing OIDAR services to business recipients outside India, the zero-rating treatment may still apply but needs careful classification.
Related Party Transactions: Where the exporter and foreign recipient are related parties (same group, holding-subsidiary), transfer pricing considerations overlap with the GST place of supply rules. The consideration declared on the invoice may be questioned. Ensure the transaction is on arm's length terms and document it properly.
Mixed Supplier — Both Domestic and Export: If you have a mix of domestic GST-taxable supplies and zero-rated export supplies, the ITC must be apportioned. Only the ITC attributable to zero-rated supplies is refundable under the formula. The balance is available for offset against your domestic tax liability.
Pending GSTR-9 and GSTR-9C: Delays in filing annual returns can sometimes create issues with refund claims if the refund period overlaps with an unclosed financial year. Keep your compliance current.
Practical Tips to Avoid Rejection
- Always file LUT before the financial year begins — not after the first export invoice
- Maintain a running reconciliation between your export invoices, GSTR-1 filings, and BRCs received
- Do not include IGST on export invoices if you are on the LUT route — this is a common mistake when raising invoices from accounting software with default settings
- Get a CA computation signed before filing for amounts above ₹2 lakh — the officer will look for this
- If you receive a deficiency memo (RFD-03), respond within the time given. The application is not automatically cancelled but failure to respond will stall your refund indefinitely
- Document the "place of supply" determination in your internal records, especially for consulting, legal, and management services where the rules can be ambiguous
Frequently Asked Questions
Q: My client is a foreign company but payment came in INR from their Indian subsidiary. Is this still an export?
A: Possibly not. The payment must be received from the foreign entity in convertible foreign exchange, or in INR where RBI has specifically permitted it (for example, under a bilateral arrangement or a specific notification). Payment from an Indian subsidiary of a foreign group would typically make the transaction a domestic supply, not an export. This needs careful examination before you claim.
Q: Can I claim a refund for accumulated ITC that has been sitting for multiple years?
A: Yes, but subject to the 2-year limitation period from the relevant date (date of receipt of foreign exchange per invoice). Each invoice's relevant date is tracked separately. Very old ITC cannot be refunded if the 2-year window for the corresponding export has closed.
Q: We are a startup — do we need to file GSTR-9 before claiming a refund?
A: GSTR-9 annual return is required for businesses with turnover exceeding ₹2 crore. For startups below this threshold, GSTR-9 is optional but GSTR-1 and GSTR-3B must be filed for the refund period. Keep your monthly/quarterly return compliance clean — the GST portal auto-validates against your return data when you submit RFD-01.
Q: How long does the refund typically take in practice?
A: In our experience handling these matters for clients, straightforward claims with clean documentation are typically resolved in 30–45 days from filing. Claims with FIRC gaps, mixed supply apportionment issues, or large amounts involving manual scrutiny can take 3–6 months. Having a CA manage the process and respond promptly to queries significantly reduces delays.
Q: We forgot to file LUT before exporting this year. Can we pay IGST now and claim refund instead?
A: If you exported without collecting IGST and without filing LUT, you are in a technically non-compliant position. The practical remedy in many cases has been to obtain a LUT retrospectively (the portal has allowed this in some cases) or to amend the invoices to add IGST and then pay and claim. This is an area where you need immediate CA consultation — do not let it sit.
How We Can Help
At Regi Tom Antony And Associates, our GST practice handles export refund claims end to end — from LUT filing and invoice structuring through to RFD-01 preparation, departmental correspondence, and deficiency memo responses. We also review existing rejected claims to assess whether they can be revised and refiled.
If you are an IT company, a consulting firm, a design agency, or any service business exporting from India and you are not claiming your accumulated ITC refund, you are leaving money on the table. Contact us to get a preliminary assessment of your refund position — in most cases we can give you an estimate of what is recoverable before we begin formal work.
This article is prepared for general information only. GST law changes frequently; always verify current rules with your CA before filing.