If you provide video editing, software engineering, copywriting, or UI design services to clients located in the United States, Europe, or the UK, you should never pay 18% GST out of your own pocket or burden your foreign client with Indian domestic taxes.
1. The Foreign Client GST Dilemma
A common scenario for Indian freelancers: you negotiate a $2,000 monthly retainer with a US tech client. A local accountant tells you: "You have a GST registration, so you must charge 18% GST on every invoice."
You send an invoice for $2,360 ($2,000 + $360 GST). The US client rejects it instantly: "We are an American company. We do not pay Indian taxes and cannot claim credit for them in the US."
The result? Either you lose the deal, or you eat the 18% loss yourself. Fortunately, Indian tax law contains a completely legal and streamlined solution: Zero-Rated Export of Services under a Letter of Undertaking (LUT).
2. The 5 Legal Conditions for Export of Services
Under Section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017, a service qualifies as an "Export of Service" (and therefore qualifies for zero-rated status under Section 16 of the IGST Act) only if all five of the following conditions are simultaneously met:
- Supplier is in India: You (the freelancer or agency) are based in India.
- Recipient is outside India: Your client is located outside India (e.g., US, UK, Canada, Australia).
- Place of Supply is outside India: The benefit of the work is consumed outside India.
- Payment is received in Convertible Foreign Exchange: Payment must arrive in foreign currency (USD, EUR, GBP) or permitted INR via vostro account, evidenced by a Foreign Inward Remittance Certificate (FIRC/FIRS).
- Not merely establishments of distinct persons: You and the foreign client are independent entities, not branches of the same firm.
3. What is an LUT (Letter of Undertaking)?
Normally, exporting services requires you to pay 18% IGST upfront and then spend months requesting a refund from the GST department.
An LUT (Form GST RFD-11) is a simple online declaration filed on the GST portal wherein you promise to bring foreign currency into India within 1 year of invoice date. Once filed, you can export services at a flat 0% GST rate with zero upfront tax payment!
4. Step-by-Step Filing Walkthrough on the GST Portal
Filing an LUT takes less than 5 minutes and is valid for an entire financial year (from April 1 to March 31):
- Log into the official GST portal at
services.gst.gov.in. - Navigate to: Services > User Services > Furnish Letter of Undertaking (LUT).
- Select the Financial Year for which you are applying (e.g.
2024-2025). - Check the 3 self-declaration checkboxes (promising to complete the export and comply with GST rules).
- Provide details of two independent witnesses (Name, Occupation, and Address — friends, family, or colleagues can serve as witnesses).
- Select the Place of Filing, enter your Name/Designation, and sign using DSC (Digital Signature) or EVC (instant OTP sent to your Aadhaar-linked mobile number).
- Download your Application Reference Number (ARN) receipt. Your LUT is effective immediately upon submission!
5. Mandatory Invoice Disclaimer Text
When you issue an export invoice under an active LUT, GST rules mandate that you print the following statutory declaration directly on the invoice:
"SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX (IGST)"
6. FIRC & RBI Inward Remittance Purpose Codes
To protect yourself during a GST audit, you must maintain proof that payment was received in convertible foreign currency. This proof comes in the form of an e-FIRC (Foreign Inward Remittance Certificate) or FIRS (Foreign Inward Remittance Statement) issued by your authorized dealer bank or payment provider (Stripe, Skydo, Wise, PayPal).
| Freelance Profession | Recommended RBI Purpose Code | Description |
|---|---|---|
| Software Dev & SaaS | P0802 | Software consultancy and implementation services |
| Video Editing & Animation | P1007 | Advertising, market research, audio-visual & creative services |
| UI/UX & Graphic Design | P1009 | Architectural, engineering, and other technical design services |
| Content Writing & Copy | P0803 | Data processing, hosting, and news agency services |
7. Do You Need GST Registration If Earning Under ₹20 Lakhs?
According to Notification No. 10/2017 - Integrated Tax, service providers engaged in inter-state supplies or export of services whose aggregate turnover does not exceed ₹20 Lakhs in a financial year (or ₹10 Lakhs in special category states) are exempt from compulsory GST registration.
However, once your total gross receipts (domestic + foreign export combined) exceed ₹20 Lakhs, GST registration becomes legally mandatory, and you must file an LUT to continue exporting at 0% tax.