Indirect Tax Laws · Import and Export Under GST

Export of Goods and Services as Zero-Rated Supply under GST

Updated 5 October 2026

Export of goods means taking goods out of India to a place outside India. Export of services needs five conditions: supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange (or INR where RBI permits), and parties not merely establishments of a distinct person. Exports are zero-rated, so the exporter can claim a refund of unutilised ITC (if exported under LUT) or of the IGST paid, subject to the prescribed conditions.

Understand Export of Goods and Services as Zero-Rated Supply

GST is a destination-based tax. It is meant to be borne where goods or services are consumed. If the consumer is outside India, India should not tax the supply and should not export Indian taxes along with it.

This is why exports are zero-rated supplies under the IGST Act. Zero-rated is different from exempt. On a zero-rated supply, the output tax is nil, but the supplier still gets credit for the input tax paid on the inputs. The tax is refunded, so the exporter ends up with no tax cost. An exempt supply gives no such credit.

Export of goods means taking goods out of India to a place outside India. The test is physical movement out of the country.

Export of services is harder because services have no physical movement. The law therefore sets five cumulative conditions. If any one fails, the supply is not an export, and it is treated as a normal taxable supply (domestic or inter-State, as the place of supply decides).

The distinct person condition applies to establishments of the same legal entity, for example a head office and its branch. It does not apply merely because two separate companies are related or belong to the same group. Two separate legal entities can satisfy this condition even if they are related.

Zero-rating covers two types of supply: export of goods or services, and supply of goods or services to an SEZ developer or SEZ unit. Under Section 16(3) of the IGST Act, the exporter has two routes: supply without payment of IGST under a bond or Letter of Undertaking (LUT) and claim a refund of unutilised ITC, or pay IGST and claim a refund of the IGST paid.

The LUT route is not unconditional. It is subject to the conditions, safeguards and restrictions of the law (for example, the Rule 96A conditions, or restrictions notified for certain persons or supplies). Where the LUT route is not available, payment of IGST with a refund of the IGST paid is the only route.

A deemed export is different. It is a supply of goods, notified by the Government under Section 147 of the CGST Act, that does not leave India but is treated as an export for benefit purposes. It is not a zero-rated supply under Section 16 of the IGST Act. Refund of deemed export supplies is claimed under Rule 89(2)(f). Either the supplier or the recipient may apply, but not both for the same supply: the recipient can apply only where the supplier does not claim the refund, and the supplier cannot claim where the recipient does.

Key rules to remember

Export of goods: Taking goods out of India to a place outside India; Physical movement out of India is the test. A sale to a buyer in India who then ships abroad is not your export.
Export of services: five conditions (all must be met): (i) Supplier located in India; (ii) Recipient located outside India; (iii) Place of supply outside India; (iv) Payment received in convertible foreign exchange, or in Indian rupees where RBI permits; (v) Supplier and recipient are not merely establishments of a distinct person; The conditions are cumulative. Missing even one means no export and no zero-rating. Condition (v) concerns establishments of the same legal entity (head office and branch), not related but separate companies.
Zero-rated supply: Zero-rated supply = Export of goods or services + Supply of goods or services to an SEZ developer or SEZ unit; Under Section 16(3) of the IGST Act, the two routes are: supply under bond/LUT without paying IGST, or payment of IGST with refund of IGST. The LUT route is subject to conditions and restrictions, so check that it is available before choosing it.
Two routes for zero-rated supply: Route 1: supply under bond/LUT without paying IGST, then claim refund of unutilised ITC. Route 2: pay IGST, then claim refund of IGST paid.; Route 1 needs no upfront tax cash outflow, but it is available only if the LUT conditions and restrictions (such as Rule 96A and any notified restrictions) are satisfied. Where they are not, Route 2 is the only route. Route 2 locks up cash until the refund comes.
Refund of unutilised ITC on zero-rated supply (without payment of tax), Rule 89(4): Refund = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted total turnover; Net ITC means the ITC availed on inputs and input services during the relevant period, other than ITC for which refund is claimed under the separate sub-rules (4A) or (4B). Turnover of zero-rated goods is limited to the lower of the FOB value and the invoice value. Adjusted total turnover excludes the value of exempt supplies other than zero-rated supplies, and the turnover of supplies for which refund is claimed under sub-rules (4A) or (4B). Use the figures given in the question and state any assumption.
Deemed export: Notified supply of goods (Section 147, CGST Act) that is not physically exported but is treated as an export for specified benefits; It is not a zero-rated supply under Section 16 of the IGST Act. Refund of deemed export supplies is claimed under Rule 89(2)(f) by either the supplier or the recipient, not both. The recipient can apply only where the supplier does not claim the refund.

How to solve Export of Goods and Services as Zero-Rated Supply questions

Use this order for any question asking whether a supply is an export, a zero-rated supply, or something else.

1Identify whether the supply is goods or services. This decides which test you apply.
2For goods: check whether the goods actually leave India to a place outside India. If yes, it is an export of goods.
3For services: test each of the five conditions one by one and write the result against each. Pay most attention to the place of supply and whether the parties are establishments of the same legal entity.
4If any condition fails, conclude that the supply is not an export. Say what it is instead (domestic taxable supply, intra-State or inter-State).
5If it is an export, or a supply to an SEZ developer or unit, label it a zero-rated supply and state the reason: destination-based tax with input credit retained.
6State the route: supply under bond or LUT without paying IGST and claim a refund of ITC, or pay IGST and claim a refund of IGST. Pick the one the question asks for or suggests. Remember that the LUT route is subject to conditions and restrictions (such as Rule 96A or notified restrictions). If the facts show these are not met, the IGST payment route is the only one.
7If a number is asked for a supply under LUT, compute the refund with the Rule 89(4) formula: (Turnover of zero-rated goods + Turnover of zero-rated services) × Net ITC ÷ Adjusted total turnover. Net ITC is the ITC availed on inputs and input services. Limit the value of zero-rated goods to the lower of FOB value and invoice value. Adjusted total turnover excludes exempt supplies other than zero-rated supplies. Show the working, state any assumption about the figures given, and state the final figure.
8If the question mentions goods not leaving India but supplied for notified benefits, call it a deemed export, say it is not a zero-rated supply, and say its refund is claimed under Rule 89(2)(f) by either the supplier or the recipient, not both. The recipient can apply only where the supplier does not claim.

Quickest way: Five-condition checklist for service exports

When to use it: Use it when a case scenario describes a service provided to a foreign client and asks whether it qualifies as an export.

Write the five conditions as S-R-P-M-D: Supplier in India, Recipient outside India, Place of supply outside India, Money in foreign exchange, Distinct person not involved.
Tick or cross each one in one line, using a fact from the case.
The first cross ends the analysis: not an export.
All ticks mean export of services, so it is zero-rated.
Add one line on LUT or IGST payment and the refund.

Common mistakes in Export of Goods and Services as Zero-Rated Supply

Treating zero-rated and exempt supplies as the same.
Both show no tax charged to the customer, so they look alike.
Fix: Remember that zero-rated supplies keep input tax credit (refund allowed), while exempt supplies do not.
Checking only that the client is a foreign company and calling the supply an export of services.
Students skip the place of supply and location of the recipient.
Fix: Test all five conditions. A foreign client whose Indian branch receives the service may fail the recipient or place of supply condition.
Ignoring the payment condition.
Students think the service delivery alone makes an export.
Fix: Check how payment is received: convertible foreign exchange, or INR where RBI permits. Payment otherwise breaks the condition.
Ignoring the distinct-person condition when a head office and a foreign branch deal with each other, or wrongly applying it to two related but separate companies.
Students treat a foreign branch as an independent customer, or assume any related party fails the test.
Fix: The condition fails only if supplier and recipient are merely establishments of the same legal entity (for example head office and branch). Separate companies, even if related, do not fail this condition.
Calling a deemed export a zero-rated supply.
The word export appears in both terms.
Fix: A deemed export is a notified supply of goods (Section 147, CGST Act) that does not leave India. Zero-rated supply under Section 16 of the IGST Act covers actual exports and supplies to SEZs. Refund of deemed export supplies is claimed under Rule 89(2)(f) by either the supplier or the recipient, not both (the recipient can apply only where the supplier does not claim), and not through the LUT or IGST payment routes.
Saying exporters must always pay IGST and wait for a refund, or that the LUT route is always open.
Students remember only one route, or forget that the LUT route has conditions.
Fix: State both routes: LUT without tax payment with refund of ITC, or payment of IGST with refund of IGST. Add that the LUT route is subject to conditions and restrictions (such as Rule 96A), and where it is not available, payment of IGST is the only route.

Worked examples

Example 1

Alpha Software Ltd, located in Pune, develops customised software for Beta Inc, a company located in the USA. Beta Inc has no establishment in India. Alpha receives the payment in US dollars through banking channels. Alpha and Beta are separate legal entities and not establishments of the same entity. Is the supply an export of services, and is it zero-rated?

Show the solution

Supplier located in India: Alpha is in Pune. Condition met.
Recipient located outside India: Beta Inc is in the USA with no Indian establishment. Condition met.
Place of supply outside India: for a service to a business recipient, the place of supply is generally the location of the recipient, which is the USA. Condition met.
Payment in convertible foreign exchange: received in US dollars. Condition met.
Not merely establishments of a distinct person: Alpha and Beta are separate legal entities, not a head office and branch of one entity. Condition met.
All five conditions are satisfied, so this is an export of services and therefore a zero-rated supply.
Alpha may supply under LUT without paying IGST and claim a refund of unutilised ITC, or pay IGST and claim a refund of that IGST.

Answer: Yes. It is an export of services, a zero-rated supply, and Alpha can use either the LUT route or the IGST payment and refund route.

Example 2

Gamma Exports Ltd exported only goods during a tax period under LUT without payment of IGST. The invoice value of the goods was ₹30,00,000 and their FOB value was ₹32,00,000. Assume the ₹2,00,000 given as Net ITC is the ITC availed on inputs and input services for the period, with no ITC claimed under sub-rules (4A) or (4B). Assume the ₹50,00,000 given as adjusted total turnover is already after excluding exempt supplies other than zero-rated supplies, and there were no zero-rated services. Compute the refund of unutilised ITC under Rule 89(4) and say why the supply qualifies as zero-rated.

Show the solution

Identify the supply: goods taken out of India to a place outside India. It is an export of goods, hence a zero-rated supply.
Because it was supplied under LUT without payment of IGST, the refund route is the refund of unutilised ITC under Rule 89(4).
State the formula: Refund = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted total turnover.
Turnover of zero-rated goods is the lower of FOB value (₹32,00,000) and invoice value (₹30,00,000), which is ₹30,00,000.
Turnover of zero-rated services is nil by assumption, so the numerator turnover is ₹30,00,000.
Net ITC is ₹2,00,000 and adjusted total turnover is ₹50,00,000, as assumed above.
Substitute: (₹30,00,000 ÷ ₹50,00,000) × ₹2,00,000.
Compute the ratio: 30,00,000 ÷ 50,00,000 = 0.6.
Refund = 0.6 × ₹2,00,000 = ₹1,20,000.

Answer: On the stated assumptions, the refund of unutilised ITC under Rule 89(4) is ₹1,20,000. The supply qualifies as zero-rated because it is an export of goods.

Exam tips

In case-scenario MCQs, hunt for the facts that break a condition: a recipient with an Indian office, a branch of the same legal entity, or payment received in India in rupees without RBI permission.
In written answers, list the five conditions explicitly and give a verdict on each before concluding. This earns step marks.
Always state the reason for zero-rating: GST is a destination-based tax and the exporter retains input credit.
If a question says exporter and asks for the cheapest cash-flow route, answer with supply under LUT, and mention the refund of ITC. Add that this holds only if the LUT conditions and restrictions are met.
In refund computations, cap the value of zero-rated goods at the lower of FOB value and invoice value, and state your assumptions.
Keep export, deemed export and supply to SEZ as three separate labels. Examiners often test the distinction.

Practice questions from Import and Export Under GST

Export of Goods and Services as Zero-Rated Supply: frequently asked questions

What is a zero-rated supply under GST?

It is a supply on which the output tax rate is nil but input tax credit is still available and refundable. Under the IGST Act, export of goods or services and supply to an SEZ developer or SEZ unit are zero-rated supplies.

What are the conditions for export of services under GST?

The supplier must be in India, the recipient outside India, and the place of supply outside India. Payment must be received in convertible foreign exchange (or INR where RBI permits), and the supplier and recipient must not be merely establishments of a distinct person. This last condition concerns establishments of the same legal entity, such as a head office and branch, not related but separate companies. All five must be met.

What is the difference between export and deemed export under GST?

An export means goods leave India, or services meet the five conditions, and it is a zero-rated supply. A deemed export is a notified supply of goods (Section 147, CGST Act) that does not leave India but is treated as an export for specified benefits. It is not a zero-rated supply under Section 16 of the IGST Act. Refund of deemed export supplies is claimed under Rule 89(2)(f) by either the supplier or the recipient, not both. The recipient can apply only where the supplier does not claim the refund.

Can an exporter supply without paying IGST?

Yes, if the LUT route is available. An exporter can supply under bond or Letter of Undertaking without paying IGST and claim a refund of unutilised ITC, subject to the conditions and restrictions on the LUT route (such as Rule 96A). The other option is to pay IGST and claim a refund of the IGST paid, and in some cases this is the only route.