GST on SaaS exports: export of services, LUT and refunds

Zero-rated means the sale carries a GST rate of nil, but the seller still gets credit for the GST it paid on inputs. That is different from an exempt supply, where no GST is charged and the input tax cannot be reclaimed. For a SaaS company selling to clients in the United States or Europe, the zero rate keeps Indian tax out of the export price.

The idea is that GST is a tax on consumption inside India. A service consumed abroad should leave the country without tax. Section 16 of the Integrated GST (IGST) Act, 2017 gives exports of services this status, and section 2(6) of the same Act defines what counts as an export.

Section 2(6) of the IGST Act lists conditions that must all be true at once. If one fails, the sale is treated as a domestic supply and the normal GST rate applies, which for software services is usually 18%, as of November 2026.

The conditions are listed below in plain words. The wording of the Act is more technical, so a finance team should read the section itself.

• The supplier is located in India.
• The recipient is located outside India.
• The place of supply is outside India, which for most B2B software depends on where the recipient is located.
• Payment is received in convertible foreign exchange, or in Indian rupees where the Reserve Bank of India (RBI) allows it.
• The supplier and the recipient are not merely different establishments of the same person, so billing your own foreign subsidiary can fail this test.

A Letter of Undertaking, or LUT, is a form in which the exporter promises the tax department that it will bring in export proceeds as the rules require. Rule 96A of the CGST Rules allows an exporter to supply without paying IGST if it has filed an LUT, instead of paying IGST first and waiting for a refund.

The LUT is filed online on the GST portal in Form GST RFD-11. It is valid for one financial year and is renewed every April. A SaaS company that skips the LUT and has to pay IGST on exports ties up cash until a refund arrives, so most early-stage exporters file one in the first week of the year.

The invoice for an export under LUT should say that the supply is made under LUT without payment of IGST, and it should quote the LUT reference. Exports are reported as zero-rated in the monthly or quarterly GST returns.

A SaaS company pays GST on cloud bills, tools, rent, contractor fees and similar costs. This is input tax credit. If most of its sales are zero-rated exports, there is little output tax to set the credit against, so the credit piles up unused.

Under section 16(3) of the IGST Act and section 54 of the CGST Act, the exporter can claim a refund of that unused credit. There are two routes, and an exporter picks one for a given sale.

• LUT route: no IGST is paid on the export, and the refund claimed is the unused input tax credit.
• IGST route: IGST is paid on the export, and the refund claimed is that IGST.
• Time limit: a refund claim must generally be made within two years of the relevant date, which for services is linked to receipt of the foreign payment. Check the current rule before relying on this.
• Proof: the claim usually needs invoices and bank evidence of foreign exchange receipts, such as a bank realisation certificate.

The Foreign Exchange Management Act (FEMA) has its own rules on exports. Export proceeds must generally be realised and brought into India within a set period, and the bank records the receipt. The RBI's rules for exports of goods and services set the period, commonly nine months, and allow extensions, so a company should confirm the current figure with its bank.

This matters for GST because condition four needs the money to arrive in the allowed form. A customer who pays late or through an unusual channel can put the zero rating at risk. Invoices in foreign currency, with payments through banks or authorised payment platforms that give a proper receipt, keep the paper trail clean.

OIDAR stands for online information and database access or retrieval services. It covers digital services delivered over the internet with little human input, and SaaS fits this description. The term matters in two directions.

When an Indian company exports SaaS to a business abroad, it is an ordinary export of services if the conditions are met. When a foreign company sells software to a customer in India, GST can apply to that import. A foreign OIDAR supplier selling to Indian consumers registers under a simplified scheme and pays IGST. When the buyer is a registered Indian business, the buyer generally pays the tax itself under the reverse charge mechanism and can usually claim credit for it.

Most problems come from small mismatches rather than from the law itself. A few checks save months of dispute later.

Intermediary services, where a company arranges a sale between two other parties, have special place-of-supply treatment that has been amended and argued over, so a marketing or referral arrangement needs a separate look. Also confirm whether a foreign customer buys through its Indian branch, because then the recipient is not outside India.

• GST registration is active and the LUT for the current year is filed.
• The contract names the foreign entity that actually pays and uses the service.
• The bank receives the money in a form that produces a receipt for each invoice.
• Credit and refund records are kept month by month, not rebuilt at year end.
• A chartered accountant reviews the first refund claim, because the first filing sets the pattern for later ones.

Export-heavy SaaS companies often show large tax credits on the balance sheet. Investors and acquirers ask whether the credits are real and refundable, because refund delays eat into cash. A clean LUT history and refund track record shows disciplined finance. A pattern of rejected refunds or notices is a diligence flag.

This page explains the general framework in simple terms. It is not legal or tax advice, so check with a chartered accountant or tax lawyer before acting on your own facts.