For freelancers, consultants, and agencies in India, working with international clients is a rewarding way to expand their business. However, navigating the tax implications can be a challenge. A common question is how to handle the Integrated Goods and Services Tax (IGST) on payments received from abroad.

While it is true that IGST applies to most services, there is a specific provision for exports that can exempt you from this tax. The solution is to file a Letter of Undertaking, commonly known as an LUT. This document allows you to export services without paying IGST upfront, freeing up your working capital and simplifying your finances. This blog will walk you through the process, the necessary documents, and a smart way to manage the complexities of claiming your tax refunds.

Understanding Export Without Tax Payment

Export without payment of tax is a system that allows goods and services to be sent out of the country without the exporter paying domestic taxes on them. This concept is vital for promoting international trade by reducing the tax burden on exporters and making their services more attractive in the global market.

Under the GST framework, exports are treated as “zero rated supplies.” This means that while no IGST is charged on the service provided, you are still eligible to claim a refund of the GST paid on your business inputs, such as office rent, software subscriptions, or advertising. This refund can be claimed by exporters who have filed an LUT.

The Process of Exporting Services with an LUT

Here is a step by step guide to the process.

1. Furnishing the LUT

The first and most crucial step is to submit a Letter of Undertaking to the tax authorities. The LUT is a commitment that you will comply with all export regulations. It is a document that formally exempts you from paying IGST on your export services. This is a digital process completed through the GST portal.

2. Preparation of Required Documents

To successfully export and claim your refunds, you must have all your documents in order. For service exporters, key documents include:

• Export invoices
• Foreign Inward Remittance Certificates (FIRCs), which are issued by your bank and serve as proof that you have received payment in foreign currency.
• Invoice details that are correctly reported in your GSTR 1 and GSTR 2B returns.
• Declarations as per Section 54 of the CGST Act 2017 and Rule 89.

You also need to upload a Statement 3 on the GST Portal, which includes details of your invoices and Foreign Inward Remittance Certificates. An Annexure B is also required, containing details of your purchase invoices for which you are claiming the refund.

3. Filing of Returns

Even after furnishing an LUT, you must file your regular GST returns. If returns are not filed, you cannot claim your refund. Accurate and timely filing of GSTR 1 and GSTR 3B is essential for the system to process your transactions and verify your eligibility for a refund.

4. Filing for a Refund

Once all your documents are prepared and your returns are filed, you can submit a refund application using Form GST RFD-01 on the GST Portal. This application is filed under the refund type “Refund of ITC on Export of Goods & Services without Payment of Tax.”

Common Challenges Faced in the Refund Process

While the LUT process streamlines export services, the subsequent task of claiming refunds can be challenging due to several common issues:

• Manual Data Entry: The process often requires manual data entry in Statement 3, which is prone to human error and can be a time consuming task.
• Data Mismatches: Non-reporting of foreign remittance details in GSTR 1 can delay the filing of your refund application.
• Complex Rectification: Correcting errors while uploading Statement 3 on the GST portal is a time consuming process.
• Missing Documents: The unavailability of documents such as export invoices and FIRCs can result in a smaller refund claim than you are eligible for.

A Smart Solution for a Complex Process

To make the GST refund process simple and efficient, some tools have been developed to automate the manual work. For instance, tools like the MGR Tool can streamline this task.

Using such a tool, you simply need to input your GSTN Number and the period for which the refund is being claimed. The tool then automatically retrieves the necessary data from the GST portal, completes the calculations in seconds, and generates a summary report.

This report will detail the exact amount of refund you are eligible to claim, simplifying the process and saving you valuable time. Using a tool like this can be a significant help for businesses, especially exporters. It not only simplifies the complex task of data retrieval and calculations but also minimizes errors and accelerates the entire process. This can be particularly beneficial for those looking to optimize their time by swiftly and accurately claiming refunds.

Conclusion

The LUT is a powerful tool for Indian freelancers and agencies, offering a legitimate way to export services without the burden of upfront IGST. By understanding the process, maintaining accurate records, and leveraging technology to simplify compliance, you can ensure that you not only remain tax compliant but also maximize your earnings from international clients.

Simplify Your Global Payments with BRISKPE

While managing your GST compliance with an LUT is essential for tax savings, ensuring your international payments are handled efficiently is equally important for your business’s bottom line. Briskpe provides a seamless platform for receiving foreign payments with transparency and minimal cost. By using a service that offers competitive exchange rates and low fees, you can maximize your earnings from international clients without the burden of complex or expensive transactions.

Take the next step in optimizing your finances. Learn how BRISKPE can make receiving your foreign payments simpler, faster, and more cost-effective. Visit briskpe.com to get started.