GST on Export of Services Without an LUT: What It Costs and What You Can Still Do

The invoices have already gone out. Money has arrived from a client in another country, your invoice said nothing about GST, and then somebody — a CA, a forum thread, a client's finance team — used the phrase “you needed an LUT for that.” The question you actually have is not what an LUT is. It is what those invoices have cost you, and whether anything can still be done about them.

Here is the short version, in the order that matters. Exporting services without an LUT does not make the export unlawful and does not void a single invoice. It changes the route. With an LUT on file, the supply is zero-rated and no IGST leaves your account. Without one, the mechanism is that IGST is paid on the export and reclaimed as a refund — the tax is recoverable, the cash is not, for however long the refund takes.

What exporting without an LUT actually costs

There are three situations, and they are genuinely different from one another. Find yours before you read any further:

Read the middle row carefully, because it is the one people misread as a penalty. The cost of exporting without an LUT is, in the first instance, a cash-flow cost: money that should have stayed in your account sits with the government until a refund comes back. That is unpleasant. It is not the same as losing the money.

What we are not going to do is quote you an interest or penalty figure. Whether anything further attaches depends on your registration status, the periods involved and what your returns already say — and we will not print a number we have not verified against the Act. The pages that will happily quote you one have not checked either.

Is an LUT mandatory for export of services?

This is where most of the confusion sits, because “required” is doing two different jobs in the same sentence. The LUT is not what makes your work an export. That is decided by the nature of the supply. When an Indian professional provides services to a client outside India, the transaction is classified as an export of services under GST law, and for it to qualify as export, four conditions must be met (Section 2(6) of IGST Act):

1. The supplier (you) is located in India
2. The recipient (client) is located outside India
3. The place of supply is outside India
4. Payment is received in convertible foreign exchange or in Indian Rupees wherever permitted by RBI

If all four are met, the supply is zero-rated — the GST rate on it is 0%, and you do not charge any GST to your foreign client. Nothing in that paragraph mentions an LUT, and that is the point.

So the honest answer to “is an LUT mandatory” is: it is the route, not the qualification.An LUT is what lets a registered person take the zero-rating without paying IGST first and asking for it back. Skip it and the supply is still an export; you have simply chosen — usually without meaning to — the pay-and-reclaim route instead. And if you were not GST-registered at all, there was never an LUT for you to file, because it is a registered person's declaration. Whether you were past the registration line in the first place is therefore the question underneath this one, and worth settling before anything else.

What you can still do about invoices already raised

Three questions, answered from your own documents rather than from memory. In this order:

1. Were you registered on the invoice date? Not today — on the date each invoice was raised. If you were not, GST did not apply to that supply and there is nothing here to unwind.
2. Does an LUT acknowledgement exist for the financial year those invoices fall in? The acknowledgement names the year it covers. Pull it up and compare that year against your invoice dates rather than assuming. People who are certain they never filed one turn out to have filed one and forgotten often enough that this step is worth the two minutes.
3. What did the invoices themselves say, and what was actually paid? An invoice carrying the export declaration with no LUT behind it is one situation. An invoice on which IGST was charged and paid is a refund question, not a compliance gap. An invoice that mentions neither is a third. They do not get the same answer.

Where the invoices do fall in a period with no LUT behind them, the mechanism is the one in the table above: the export is treated as made on payment of IGST, and the tax is reclaimed by refund. An LUT filed today is filed against the financial year printed on its acknowledgement — read that year rather than assuming it reaches backwards over invoices you have already raised.

This is the point at which a professional earns their fee, and it is worth being precise about why: not to write anything clever, but to decide which return the correction belongs in and in what order the periods are put right. That is a judgement about your specific filing history, which is exactly the thing no article can see.

Filing the LUT, and the financial-year trap

LUT stands for Letter of Undertaking. It is a declaration filed on the GST portal that allows you to export services without paying IGST. Instead of paying 18% IGST on every export invoice and waiting months for a refund, you file the LUT and your exports are zero-rated from the start.

It is filed in the Letter of Undertaking area of the GST portal's user services, against a financial year you select. That is a destination rather than a click-path, and deliberately so — portal menus move, and a page that walks you confidently through a route that has since changed is worse than one that tells you where you are going. Correct as of August 2026.

What comes out of it, and what you need from it:

• A financial year. The LUT is valid for one financial year — April 1 to March 31 — and that year is the whole of the trap. An LUT for one year does nothing for invoices raised in another.
• No bond or bank guarantee is needed for most taxpayers. It is an online declaration, not an instrument you buy.
• An LUT ARN (Application Reference Number). Note it down — it goes on every export invoice, and it is the thing you will be asked for later.
• It is signed with DSC or EVC, using the GSTIN and authorised signatory already on your registration.

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Nobody decides to export without an LUT. They forget it in April, invoice through the year, and find out in the autumn.

Invoice format for export of services under LUT

Once the LUT exists, the invoice has to say so — an LUT nobody can see on the document is half the reason these questions get asked in the first place. Your export invoice carries specific fields beyond a regular GST invoice:

• Your GSTIN prominently displayed
• Invoice number — sequential, unique per financial year
• Invoice date
• Client name, address, and country — full international address
• SAC code — 998314 (IT consulting), 998313 (IT design), 998399 (other professional services)
• Description of services — specific and detailed
• Currency and amount — in the agreed currency (USD, EUR, GBP)
• Exchange rate — RBI reference rate or agreed rate
• LUT ARN number — your Letter of Undertaking reference
• Declaration: "Supply meant for export of services under LUT without payment of IGST"
• Your bank details — for wire transfer (account number, IFSC, SWIFT code, bank name, branch)
• Payment terms — NET 15, NET 30

Zero-rated is not the same as exempt

This distinction decides whether the money you spent on running your practice is recoverable, so it is worth thirty seconds even in a panic:

Both rows show 0% to the client, which is why they get conflated. The difference is the second row. Exporting, you can claim refund of the GST paid on your business inputs — laptop, software subscriptions, internet, co-working space, professional development courses. This ITC refund can be significant: 18% of Rs. 1,00,000 in annual business expenses = Rs. 18,000 back in your pocket. On an exempt supply, that money is simply gone.

The other rule you may also have missed: FEMA

GST is not the only regime watching a foreign payment land. The Foreign Exchange Management Act (FEMA) governs how foreign currency enters and exits India, and its requirements run in parallel with the GST ones — satisfying one says nothing about the other:

• Receive payment through banking channels. All foreign remittances must come through your bank (AD — Authorised Dealer bank). Wire transfers, PayPal, Payoneer, and Upwork direct deposit all go through banking channels, so this is usually automatic.
• Purpose code. Your bank reports every inward remittance to RBI with a purpose code. For IT services, the code is P0802 (computer services). For other professional services, it is P0805 (business services). Ensure your bank codes it correctly — wrong purpose codes can trigger RBI queries.
• Realisation period. Under FEMA, export proceeds must be realised (received in India) within 9 months from the date of invoice. If your client delays payment beyond 9 months, you need to report it to RBI through your bank and apply for an extension.
• FIRC (Foreign Inward Remittance Certificate). Your bank should issue a FIRC for each inward remittance (or an e-FIRC for smaller amounts). This is your proof that foreign exchange was received through proper channels. Keep FIRCs — you may need them for GST refund claims, LUT compliance, or bank audit.

How the money arrives, and the FIRC you will be asked for

If you are reconstructing a period after the fact, this is the chain the evidence sits in:

1. Client initiates wire transfer from their bank to your Indian bank account using SWIFT code and account details.
2. Correspondent bank (intermediary) processes the transfer. This may add a small fee ($15-30) which reduces the amount received.
3. Your bank (AD bank) receives the foreign currency, converts it to INR at their forex rate (which includes a spread of 0.5-2% from the interbank rate), and credits your account.
4. Bank issues FIRC (or e-FIRC) — this is your proof of legitimate foreign inward remittance. Some banks issue it automatically; others require you to request it.
5. Bank reports to RBI with the correct purpose code (P0802 for IT services).

Alternative payment methods: PayPal, Payoneer, Wise (TransferWise), and Upwork direct deposit all ultimately settle into your Indian bank account. The FEMA compliance is the same regardless of the payment method — the money must enter India through proper banking channels.

FIRC storage: Keep all FIRCs for at least 6 years. You need them for:

• GST export refund claims (if you paid IGST instead of using LUT)
• Proof that export proceeds were realized within 9 months
• Income tax audit trail
• Bank compliance audit

If most of your clients are overseas, see HourSlip for freelancers with international clients and compare payout routes with the free Payoneer vs Wise vs bank calculator. And if a mismatch on an export period has already produced a notice, the scrutiny-notice reply mechanics are the next page to read — exports under LUT are one of the discrepancies that surfaces there most often.