How to Invoice International Clients: LUT and Export of Services

Working for clients abroad is one of the best things about freelancing from India: stronger currencies, bigger budgets and fewer rounds of haggling. It also comes with a GST question that scares people more than it should: do you charge GST to a client in the US or UK? In most cases, no. Provided you meet the conditions, services to overseas clients are "zero-rated", which means you charge 0% GST and can still keep your input credit. This guide explains how that works, what a Letter of Undertaking (LUT) is, and what a correct export invoice looks like.

What counts as an "export of services"?

The IGST Act sets five conditions. A supply is an export of services when all of these are true:

1. The supplier is located in India.
2. The recipient is located outside India.
3. The place of supply is outside India (for most B2B services to an overseas company, it is the client's location).
4. Payment is received in convertible foreign exchange, or in Indian rupees where the Reserve Bank of India permits it.
5. The supplier and recipient are not merely establishments of the same person.

Typical examples are software development for a US startup, design work for a UK agency, writing for an Australian publication and virtual assistance for a Canadian founder. If one condition fails, say the client is a foreign company with an office in India that receives the service, the supply may be treated as domestic and attract normal 18% GST. When your client has an Indian presence, check which entity contracts you and which receives the service.

Zero-rated does not mean "no paperwork"

The law gives you two ways to handle exports:

• Option A: pay IGST and claim a refund. You charge IGST on the invoice, pay it, then claim a refund of the tax later. Your cash is tied up until the refund arrives.
• Option B: export under LUT without paying IGST. You give the government a Letter of Undertaking promising to comply with export conditions. You charge no IGST on the invoice, and you can claim a refund of any unused input credit.

Almost every freelancer picks Option B because it avoids the cash-flow hit.

What is an LUT?

A Letter of Undertaking is a declaration, filed online on the GST portal in Form GST RFD-11, in which you promise that you will receive payment for the export within the time allowed and will pay the tax with interest if you do not. You file it once per financial year, and the portal gives you an acknowledgement reference number (ARN). Most exporters are eligible without furnishing a bank guarantee, as long as they have not been prosecuted for tax evasion above the prescribed amount.

Key points:

• You need a GSTIN to file an LUT. If you are unregistered because your turnover is under ₹20 lakh, you can still export, but you cannot zero-rate formally or claim refunds. Many exporters register voluntarily for this reason. See do freelancers need GST registration.
• Renew it every year, ideally in April. Invoices issued before the LUT is in force for that year could be questioned.
• Keep the ARN, since you will quote it on your invoices.

What a correct export invoice contains

An export invoice is still a GST invoice. It needs the usual details (see mandatory GST invoice fields) plus a few export-specific items:

• Your name, address and GSTIN.
• A unique invoice number and date.
• The client's name, address and country. They will not have a GSTIN.
• A clear description of the service and its SAC code. Software development is usually 998314, for example.
• The place of supply shown as "Outside India" or the country name.
• A line stating the tax treatment, such as "Supply meant for export of services under Letter of Undertaking (LUT) without payment of IGST. LUT ARN: [your number], dated [date]."
• The tax rate shown as 0% and the tax amount as nil.
• The value in INR, even if you also show a foreign-currency amount.

Currency and exchange rate

You may bill in dollars, pounds or euros, but a GST invoice must also show the Indian rupee value. Convert at the rate applicable on the date of the supply, as set out in the GST valuation rules, and note the rate you used. Banks credit actual rupees at their own rate on the day of receipt, and the difference between your invoice rate and the realised amount is a foreign-exchange gain or loss in your books, not a change to the invoice.

Prove that payment came in foreign exchange

An export is only an export if you were paid in convertible foreign exchange, and you must be able to prove it. Keep:

• Bank advice or a foreign inward remittance certificate (FIRC / FIRA) from your bank for each receipt.
• Payment platform statements (such as those from Wise or Payoneer) that show the foreign amount and the INR credited. Make sure the credit to your Indian bank account is traceable.
• A copy of the contract or purchase order and email trail showing who you worked for and where they are.

Under foreign-exchange rules, the money should generally be realised within about nine months of the export. If it is not, you may have to pay the IGST you skipped, with interest. Always invoice clients who pay late with a firm due date. Our guide on payment terms and late payments shows how.

How to file and report exports

Exports under LUT are reported in your regular GST returns:

• In GSTR-1, as exports (zero-rated supplies) with the invoice details.
• In GSTR-3B, under outward supplies that are zero-rated.
• If you want a refund of input credit that built up because your output tax is nil, you apply for it on the portal, with your invoices and proof of realisation.

If you are not yet registered, none of these returns apply, but you must still track your export income. It counts toward the ₹20 lakh threshold.

Income tax is a separate matter

GST and income tax are separate systems. Even if an export is zero-rated for GST, the income is taxable and should be declared in your income tax return. Tax withheld abroad may be claimable as a credit, and your bank's FIRC helps support it. Ask your accountant about the right treatment for your situation.

Common mistakes with international invoices

1. Charging GST by habit. If you meet the conditions, charging 18% to an overseas client can make you uncompetitive and means you collect money you may then have to refund.
2. Forgetting the LUT line on the invoice.
3. No proof of foreign-exchange receipt. A rupee payment from an Indian account is not an export, unless RBI permits it.
4. Wrong client entity. Invoicing the overseas parent when the Indian subsidiary got the service, or the other way round.
5. Not renewing the LUT for the new financial year.
6. Treating foreign income as exempt from income tax. It is not.

Putting it together

For a registered freelancer with an LUT, the workflow is short. Add the client with their foreign address, choose the SAC code, set the GST rate to 0% and put the LUT wording in the notes. In BillBuddy you can do all of this in the generator: set each line's GST rate to 0% and paste the LUT statement into the notes box, so the PDF carries the required declaration. For ready-made examples with services that are often exported, see the web developer, translator and virtual assistant templates.

This article is general information, not tax or legal advice. Export rules, forms and timelines change. Confirm them with a chartered accountant before you rely on them.