Invoicing international clients from India

An Indian freelancer with a client in Berlin has a choice they usually do not know they have. They can add eighteen per cent IGST to the invoice and claim it back later, or they can file one form and invoice without any tax at all. Most people do neither correctly, and a fair number simply charge IGST to a foreign client who has no way to recover it.

What counts as an export of services

Section 2(6) of the IGST Act sets five conditions, and all five have to hold:

1. The supplier is located in India.
2. The recipient is located outside India.
3. The place of supply is outside India.
4. Payment is received in convertible foreign exchange, or in Indian rupees where the RBI permits it.
5. The supplier and recipient are not merely establishments of the same person.

Condition four is the one that trips people. Payment received into a rupee account from a domestic entity of the same overseas group is not the same thing as foreign exchange received from abroad. And condition five catches the case of an Indian branch invoicing its own foreign head office.

Condition three deserves a moment too. For most services to a business recipient, the place of supply is the recipient’s location, so an overseas client puts it outside India. But intermediary services under section 13(8) are treated differently, and an agent arranging a supply between two other parties may find the place of supply is where they themselves are — in India. If your work looks like broking or arranging rather than delivering, get that checked.

Zero-rated does not mean exempt

An export is a zero-rated supply under section 16 of the IGST Act. This is not the same as an exempt supply, and the difference is worth real money.

An exempt supply carries no tax and no input tax credit. You cannot recover the GST you paid on your laptop, your software subscriptions or your rent.

A zero-rated supply carries no tax and preserves the credit. You can recover the GST on your inputs. For a service business with meaningful software and equipment costs, that is the difference between a recoverable cost and a dead one.

Two ways to do it

With a Letter of Undertaking. File an LUT on the GST portal in form GST RFD-11. It takes minutes, costs nothing and is valid for the financial year. Once filed, you invoice overseas clients with no IGST at all and claim a refund of the accumulated input tax credit.

Without one. You charge IGST on the invoice, pay it, and claim a refund of the tax paid. The money comes back, eventually. In the meantime you have funded the government’s working capital and confused a client who cannot recover Indian tax.

The LUT route is better in almost every case. File it in April and forget about it. The one thing to remember is that it lapses at the end of the financial year, so it needs refiling.

What goes on the invoice

Everything a domestic tax invoice needs, plus a few things it does not.

A statement of the export basis. Something like: Supply meant for export of services under LUT without payment of integrated tax. LUT ARN: [number]. This is not decorative. It is the line that explains to anyone reading the document why there is no tax on it.

Currency. Invoice in the currency you will be paid in. State it unambiguously — write USD or EUR rather than a bare symbol, because a dollar sign means several different currencies depending on who is reading.

The exchange rate basis, if you are converting for your books. Note which rate and which date you used, and use it consistently.

Your bank details in the form the sender needs. SWIFT or BIC code, IBAN where the corridor uses one, the full bank address, and the account name exactly as the bank holds it. A name mismatch of one word is the single most common reason an international transfer bounces back a week later.

Purpose code, where your bank asks for one. Most service exports fall under a software or professional services code; your bank will tell you which one applies.

No GSTIN for the client. They do not have one and the field does not apply.

FIRC and BRC

When foreign currency arrives, your bank generates a Foreign Inward Remittance Certificate or an equivalent advice. Some banks issue it automatically; many will only produce it if you ask, and some charge for it.

Ask anyway, and keep them. The FIRC is your evidence that condition four of the export test was met. Without it, a refund claim becomes an argument. Getting one reissued eighteen months after the fact is unpleasant.

For export of services, an e-BRC may also be relevant depending on your circumstances. Your bank and your accountant can tell you which applies to your case.

The practical setup

Once a year: file the LUT.

Once, when you take on the client: agree the currency, confirm the bank details in writing, and ask what their accounts payable process needs on the invoice. Some overseas companies need a purchase order number on every invoice and will silently reject anything without one.

Every invoice: the export statement, the LUT reference, the currency, the bank details.

Every payment: collect the FIRC.

Getting paid, which is the harder part

Cross-border payment is slower and less predictable than domestic. Wire transfers take days and sometimes route through a correspondent bank that shaves a fee off the amount, so the figure arriving is not the figure invoiced. Decide who bears that cost and write it into the engagement rather than discovering it on the first payment.

Build the delay into your terms. Thirty days from a client in another timezone and another banking system is functionally forty-five. Say forty-five, and be pleasantly surprised.

This explains how the provisions work. It is not tax advice, and export treatment depends on facts specific to your engagement. Confirm your position with a professional before you file an LUT or a refund claim.