GST on Foreign Payments – Complete Guide to Export of Services, LUT & GST Compliance

What Are Foreign Payments Under GST?

Foreign payments under GST refer to any payment received from a client or entity located outside India, typically in a convertible foreign currency like USD, EUR, GBP, etc. These payments are usually against the supply of services (freelancing, consulting, IT, digital marketing) or goods. In the context of services, such transactions are treated as exports of services under GST if the prescribed conditions are met. The GST law does not tax the foreign payment itself; rather, it taxes the underlying service. Since exports are zero‑rated, you don't charge any GST to your foreign client. However, compliance obligations like registration, LUT filing, invoicing, and return filing still apply. DisyTax has guided over 1,000 professionals handling foreign payments. Begin with our GST basic terms.

Is GST Applicable on Foreign Payments Received in India?

GST is applicable on the underlying service, but if the payment qualifies as an export of service, the supply is zero‑rated. This means you do not charge any GST to the foreign client. You must still report the transaction in your GST returns and file LUT. If the payment is received in Indian rupees (INR) from a foreign client, or the place of supply is in India, it may not qualify as an export, and GST would be applicable as a domestic supply. The key is whether the service qualifies as an export under Section 2(6) of the IGST Act. Our guide on exports under GST provides detailed conditions.

Understanding Export of Services Under GST

Export of services means supplying services from India to a recipient outside India, where the place of supply is outside India, and payment is received in convertible foreign exchange. The supplier (you) and the recipient must not be merely establishments of the same person. When all conditions are satisfied, the supply becomes a zero‑rated supply. You have two options: export under a Letter of Undertaking (LUT) without paying IGST, or export with payment of IGST and then claim a refund. The LUT route is the preferred method for most freelancers and businesses because it preserves cash flow.

Conditions for Export of Services Under GST

For your service to be treated as an export, all five conditions must be met:

• Supplier is in India: You must be located in India.
• Recipient is outside India: Your client must be located abroad.
• Place of supply is outside India: As per the place of supply rules.
• Payment in convertible foreign currency: Payment must be received in USD, EUR, GBP, etc. INR payments from foreign clients do not qualify.
• Supplier and recipient are not merely establishments of the same person: Distinct legal entities.

Failing any of these conditions means the transaction is a domestic supply, and 18% GST applies. Proper documentation is critical.

GST on Payments Received from Foreign Clients

When you receive payment from a foreign client for services rendered, you do not charge GST on the invoice. You issue an export invoice without GST. The transaction must be reported in GSTR‑1 as an export. You must maintain proof of receipt in foreign currency – bank statements, FIRC, or payment gateway statements. If you are registered and have filed LUT, the export is under LUT without IGST payment. If you haven't filed LUT, you must pay IGST on the invoice value and claim a refund. Most professionals working with foreign clients file LUT to avoid this.

GST on Freelance Income Received from Abroad

Freelancers earning from platforms like Upwork, Fiverr, or direct contracts with overseas clients are exporting services. The freelancer must register for GST if aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states). Even if below the threshold, voluntary registration is recommended for LUT and ITC. The foreign income is reported in GSTR‑1 Table 6A. If the freelancer also earns from Indian clients, the turnover is combined. Our GST for freelancers exporting services guide is a dedicated resource.

GST on Foreign Consulting Services

Consultants providing services to clients abroad – business, management, financial, IT advisory – are exporting services. The same export rules apply. The consultant must issue an export invoice with the LUT declaration. Place of supply is the client's location, so it's outside India. Payment must be received in forex. The GST rate on consulting is 18%, but since it's an export, it's zero‑rated. The consultant can claim ITC on software, travel, and office expenses. Our GST for consulting business guide covers specifics.

GST on Software and IT Services Provided to Overseas Clients

Software development, app development, web development, and IT support provided to clients abroad are exports. The service is zero‑rated. For Indian IT companies and freelancers, this is a major part of the business. LUT is essential. The place of supply is the client's country. Payment in USD, EUR, etc., through wire transfer or platforms like Deel, Gusto qualifies. You must report these exports in GSTR‑1. ITC on laptops, cloud services, and software licenses can be claimed and refunded. See GST for web developers and GST for app developers for more.

GST on Digital Marketing Services for Foreign Clients

SEO, social media marketing, PPC management, and content marketing for clients abroad are exports. The service is zero‑rated. Digital marketing agencies and freelancers must file LUT and report exports. The client's location determines the place of supply. Payment must be in forex. You can claim ITC on advertising tools, software subscriptions, and other business expenses. Our GST for digital marketing agency guide is relevant.

GST on YouTube AdSense and Foreign Platform Payments

AdSense payments from Google Ireland or Google LLC are exports of service. You don't charge GST to Google. You must file LUT. The payment is received in foreign currency (converted by Google to INR before remitting, but the source is foreign). Check your AdSense payment profile to confirm the paying entity. If it's Google India, it's a domestic supply. For YouTube creators, see GST for YouTubers. For AdSense on blogs, see GST for bloggers. The same principles apply to Facebook, Instagram, and other platform payouts from foreign entities.

GST on Affiliate Marketing Income from Foreign Companies

Affiliate commissions from programs like Amazon US, international SaaS companies, or foreign affiliate networks are exports of service. You do not charge GST. You must issue an export invoice to the affiliate program. Payment is typically received via PayPal, Payoneer, or direct deposit in foreign currency. For Indian affiliate programs, 18% GST applies. Our GST for affiliate marketers guide explains both scenarios.

GST on Payments Received Through PayPal

PayPal is a payment intermediary. The GST treatment depends on the source of funds, not PayPal itself. If the original payer is a foreign client and the payment is in foreign currency, it's an export. PayPal may deduct its fee; this fee may include 18% GST if PayPal bills you from an Indian entity. You can claim ITC on PayPal fees if you have a proper invoice. The date of receipt for GST is when the funds are credited to your PayPal account, not when you transfer to your bank. Maintain transaction statements showing the original payer.

GST on Payments Received Through Wise

Wise (formerly TransferWise) facilitates cross‑border payments. The source of funds and currency determine GST treatment. If a foreign client pays you via Wise in a foreign currency that is then converted to INR, the underlying transaction is an export. Wise's fee may carry GST if billed from an Indian entity. The conversion rate used by Wise at the time of transaction should be used for determining the INR equivalent for your export invoice. Keep the Wise transaction receipt as proof.

GST on Payments Received Through Payoneer

Similar to PayPal and Wise, Payoneer is a payment platform. Payments received from foreign clients via Payoneer in foreign currency are exports. Payoneer may charge an annual fee or per‑transaction fee, which may include GST if billed from an Indian entity. Claim ITC on those fees. The key is to have proof that the original payer is abroad and the currency was foreign. Payoneer provides transaction reports that serve this purpose.

LUT (Letter of Undertaking) for Foreign Payments

An LUT is a declaration on the GST portal that allows you to export services without paying IGST at the time of export. If you receive foreign payments, you should file an LUT before your first export of the financial year. The process is online and free. Without LUT, you must pay IGST on every export invoice and claim a refund, which ties up working capital. DisyTax files LUTs for professionals within 24 hours.

Do You Need to Charge GST on Foreign Clients?

No, you should not charge GST to foreign clients. Export of services is zero‑rated. You issue an export invoice without GST and mention that the supply is under LUT. Charging GST on a foreign client would be incorrect and could lead to compliance issues. The only exception is if the transaction does not meet the export conditions – e.g., payment is received in INR or the place of supply is India. In such cases, it's a domestic supply, and 18% GST applies.

GST Invoice Format for Foreign Clients

Your export invoice must include:

• Your name, address, and GSTIN
• Client's full name and foreign address
• Invoice number and date
• Description of services, HSN/SAC code
• Value in foreign currency and INR equivalent
• Declaration: "Supply meant for export under LUT without payment of IGST"
• Country of destination

Use our GST invoice format for a compliant template. Even though no tax is collected, the invoice is a legal record.

FIRC and BRC Requirements for GST Export Benefits

FIRC (Foreign Inward Remittance Certificate) or BRC (Bank Realisation Certificate) is proof of receipt of foreign exchange. For GST refunds or audits, these documents are important. Your bank issues FIRC for each inward remittance. If you use PayPal, Wise, or Payoneer, you can use the platform's transaction statement showing the payer and amount as evidence, along with your bank statement showing the credit. Retain all records for at least 72 months.

Place of Supply Rules for Foreign Payments

For services exported to foreign clients, the place of supply is the location of the service recipient – outside India. This is what makes it an export. If the place of supply were in India, the transaction would be a domestic supply. For most B2B services, the place of supply is the recipient's location. For B2C services, specific rules apply. Always determine the place of supply correctly to avoid mis‑classification. Our place of supply for services guide covers this in detail.

GST Return Filing for Export of Services

Registered exporters must file:

• GSTR‑1: Report all export invoices in Table 6A – with or without IGST payment. Due 11th (monthly) or 13th after quarter (QRMP).
• GSTR‑3B: Report export turnover as zero‑rated supply. Claim ITC. Due 20th (monthly) or 22nd‑24th (QRMP).
• GSTR‑9: Annual return.

Even with only exports and no tax payable, you must file returns. Late filing attracts ₹50/day penalty. Our GST return filing guide is useful.

GSTR‑1 Reporting of Foreign Payments

In GSTR‑1, you report export invoices in Table 6A. For services, enter the invoice number, date, value in INR, and select "Without payment of IGST" if you filed LUT. For the shipping bill/port code, you can enter "999999" or as advised. Accurate reporting is critical because the GST system validates the LUT. Any mismatch can lead to refund delays or notices. DisyTax ensures your export data is correctly reported.

Input Tax Credit (ITC) on Export Services

Exports being zero‑rated, you cannot set off ITC against output tax (since there's none). However, you can accumulate ITC and claim it as a refund. Eligible ITC includes:

• Laptops, computers, and office equipment
• Software subscriptions and cloud services
• Internet, phone, and co‑working space expenses
• Professional services (legal, accounting)
• Payment gateway and platform fees

File refund in Form GST RFD‑01. Our ITC guide and GST refund guide provide step‑by‑step instructions.

GST Refund on Export of Services

Since exports are zero‑rated, the GST you paid on inputs becomes a refundable amount. You can claim a refund of accumulated ITC using Form GST RFD‑01. The refund is processed within 60 days. Ensure your GSTR‑1 and GSTR‑3B are filed and that there are no mismatches. For regular exporters, this refund can be a significant cash flow benefit. DisyTax assists in end‑to‑end refund filing and follow‑up.

Common GST Mistakes Related to Foreign Payments

Frequently Asked Questions (FAQs) on GST on Foreign Payments

📚 Essential GST Resources for Foreign Payments