Exports are the one area where GST deliberately charges nothing to the overseas buyer — but 'zero-rated' is very different from 'exempt', and understanding that distinction can meaningfully affect how much cash an exporting business gets back through refunds.

What Zero-Rated Supply Means

Under Section 16 of the IGST Act, two categories of supply are specifically treated as 'zero-rated supplies': the export of goods or services out of India, and supply of goods or services to a Special Economic Zone (SEZ) developer or SEZ unit. In both cases, GST is charged at 0% — but crucially, the exporter or SEZ supplier remains fully entitled to claim Input Tax Credit on the inputs and input services used to make that supply, unlike a genuinely exempt supply where no such credit is available.

Two Routes for Exporters

•      Export under a Letter of Undertaking (LUT) or Bond, without payment of IGST — the exporter does not charge or pay IGST on the export invoice, and instead claims a refund of accumulated, unutilised Input Tax Credit relating to that export

•      Export on payment of IGST — the exporter pays IGST upfront on the export invoice at the applicable rate, and subsequently claims a refund of that IGST actually paid, which in the case of goods exports is often processed largely automatically based on shipping bill and export general manifest data

Deemed Exports

Certain domestic supplies, though the goods don't actually leave India, are notified as 'deemed exports' under Section 147 of the CGST Act — such as supply of goods to Export Oriented Units (EOUs), supply against Advance Authorisation, and supply of capital goods against Export Promotion Capital Goods (EPCG) authorisation. These are eligible for a refund mechanism, though typically GST is paid at the time of supply and refunded later, rather than being zero-rated at the point of sale.

Key Documentation for Export Refunds

•      Shipping Bill / Bill of Export, filed with Customs, for export of goods

•      Letter of Undertaking (LUT), filed annually on the GST portal in Form GST RFD-11, if exporting without upfront tax payment

•      Export invoice, clearly marked as 'SUPPLY MEANT FOR EXPORT UNDER LUT/BOND WITHOUT PAYMENT OF INTEGRATED TAX' or 'SUPPLY MEANT FOR EXPORT ON PAYMENT OF INTEGRATED TAX', as applicable

•      Foreign Inward Remittance Certificate (FIRC) or Bank Realisation Certificate (BRC), as proof of receipt of export proceeds in convertible foreign exchange, particularly for services

•      For SEZ supplies: an endorsement from the SEZ officer confirming receipt of goods/services, along with the SEZ unit's Letter of Approval details

Why Exporters Prefer the LUT Route

Most exporters, particularly those with a regular export business, prefer the LUT route over paying IGST upfront and claiming a refund, since it avoids locking up working capital in tax payments that then need to be recovered through the refund process — LUT-based exports simply require refunding the accumulated ITC on inputs, which, while still a process, doesn't involve the exporter funding the government's tax revenue temporarily on every single export transaction.

Frequently Asked Questions

Q1. Is GST charged on exports from India?

A. No — exports are zero-rated, meaning the GST rate applicable is effectively 0%, and no tax is charged to the overseas buyer, while the exporter retains full ITC eligibility on related inputs.

Q2. What's the difference between 'zero-rated' and 'exempt' supply?

A. Both mean no tax is charged to the customer, but a zero-rated supplier can still claim and get a refund of Input Tax Credit related to that supply, while a supplier of an exempt supply cannot claim any ITC at all on inputs used for that supply.

Q3. What is an LUT and why does it matter?

A. A Letter of Undertaking is a self-declaration filed annually by an exporter on the GST portal, allowing them to export without paying IGST upfront — avoiding the cash flow hit of paying tax and then waiting for a refund on every export transaction.

Q4. Are supplies to an SEZ always zero-rated, even within the same state?

A. Yes, supplies to an SEZ developer or SEZ unit are treated as zero-rated supplies under the IGST Act, regardless of whether the supplier and the SEZ are located in the same state or different states.

Q5. What documents are essential for claiming an export-related GST refund?

A. Primarily the shipping bill/bill of export (for goods) or FIRC/BRC (for services), the relevant export invoices, and the LUT (if exporting without IGST payment) — all linked together for the refund application.

Q6. What are deemed exports, and how do they differ from actual exports?

A. Deemed exports are specifically notified domestic supplies (like to EOUs, or against Advance Authorisation/EPCG) where the goods never actually leave India, but which are still granted export-like refund benefits due to their role in supporting India's export ecosystem.