GST on Import and Export of Services in India

The Goods and Services Tax (GST) has unified India’s indirect tax structure and simplified cross-border transactions. However, when it comes to import and export of services, many businesses still face confusion about the place of supply, tax liability, and eligibility for benefits such as zero-rated supply.
This article explains in detail how GST applies to import and export of services in India under the Integrated Goods and Services Tax (IGST) Act, 2017.

1. What is a “Service” under GST?

According to Section 2(102) of the CGST Act, “services” mean anything other than goods, money, and securities, but include activities related to the use of money or its conversion for which a separate consideration is charged.

So, activities like consultancy, software development, marketing, online services, etc., all fall under the definition of “services” for GST purposes.

2. GST on Import of Services

Definition of Import of Services

As per Section 2(11) of the IGST Act, 2017, import of services means:

1. The supplier of service is located outside India;

2. The recipient of service is located in India; and

3. The place of supply of the service is in India.

If all these three conditions are satisfied, it is considered an import of service under GST.

3. Taxability of Imported Services

Imported services are treated as inter-state supplies under Section 7(4) of the IGST Act and are liable to IGST under the reverse charge mechanism (RCM).

Example:

An Indian company avails consultancy services from a firm based in the USA.

• Supplier: Outside India

• Recipient: In India

• Place of supply: In India

Hence, it qualifies as an import of service, and the Indian company must pay IGST under RCM.

4. Input Tax Credit (ITC) on Imported Services

If the imported service is used for business purposes, the recipient can claim ITC of the IGST paid under reverse charge.
However, if used for personal purposes or exempt supplies, ITC cannot be availed.

5. GST on Export of Services

Definition of Export of Services

As per Section 2(6) of the IGST Act, export of services means the supply of any service when:

1. The supplier is located in India;

2. The recipient is located outside India;

3. The place of supply is outside India;

4. The payment for such service is received in convertible foreign exchange or in Indian rupees permitted by RBI; and

5. The supplier and recipient are not merely establishments of the same person.

If all five conditions are fulfilled, the service is considered export of service.

6. Taxability of Exported Services

Under GST, export of services are treated as “zero-rated supplies” under Section 16 of the IGST Act. This means:

• No GST is payable on export of services; and

• The exporter is eligible to claim refund of input tax credit (ITC) used in making such exports.

7. Options for Exporters under GST

Exporters have two options to handle GST:

1. Export with payment of IGST

   • Pay IGST on export invoices and later claim refund of the IGST paid.

2. Export without payment of IGST (under LUT/Bond)

   • Furnish a Letter of Undertaking (LUT) or Bond and export services without paying IGST.

   • Later, claim refund of unutilized ITC accumulated on inputs and input services.

8. Key Differences: Import vs Export of Services under GST

9. Common Compliance Issues

1. Incorrect place of supply determination – leading to wrong tax payment.

2. Failure to pay IGST under RCM on imported services.

3. Not filing LUT/Bond before exporting services.

4. Mismatch in invoices and foreign exchange receipts delaying refund claims.

5. Late filing of refund applications beyond the prescribed limitation period.

10. Practical Examples

1. Digital Marketing Service Purchased from Abroad – If an Indian company hires a UK-based agency, it must pay IGST under RCM.

2. IT Service Exported to the US – If an Indian software firm provides coding services to a US client and receives payment in USD, it qualifies as an export of service and is zero-rated.

Key Takeaways

Understanding GST implications on import and export of services is essential for businesses engaged in cross-border transactions.
While import of services attracts GST under reverse charge, export of services enjoys zero-rated benefits under the law. Proper documentation, compliance, and refund management can ensure businesses remain GST-efficient and avoid unnecessary penalties or delays.