Services from an Indian contractor to a foreign client qualify as 'export of services' under GST — meaning zero-rated supply. The contractor doesn't add GST to your invoice, but the invoice itself must still meet GST-compliant invoice rules (if the contractor is GST-registered).
When the contractor must issue a GST invoice
- Contractor's aggregate annual turnover exceeds ₹20 lakhs (₹10 lakhs in some states) — they're GST-registered and issue GST-format invoices.
- Even if exports are zero-rated, GST-registered contractors issue tax invoices for all supplies.
- Below the threshold, contractor is unregistered and issues a simple commercial invoice (no GST format required).
Required fields on a GST invoice for export
- Contractor's name, address, GSTIN.
- Invoice number (sequential, unique within the financial year).
- Invoice date.
- Customer (foreign payer) name and address.
- Description of services.
- HSN / SAC code (Services Accounting Code — typically 998313 for IT software services, 998314 for management consulting, etc.).
- Amount in foreign currency (USD / GBP / EUR).
- Indian rupee equivalent (at the GST-prescribed exchange rate).
- Tax rate: 0% (zero-rated supply).
- Total invoice value.
- Endorsement: 'SUPPLY MEANT FOR EXPORT WITH PAYMENT OF INTEGRATED TAX' OR 'SUPPLY MEANT FOR EXPORT UNDER LUT WITHOUT PAYMENT OF INTEGRATED TAX'.
- Contractor's signature or digital signature.
LUT vs. payment of IGST — two paths
| Path | Mechanics | Cash flow |
|---|---|---|
| Letter of Undertaking (LUT) | Contractor files LUT with GST department once a year; exports without paying IGST | Cleanest — no GST cash outflow |
| Pay IGST and claim refund | Contractor pays IGST on the export invoice; claims refund later | Cash tied up 60-90 days waiting for refund |
Most established contractors use LUT for export of services. Newer contractors sometimes pay IGST and refund — works but cash-flow heavier.
GST setup for your contractors included
FastLegal's Contractor plan helps your Indian contractors file LUT annually (free service), set up GST-compliant invoice templates, and file quarterly GST returns. Their cash flow stays clean; your invoices stay audit-defensible.
What foreign payers should verify
- Contractor's GSTIN listed on the invoice — verify it's valid via GSTIN search.
- Amount in foreign currency matches what was agreed.
- INR conversion rate is the GST-prescribed rate (typically bank-published rate on invoice date).
- Tax rate is 0% (zero-rated) — not 18%. If contractor charges 18% to foreign payer, something's wrong.
- Invoice number is sequential and unique.
- Service description matches the work performed.
Why foreign payer pays no GST
Export of services under Section 13(3) of the IGST Act is zero-rated when:
- The supplier of service is located in India.
- The recipient is located outside India.
- The place of supply is outside India (typically based on recipient's location).
- Payment is received in convertible foreign exchange (FIRC documents this).
- Supplier and recipient are not merely establishments of distinct persons.
All five conditions met → zero-rated export. No Indian GST on the foreign payer.
Frequently asked questions
What if our contractor isn't GST-registered?+
Below threshold (~₹20L annual turnover), no GST registration needed. Contractor issues a regular commercial invoice. Same zero-rated effect — no GST charged.
Can we ask the contractor to invoice in USD?+
Yes — most contractors invoice in foreign currency for international clients. They convert to INR for their GST records using the prescribed exchange rate.
Should the contractor include their PAN on the invoice?+
Not required for GST. Useful for your records. PAN is required on the invoice if TDS is to be deducted (which doesn't apply for foreign payers).
What if the contractor charges us GST by mistake?+
Request a corrected invoice. Foreign payers should never see GST on an export-of-services invoice. If the contractor charges and remits GST, they'd need to claim refund themselves.
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