Taxation & Compliance
Posted on Jul 28, 2025
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One of the biggest challenges as an Indian freelancer working with international clients is navigating GST compliance. It often feels very confusing—should you export services under an LUT (Letter of Undertaking) or go with the IGST + refund route?
LUT keeps your cash flowing, while GST refund creates a clear paper trail of tax payments.
In this article, we’ll walk you through the benefits and disadvantages of LUT in GST vs GST refund to help you decide which option suits you best.
Understanding GST for Freelancers Offering Export Services
Before deciding between LUT or refunds, you need to understand how GST works for exports.
Who needs GST registration?
If you’re an Indian freelancer making over ₹20 lakhs annually (₹10 lakhs in special category states), GST registration is mandatory.
But if you are exporting services, even below the threshold, you still need to register for GST for international payments. Even if you fall below this limit, many international clients prefer working with GST-registered freelancers for compliance purposes.
In fact, many professionals take GST registration voluntarily to get zero-rated export benefits and claim Input Tax Credit (ITC).
What qualifies as ‘Export of Services’ under GST?
Your services will be treated as an export, and fall under zero-rated under GST, it you meet the following conditions:
You (the service provider) are in India.
Your client is outside India.
The service is supplied outside India.
Payment is received in convertible foreign currency (e.g., USD, EUR).
You and your client are not just two branches of the same company.
What Is LUT in GST?
LUT full form is Letter of Undertaking (LUT). It’s an electronic declaration you file with the GST department, allowing you to export services without paying Integrated GST (IGST) upfront.
Under GST rules, exports are considered zero-rated, which means they aren’t taxed. However, if you don’t file an LUT, you're required to first pay IGST on your invoices and then apply for a refund—a process that can be slow and cash-draining.
With an LUT in place, you can raise international invoices without charging IGST, saving time, effort, and most importantly, preserving your cash flow.
The good news? Any registered freelancer or business can apply for an LUT—as long as you haven’t been charged with serious tax offences (i.e., tax evasion over ₹2.5 crore). The application is typically filed once a financial year through the GST portal, and the approval process is fairly straightforward.
How to apply for LUT?
Log in at gst.gov.in.
Go to “Services” → “User Services” → “Furnish LUT”.
Fill out Form RFD‑11 and submit.
Approval is usually instant or within three days. Renew every financial year.
Benefits of LUT for freelancers
No GST outflow or refund headache, which means better cash flow.
Minimal paperwork; one-time annual filing.
Best for regular exporters or long-term overseas clients.
Pros of LUT in GST | Cons of LUT in GST |
No need to file GST returns or manage GST-related paperwork | You can't issue GST-compliant invoices |
Fewer processes, less paperwork, and reduced need for a CA/accountant | May face issues with clients who expect formal tax compliance |
Saves costs on tax filing software or professional help | No input tax credit available; may lose out on certain business expenses |
Ideal if you're below the ₹20 lakh (or ₹10 lakh in some states) threshold | Risk of penalties if income crosses the threshold without registering |
Suitable for informal gigs or smaller projects | May appear less professional to international or corporate clients |
Works well for part-time or early-stage freelancers | Can hinder growth or limit access to higher-value projects |
What Is GST Refund for Export of Services?
A GST refund for export of services helps you reclaim the GST you've paid on inputs, software, or other services you use while working for international clients.
Under Indian GST law, exports of both goods and services are treated as "zero-rated supplies," meaning they are not taxed. However, exporters may still accumulate GST credit on purchases, which they can later claim as a refund to prevent tax cascading and improve liquidity
Here’s how you can get GST refunds on international payments:
Pay IGST on your international invoice.
File your returns (GSTR-1 and GSTR-3B) as usual.
Submit refund claims online using Form RFD-01, along with documents like shipping bills, FIRC/BRC (proof of payment), and invoice details.
Ideally, the refund is processed within 15–30 days, but it can get delayed at times. If the government takes longer (beyond 60 days), you’ll get interest on the pending amount.
With this you don’t have to file an LUT in advance. GST on foreign exchange is more suitable for freelancers who export services occasionally or aren’t sure about consistent international projects.
Read More: What is GST E-Invoicing?
Pros and cons of GST refund for export of services
Pros | Cons |
No GST burden on export services. | Refund application process can be complex and documentation-intensive. |
Frees up working capital via timely refund of ITC. | Delay in processing refunds may impact cash flow for exporters. |
Enables exporters to offer competitive pricing in international markets. | Risk of refund rejection due to non-compliance or errors in filings. |
Facilitates ease of doing business for Indian exporters. | May require maintenance of detailed records and reconciliations. |
LUT vs GST Refund: Key Differences
Choosing between the LUT vs GST refund route can impact your cashflow and overall compliance burden. Let’s compare the two to help you pick the best option as per your business needs:
Feature | LUT under GST | GST Refund Route |
Tax Payment | No upfront GST payment needed | Pay GST first, get refund later |
Cash Flow | Uninterrupted, smooth | Cash tied up until refund arrives |
Paperwork | Minimal (usually once a year) | Lengthy; documents for every refund claim |
Filing Frequency | One-time or annual | Each invoice or every refund claim |
Best For | Frequent exporters, service providers, freelancers | Occasional exporters needing flexibility |
Processing Time | Immediate—start exporting right away | Refund can take weeks or even months |
Compliance Risk | Lower, as there are fewer returns | Higher, due to numerous filings |
Ease of Doing Business | Highly convenient for regular exporters | More cumbersome; administrative effort |
Eligibility | Must furnish LUT; not available for taxpayers with significant default history | Open to all, including those without LUT |
Control Over Funds | Maximum—your money stays with you | Less—capital is blocked with the tax authorities until refunded |
LUT in GST vs GST Refund: Which Is Better for Freelancers?
Choosing between LUT and GST refund depends on how often you work with international clients and how you manage cash flow.
Get an LUT if you:
Have recurring international clients.
Hate paperwork and want your payments on time.
Want to focus on your work, not GST compliance.
GST refund will work better if you:
Export services occasionally or on a one-off basis.
Missed filing your LUT for the financial year.
Are comfortable with the standard process of paying IGST first and claiming it back later.
Read More: IEC Code vs Export Licence: What’s the Difference?
How to File LUT Online – Quick Guide
Here’s a step-by-step, easy-to-follow guide to help you file your LUT in no time:
Log in to the GST portal with your credentials.
Go to “Services” > “User Services” > “Furnish LUT.”
You’ll now see Form GST RFD-11, which is used to furnish your LUT. Here’s what you’ll need to do:
Select the financial year for which you want to apply.
Pre-filled details (like GSTIN, name, etc.) will appear; verify them.
Accept the declaration by checking all the required boxes.
Upload any supporting documents if needed (usually not required unless requested).
Provide witness details (name, address, occupation).
Use DSC (Digital Signature Certificate) or EVC (Electronic Verification Code via OTP) to sign the form, depending on your entity type.
Upon submission, you’ll receive an Acknowledgment Reference Number (ARN) as confirmation.
Note: The LUT is valid for one financial year (April to March). You must renew it every year before it expires to continue enjoying zero-rated exports without paying GST.
Receive International Payments at Low Costs
Both LUT and GST Refund allow freelancers to export services without GST eating into your profits. However, LUT stands out for its simplicity, efficiency, and minimal paperwork, especially crucial for regular exporters.
Freelancers usually benefit the most from the LUT route. If you only export occasionally or miss filing LUT, the refund route still works, though it may test your patience with delays and extra documentation.
If you are looking for a simple solution to receive international payments from clients in the US, UK, Germany, or any other country, try Infinity. It charges 0.5% flat transaction fee on all payments and processes transactions within 24 hours.
Sign up for Infinity today!
FAQs
Do I need to take LUT for freelancing with international clients?
LUT in GST is not necessary for international clients. But it helps you skip the whole process of paying IGST and claiming a refund later.
What if I forget to file LUT?
If you forget to file LUT, you’ll need to pay IGST on your export invoices and then claim a refund, which takes time and ties up your cash.
What is the timeline for GST refund?
You can get a GST refund in ideally 15–30 days, but it may sometimes stretch to several weeks or months. Make sure you maintain proper filing and documentation are essential for faster processing.
Can I switch from refund to LUT mid-year?
Yes, you can switch by filing an LUT for the remaining period of the financial year. It becomes effective from the date of filing and approval.
