Invoicing overseas clients from India

Export of services under GST in outline

Under the IGST Act, a supply of services counts as an export when the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange (or in Indian rupees where the Reserve Bank permits), and the supplier and recipient are not merely establishments of the same person. If any condition fails, the supply is treated as domestic and attracts GST in the usual way.

Exports are zero-rated, which means no tax burden remains on the supply. Whether your particular contract qualifies depends on facts such as where the service is used and who receives it, so have your chartered accountant review the first few contracts and write down the conclusion for each client.

A worked example: a Hyderabad software firm builds a module for a Singapore client for 8,000 US dollars. The firm is registered, the client is outside India, the service is used abroad and payment arrives in foreign exchange, so the invoice is likely an export of services supplied under an LUT. The same firm billing an Indian subsidiary of that client for the same work would charge GST normally. The facts, not the client's brand, decide the treatment.

LUT or pay-and-refund

A registered exporter has two routes. The first is to supply under a Letter of Undertaking, furnished online on the GST portal for the financial year, and charge no IGST. The second is to charge IGST and claim a refund later. The LUT route avoids locking up cash in tax and is the usual choice for service exporters, though eligibility conditions apply.

Renew the LUT at the start of each financial year, because an invoice issued under an expired undertaking is a problem you will meet at the worst time. Put the renewal date in the same calendar as your other compliance dates and quote the LUT reference on invoices as your adviser instructs.

If a refund route is chosen instead, the unutilised input tax credit or the IGST paid can be claimed, but refund applications take time and are scrutinised. Ask your accountant to model the cash-flow effect over a quarter before choosing.

What the invoice should show

A clean export invoice carries your GSTIN and registered address, the client's legal name and address in their country, a sequential invoice number, the description of the service with its SAC code, the amount in the agreed currency, the payment terms and the bank details for remittance. It should also state that the supply is made under LUT without payment of IGST, if that is the route you use.

Ask your accountant how to show the rupee equivalent and which exchange rate to use, since the rules on conversion date and the books of account are technical. Whatever method is chosen, apply it to every invoice.

Standard payment terms for overseas clients are net 15, net 30 or net 45 days from the invoice date; choose one, state it on the invoice and keep it the same across clients so that your cash forecast is simple. Mention late-payment interest in the contract rather than on a reminder, where it looks like a threat.

Getting paid: remittances, charges and proof

Foreign payments reach you through your bank, which acts as authorised dealer. Ask the bank for the foreign inward remittance advice or certificate for each payment, because it links the money to the invoice and is the evidence of realisation of export proceeds. Banks deduct charges, and intermediary banks sometimes do too, so the amount credited can differ from the invoice amount.

Some foreign clients withhold tax at source in their own country, particularly under treaties. If that happens, ask for the withholding certificate, since it supports a claim for credit in India and explains the shortfall to your accountant.

Keep an eye on exchange-rate movement between the invoice date and the payment date. If you bill in dollars and the rupee moves two per cent against you before payment, your margin takes the hit. Some firms price in a buffer, others ask for part of the fee in advance; whichever you choose, decide it in the contract.

Following up on late payments

Overseas clients pay on their own calendar, shaped by their approval cycles and time zones. Agree payment terms in writing, send the invoice the day the milestone is met and diarise a reminder for the day before the due date. A short polite e-mail, written by you, usually works better than a chain of automated notices.

4notify can be used for SMS or WhatsApp reminders where the client has agreed to be contacted that way; you write and send each message yourself. Record every reminder in the client's record in 4softcrm so the next person who calls knows what has already been said.

Records for your accountant

At month-end, give your accountant the export invoices, the remittance advices, the LUT reference and any withholding certificates in one folder. A reconciliation that lists invoice number, currency, amount, date received and bank credit for each export prevents the most common confusion, which is a payment that cannot be matched to an invoice.

4invoices does not file GST returns, generate an IRN or interact with any tax portal. It keeps the documents ready; filing and refunds are handled by your accountant.

A tidy export file at year end also supports applications for loans and tenders that ask for export turnover, because you can show invoices, remittances and client names for each period without reconstructing them from email.

If the supply meets the conditions for export of services, it is zero-rated: you either supply under a Letter of Undertaking without paying IGST or pay IGST and claim a refund. If any condition fails, GST applies as for a domestic supply. Have your accountant confirm each type of engagement. Keep the reasoning for each client in writing so that an auditor or officer can follow it later.

An LUT is a declaration, filed online on the GST portal for each financial year, that allows a registered exporter to supply without paying IGST. Eligibility conditions apply, and the undertaking must be renewed every year. An invoice issued after the LUT has expired can create a tax liability. Your accountant will confirm whether you are eligible and how to file it for the year.

Use the currency agreed in the contract, commonly USD, EUR or GBP, as long as payment is received in convertible foreign exchange. Show the amount clearly and ask your accountant how to record the rupee equivalent. Choose one method and apply it consistently. Show the bank charges clause in the contract so that short payments are not a surprise.

No. 4invoices creates PDF invoices in the currency you choose, offers payment links and stores invoices in an archive. It does not generate an IRN, file GST returns, issue remittance certificates or communicate with the GST Network, so filing and export formalities remain with your accountant and bank. You keep the supporting export paperwork, and your bank provides the remittance advice.

Bill abroad with confidence

Confirm GST and export treatment with your accountant.