GST on Advance received towards Export of Services without payment of IGST(Under LUT), Goods and Services Tax - GST

[Mahendra N]

Dear Sirs,

In case of export of services without payment of IGST mechanism, do we have to pay GST on advance received by the service provider from service recipient ?

Where LUT is also filed, and a zero rate supply of service is made, advance received in Aug 24 and Invoice raised in Dec 24.

Please advise

Thanks

Posts / Replies

[Sadanand Bulbule]

In my opinion, since the services are exported without the payment of IGST under LUT scheme, there is no need to pay tax on advances received.However Section 13 of the CGST Act determines the time of supply of services.

[KASTURI SETHI]

Q. In case of export of services without payment of IGST mechanism, do we have to pay GST on advance received by the service provider from service recipient  ?

Reply : NO, it being zero rated.

Q. Where LUT is also filed, and a zero rate supply of service is made, advance received in Aug 24 and Invoice raised in Dec 24.

Reply : Advance itself is not ''consideration"  The advance received in August, 24 will become "consideration''  in December, 24 i.e. at the time of issuance of invoice. 

     Both situations are covered  under Zero rated supply.

   Here  time of supply of service is relevant only for Rate of tax existed  on the date of receipt of advance. 

[YAGAY andSUN]

You've articulated the issue quite well, and your conclusion is mostly correct — but let’s walk through it step-by-step, using the legal provisions for clarity and completeness. This is important, especially when documenting for audit or departmental queries.

🧾 Key Legal Provisions Involved

1. Section 16 of the IGST Act, 2017
   ➤ Exports of goods or services are treated as "zero-rated supplies".
   ➤ Zero-rated supplies may be made:

   • With payment of IGST (refund of tax paid), or

   • Without payment of IGST under LUT (Letter of Undertaking) with refund of input tax credit (ITC).

2. Section 13 of the CGST Act, 2017 – Time of supply of services
   ➤ The time of supply is the earliest of:

   • Date of invoice, or

   • Date of receipt of payment (to the extent of payment received)

3. Rule 96A of CGST Rules
   ➤ LUT must be filed to export without payment of IGST.

❓ Your Core Question:

Do we need to pay GST on advance received in case of export of services under LUT (without payment of IGST)?

✅ Correct Answer: No GST is payable on advance, if supply is zero-rated under LUT.

✔ Why?

• As per Section 16(3) of the IGST Act, exports made under LUT are exempt from payment of tax, though they are still taxable supplies (i.e., must be reported).

• Even if Section 13 deems time of supply at the time of receipt of advance, no tax is payable, since zero-rated supplies are made without payment of IGST (under LUT).

• This position is consistent with CBIC clarifications and AAR rulings.

🧾 CBIC Clarification:

Circular No. 45/19/2018-GST dated 30th May 2018 confirms:

In the case of zero-rated supplies made without payment of tax under LUT, there is no liability to pay GST on advances received for such supplies.

🧩 Regarding Your Observation:

"Advance itself is not consideration" — it becomes consideration only when invoice is issued.

🔴 That’s not legally accurate under GST.

➤ Advance is indeed “consideration”, as per Section 2(31) of the CGST Act:

Consideration includes advance payments made or to be made...

However, in your case, **the liability to pay GST on this advance is zero, because:

• The supply is zero-rated

• It is made under LUT without payment of tax

• No restriction applies to timing of zero-rating benefit

🔍 Treatment in Your Case:

Item	Details
Type of Supply	Export of service
Payment received	August 2024
Invoice issued	December 2024
LUT filed	Yes
Tax payable on advance?	❌ No
Reporting in GSTR-1 & GSTR-3B	✅ Yes, at the time of invoice under zero-rated section

📝 Final Answer Summary:

❌ No, GST is not payable on advance received for export of services made under LUT without payment of IGST, even though Section 13 determines the time of supply on receipt of advance. The transaction is covered under zero-rated supply provisions of Section 16 of the IGST Act, and exempt from actual tax liability, though reporting remains mandatory.

*** 

[YAGAY andSUN]

Here's a concise and audit-ready one-paragraph note you can include in your tax audit file and internal GST SOP:

Draft Note on GST Treatment of Advance Received Against Export of Services Under LUT

In accordance with Section 16 of the IGST Act, 2017, export of services qualifies as a zero-rated supply. Where such export is undertaken without payment of IGST under a valid Letter of Undertaking (LUT) as per Rule 96A of the CGST Rules, no GST is payable on advances received from the foreign service recipient. Although Section 13 of the CGST Act deems the time of supply to be the earlier of receipt of payment or issuance of invoice, the advance received is not taxable due to the zero-rated nature of the underlying supply. This position is further supported by CBIC Circular No. 45/19/2018-GST dated 30 May 2018, which clarifies that GST is not payable on advances for exports under LUT. However, the transaction must be appropriately reported in the relevant GST returns (GSTR-1 and GSTR-3B) at the time of invoice issuance to ensure compliance.

***