Multi-Currency, Exports, and Zero-Rated Supplies
Exporting goods under GST, LUT filing, forex accounting, and Tally multi-currency setup
Learning Objectives
- Understand how exports are treated under GST (zero-rated supply)
- Know the two options for exporting — with IGST or under LUT
- File a Letter of Undertaking (LUT) correctly
- Record foreign currency transactions in books and handle forex gain/loss
- Configure multi-currency in Tally Prime for Sunrise Retail's UAE export
Exports and GST — Zero-Rated Supply
Export of goods and supply to SEZ (Special Economic Zone) are treated as zero-rated supplies under GST. This means:
- GST rate on the supply = 0%
- The exporter can still claim ITC on all inputs used to produce/procure the exported goods
- No tax on the export invoice itself
This is fundamentally different from exempt supplies where ITC is also blocked. Zero-rated means zero tax to customer AND full ITC for the supplier.
Two Options for Exports
| Option | Process | Benefit | When to Use |
|---|---|---|---|
| Export with payment of IGST | Charge 18% IGST on export invoice → claim refund of IGST paid | Simpler, no application needed | Occasional exporters |
| Export under LUT (without IGST) | File LUT → export invoice shows zero GST | No cash blockage; ITC refund or setoff | Regular exporters |
For businesses with significant exports, LUT is always better — you don't block cash by paying IGST and then waiting for a refund.
Letter of Undertaking (LUT)
LUT is a self-declaration that the exporter gives to the GST department, undertaking to:
- Export goods/services within the stipulated time
- Realise foreign exchange within the time limit (goods: 1 year; services: 1 year or date of completion of services, whichever is earlier)
- Pay IGST with interest if export obligation is not fulfilled
Who Can File LUT?
Any GST-registered exporter can file LUT, EXCEPT:
- Persons charged with or convicted of tax evasion exceeding ₹2.5 Crore
LUT Filing Process
Once filed, LUT is valid for the entire financial year. Filed annually.
Time limit for export after LUT: 3 months from date of export invoice for goods (extendable).
Import of Goods — GST at Customs
When goods are imported into India, IGST + Customs Duty + Social Welfare Surcharge are levied at the port of entry.
The IGST paid at customs is available as ITC in GSTR-3B (Table 4(A)(1) — ITC on import of goods).
Forex Accounting — Recording Foreign Currency Transactions
When Sunrise Retail invoices in USD (or receives payment in USD), three exchange rates matter:
| Rate | When Used |
|---|---|
| Invoice rate | Rate on the date of invoice — GST calculated at this rate |
| RBI rate / CBIC rate | For GST purposes (customs uses CBIC rate; export invoice GST uses RBI reference rate) |
| Settlement rate | Rate on date of actual payment — used to record forex gain/loss |
Forex Gain/Loss
If the USD rate changes between invoice date and payment date:
| Rate movement | Effect |
|---|---|
| USD strengthens (₹83 → ₹85) | Forex GAIN — you receive more INR than expected |
| USD weakens (₹83 → ₹80) | Forex LOSS — you receive less INR than expected |
This gain/loss is a non-GST item — it goes to P&L as Forex Gain/Loss. No GST on forex fluctuations.
Sunrise Retail — Case Study Application
💼 Sunrise Retail Pvt Ltd — First Export Consignment
Kiran receives an inquiry from Al Noor Electronics LLC, Dubai (UAE) for 10 laptops. The deal is agreed: USD 35,000 (₹83/USD rate on invoice date = ₹29,05,000).
Step 1 — File LUT Before Invoicing
[Sneha files LUT on GST portal on April 1, 2025 for FY 2025-26. ARN generated.]
Condition: Sunrise Retail must export within 3 months of invoice date and receive foreign exchange within 12 months.
Step 2 — Export Invoice
Key points on the export invoice:
- The invoice must state "Supply meant for export under LUT"
- IGST column = NIL (not zero-rated tax — zero means no tax charged)
- INR equivalent is mandatory for GST purposes (calculated at RBI reference rate on invoice date)
Step 3 — Shipping Bill and Customs
Goods shipped from Mumbai (JNPT). Shipping Bill filed with customs. Customs clearance obtained.
Step 4 — Journal Entry in Books (Invoice Date: 20-Apr-2025)
| Account | Debit | Credit |
|---|---|---|
| Al Noor Electronics (Debtor) | ₹29,05,000 | |
| Export Sales A/c | ₹29,05,000 |
No GST entry because the supply is zero-rated (no tax charged).
Step 5 — Payment Received (15-May-2025, Rate: ₹84/USD)
Al Noor pays USD 35,000 on 15th May. Bank receives ₹29,40,000 (35,000 × ₹84).
| Account | Debit | Credit |
|---|---|---|
| SBI Bank A/c (₹29,40,000) | ₹29,40,000 | |
| Al Noor Electronics (Debtor) | ₹29,05,000 | |
| Forex Gain A/c | ₹35,000 |
Forex Gain = ₹29,40,000 received − ₹29,05,000 booked = ₹35,000 gain (USD strengthened)
ITC Position for Exports
Even though the export sale is zero-rated (no GST), Sunrise Retail's input tax credit on the 10 laptops purchased for export is fully available.
If the laptops were purchased from TechWorld at ₹50,000 each + IGST 18% = ₹9,000 per laptop:
- Total IGST paid on inputs: 10 × ₹9,000 = ₹90,000
- This ₹90,000 IGST ITC is available → can be adjusted against other output tax or claimed as refund
Tally Prime — Multi-Currency Setup
[Gateway of Tally → Features → F11 → Accounting Features]
Step 1 — Enable Multi-Currency
Step 2 — Create USD Currency
Step 3 — Set Exchange Rate (for April)
Step 4 — Create Al Noor Electronics Ledger
Step 5 — Export Sales Invoice in Tally
Step 6 — Forex Revaluation (Month-End)
Step 7 — GSTR-1 for Exports in Tally
Worked Example — Export IGST Refund (Without LUT)
If Sunrise Retail had chosen to pay IGST on exports instead of filing LUT:
- Export invoice: ₹29,05,000 + IGST 18% = ₹5,22,900 IGST paid
- Claim refund via RFD-01 on GST portal
- Refund amount: ₹5,22,900
- Processing time: 60 days (faster with LEI and complete documents)
Why LUT is better: Cash is not blocked for 60+ days. At ₹5 Crore export, blocking ₹90 Lakh working capital for 2 months is significant.
Rule 32(2) — Valuation for Money-Changing Services
When a registered dealer's business is buying or selling foreign currency (forex dealers, banks, authorised money changers), the standard "transaction value" doesn't apply — the dealer doesn't separately charge a service fee; their margin is built into the spread between buying and selling rates. The CGST Rules provide a special valuation under Rule 32(2).
Two Options Under Rule 32(2)
A money-changer can elect (annually) between two valuation methods:
Option 1 — Difference Method (Margin-Based)
Taxable value = (Buying / Selling rate − RBI reference rate) × Units of foreign currency
This taxes the actual margin earned by the dealer. Simple in theory, but requires tracking RBI reference rates for every transaction.
Option 2 — Slab Method (Most Commonly Used)
Taxable value is computed as a percentage of the gross transaction amount, by slab:
| Transaction Amount (per deal) | Taxable Value | Floor / Cap |
|---|---|---|
| Up to ₹1 lakh | 1% of gross amount | Minimum ₹250 (so even a tiny conversion attracts at least ₹250 taxable value × 18% = ₹45 GST) |
| ₹1 lakh to ₹10 lakh | ₹1,000 + 0.5% of (amount − ₹1 lakh) | — |
| Above ₹10 lakh | ₹5,500 + 0.1% of (amount − ₹10 lakh) | Maximum ₹60,000 taxable value |
GST is then charged at 18% on this taxable value.
Worked Example — Forex Bureau in Hyderabad
A money-changer at Hyderabad airport converts USD to INR for three customers in a single day:
| Customer | USD Sold | Rate Charged | INR Amount | Taxable Value (Slab Method) | GST @ 18% |
|---|---|---|---|---|---|
| Tourist A | USD 200 (~₹16,600) | ₹83/USD | ₹16,600 | 1% × ₹16,600 = ₹166 → floor: ₹250 | ₹45 |
| Business B | USD 5,000 (~₹4,15,000) | ₹83/USD | ₹4,15,000 | ₹1,000 + 0.5% × ₹3,15,000 = ₹2,575 | ₹464 |
| Corporate C | USD 50,000 (~₹41,50,000) | ₹83/USD | ₹41,50,000 | ₹5,500 + 0.1% × ₹31,50,000 = ₹8,650 (well below ₹60,000 cap) → ₹8,650 | ₹1,557 |
The customer doesn't see "taxable value ₹2,575" — they see the rate ₹83/USD and pay ₹4,15,000. The money-changer back-computes the taxable value from Rule 32(2), pays 18% GST on it, and absorbs that cost in the spread.
For Sunrise Retail: This rule does NOT apply to them — they're a goods trader, not a money-changer. But the underlying concept matters because when Sunrise Retail invoices Al Noor Electronics in USD, the forex gain/loss they book is just spread economics — exactly what Rule 32(2) is designed to tax for dealers whose entire business model is the spread. Sunrise Retail's forex gain of ₹35,000 on the Al Noor invoice is NOT taxable under GST (it's a P&L item from rate fluctuation, not a money-changing service supplied by Sunrise Retail).
SEZ Supplies — Filing Before Shipping Bill is Issued
The Scenario
💼 Hypothetical for learning: Sunrise Retail raises an export invoice to Al Noor Electronics on 20-Sep-2025 for 10 laptops (USD 35,000 ≈ ₹29,05,000). The container is booked, but due to a shipping line delay, the goods don't reach JNPT Mumbai until 2-Oct-2025. Customs assigns the Shipping Bill on 5-Oct-2025. Meanwhile, Sunrise Retail's September GSTR-1 is due 11-Oct-2025.
Question: Sunrise Retail HAS the September invoice but DOESN'T YET have the shipping bill data (port code, SB number, SB date). What goes in GSTR-1 Table 6A?
The Solution — File With Placeholder, Amend Later
There are two officially accepted approaches:
Approach 1 — File With Available Data, Update Later (GSTR-1 Table 9A)
- File September GSTR-1 by 11-Oct-2025
- Table 6A: enter the export invoice with all known fields — Invoice No, Date, Value, GST treatment (LUT/Without LUT)
- Leave Shipping Bill No, Date, and Port Code blank (the portal accepts blank entries here for export invoices where SB is pending)
- Once the SB is assigned (5-Oct-2025 in our scenario), update via Table 9A — Amendment to B2B / Export invoices in October's GSTR-1 (due 11-Nov)
- In Table 9A, find the September invoice → add the SB number, date, port code → submit
Approach 2 — Defer the Invoice to the SB Month
Less clean, but operationally common:
- Don't include the September invoice in September's GSTR-1
- Wait for SB assignment (Oct 2025)
- Include the invoice in October GSTR-1 with full SB details
The issue: the invoice is dated September but appears in October's GSTR-1. This creates a books-vs-returns mismatch that needs explanation at year-end (GSTR-9 Part V — supplies declared in a different period). The cleaner Approach 1 keeps the books-returns alignment intact.
A Cochin-based spice exporter shipped a ₹42 Lakh consignment of pepper to Dubai. The invoice was raised in May 2024 (under LUT, zero-rated). Goods were dispatched, but the shipping bill was issued only on 3-Jul-2024 — 21 days after May's GSTR-1 was filed. The accountant, unfamiliar with Approach 1, did not include the invoice in May GSTR-1 at all, intending to "wait for the SB." The invoice was eventually reported in July 2024 GSTR-1 (after the SB came in). All seemed fine — until the IGST refund claim was filed. The refund route for exports under LUT works via GSTR-3B Table 3.1(b) (zero-rated) matched against GSTR-1 Table 6A. The mismatch in months — invoice in May books but in July's GSTR-1 — flagged the refund. The exporter had to file a clarification with the GST officer, prove the timeline, and the refund of ~₹18 Lakh (accumulated ITC on raw spice purchases) was held up for 5 months. Takeaway: Always file the invoice in the month of the invoice itself. Leave SB fields blank if needed. Amend in the next month's Table 9A once SB is available. Books, returns, and refund claims all stay aligned.
Practice Exercise
Exercise 1: Sunrise Retail exports 5 phones to a buyer in Singapore at SGD 500 each (total SGD 2,500 = ₹1,55,000 at ₹62/SGD). What appears in GSTR-1 for this export?
Show Solution
- Export is zero-rated → IGST = Nil (if under LUT) or IGST paid (if not under LUT)
- Goes in GSTR-1 Table 6 — Zero-Rated Supplies
- Fields: Invoice value = ₹1,55,000 | IGST = 0 (under LUT) | Shipping Bill Number | Port of Export
- HSN 8517, Qty 5 NOS
- In GSTR-3B Section 3.1(b): Taxable value ₹1,55,000, IGST = 0
- ITC on phones purchased for this export is fully available for refund or setoff
Exercise 2: On 20-Apr-2025, Al Noor owes USD 35,000 at ₹83 = ₹29,05,000. On 30-Apr-2025 (month-end), rate is ₹82/USD. What is the forex revaluation entry?
Show Solution
- Closing value: USD 35,000 × ₹82 = ₹28,70,000
- Book value: ₹29,05,000
- Forex Loss: ₹29,05,000 − ₹28,70,000 = ₹35,000 (USD weakened)
| Account | Debit | Credit |
|---|---|---|
| Forex Loss A/c (P&L) | ₹35,000 | |
| Al Noor Electronics (Debtor) | ₹35,000 |
If Al Noor subsequently pays at ₹84, the earlier loss reverses and a net gain of ₹35,000 is recognized on payment.
Key Terms
| Term | Meaning |
|---|---|
| Zero-Rated Supply | Export/SEZ supply — 0% GST but full ITC available on inputs |
| Exempt Supply | Nil-rated supply — 0% GST but no ITC on inputs |
| LUT | Letter of Undertaking — allows export without paying IGST |
| IEC | Import Export Code — mandatory for international trade, issued by DGFT |
| Shipping Bill | Customs export document — generated at the port |
| RFD-01 | GST refund application form |
| Forex Gain/Loss | Difference in INR due to exchange rate fluctuation between invoice and payment |
| CBIC Rate | Customs exchange rate notified by CBIC for import/export GST valuation |
| GSTR-1 Table 6 | Where export (zero-rated) invoices are reported |
| GSTR-3B 3.1(b) | Section for zero-rated outward supplies |
Module Summary
- Exports are zero-rated under GST — no tax charged on the export invoice but full ITC on inputs
- Two export options: pay IGST and claim refund, OR file LUT and export without any IGST
- LUT is filed annually on the GST portal — instant approval, no officer visit needed
- Forex gain/loss on settlement is recorded in P&L — not subject to GST
- Tally multi-currency: enable in F11 → create foreign currency → set exchange rates → invoice in foreign currency → Tally handles INR equivalent automatically
Checklist — what you should now be able to do:
- Advise a client on whether to export with IGST (and claim refund) or under LUT
- File a LUT on the GST portal and confirm the ARN number
- Prepare a zero-rated export invoice with all required fields (including the LUT declaration)
- Record the forex gain/loss journal entry when payment arrives at a different rate
- Configure Tally Prime for USD invoicing including exchange rate history and auto-revaluation
Quick Quiz
1. Exports under GST are classified as:
- a) Exempt supply — no ITC available
- b) Zero-rated supply — full ITC available
- c) Taxable supply at 18%
- d) Nil-rated supply
Answer
b) Zero-rated — exports are zero-rated which means 0% tax but ITC on inputs is fully available (unlike exempt supplies).
2. Sunrise Retail files LUT and exports 10 laptops to Dubai. The export invoice shows IGST:
- a) 18% = ₹5,22,900
- b) 0% = ₹0 (charged to buyer)
- c) NIL (not applicable under LUT)
- d) 12% = ₹3,48,600
Answer
c) NIL — under LUT, IGST is not charged on the export invoice. The export is zero-rated; no tax appears on the invoice at all.
3. Al Noor pays USD 35,000 when the rate is ₹84 vs invoice rate of ₹83. The entry is:
- a) Debit Bank ₹29,05,000; Credit Al Noor ₹29,05,000
- b) Debit Bank ₹29,40,000; Credit Al Noor ₹29,05,000; Credit Forex Gain ₹35,000
- c) Debit Bank ₹29,40,000; Credit Al Noor ₹29,40,000
- d) Debit Forex Loss ₹35,000; Credit Al Noor ₹35,000
Answer
b) Debit Bank ₹29,40,000; Credit Al Noor ₹29,05,000 (clearing the original invoice); Credit Forex Gain ₹35,000 (the additional amount received due to favourable rate).
4. In Tally Prime, which feature must be enabled to record USD invoices?
- a) Cost Centres
- b) Multi-Currency
- c) Bill-Wise Details
- d) Manufacturing Journal
Answer
b) Multi-Currency — enabled via F11 → Accounting Features → Enable Multi-Currency: Yes.
5. ITC on inputs used for exports (zero-rated supplies) is:
- a) Not available — supply is zero-rated
- b) Available and can be claimed as refund or setoff
- c) Available only up to 50%
- d) Available only if LUT is not filed
Answer
b) Available and claimable — the entire purpose of zero-rating is to ensure exports are tax-free at every stage. ITC on inputs for zero-rated supplies is fully available for refund or setoff.