Export Contract Tax & Withholding

Export contract tax is the tax treatment of the money moving in an export transaction — the zero-rating of the export supply under Section 16(1)(a) of the IGST Act 2017, the LUT route that lets the exporter ship without paying IGST under the CGST Rules, the withholding obligations on commissions and fees paid abroad under Sections 195 and 194J of the Income Tax Act 1961, and the treaty positions that apply to cross-border payments. For the exporter, every term of the export contract — the price, the commission, the technical fees — has a tax consequence that should have been priced in.

The export contract is a tax document as much as a commercial one. The zero-rated supply must be documented so the refund of input tax credit follows; the commission paid to an overseas agent must carry the withholding under Section 195, or the expense faces disallowance under Section 40(a)(i); the technical fees to a foreign consultant must be classified between fees for technical services and royalty, with the treaty rate applied; and the export proceeds must be realised within the FEMA timelines.

The cost of getting the contract tax wrong is a chain of reversals: the input tax credit refund rejected because the zero-rated documentation was weak, the commission disallowed for the missing withholding, and the foreign payment caught in a withholding dispute with interest. Each is recoverable in theory and expensive in practice.

This service is for exporters negotiating and executing export contracts. We structure the contract terms with the tax positions in view, manage the LUT and the zero-rated supply documentation under the IGST Act and the CGST Rules, compute the withholding on commissions and fees under Sections 195 and 194J, apply the treaty positions, and reconcile the export position with the returns.