Indirect Tax Update No. 38

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Exports – Receipt of payment for export of goods or services clarified

Brief background:

The Central Board of Indirect Taxes and Customs, vide Circular No.263/09/2026-GST dated 26 October 2026, has clarified the treatment of specified payment arrangements for determining whether the consideration received by an Indian supplier satisfies the payment condition prescribed for an “export of services” under Section 2(6)(iv) of the Integrated Goods and Service Tax Act, 2017.

Under Section 2(6) of the IGST Act, a supply qualifies as an “export of services” only when all the prescribed conditions are satisfied. Section 2(6)(iv) requires payment for the service to be received by the supplier in convertible foreign exchange or in Indian rupees wherever permitted by the RBI.

Previously, CBIC Circular No. 202/14/2023-GST dated 27 October 2023 clarified that export proceeds received in INR through Special Rupee Vostro Accounts of correspondent banks of partner trading countries, opened by authorised dealer banks, would satisfy this condition, subject to the applicable Foreign Trade Policy 2023, RBI circulars and other legally required permissions or approvals.

This circular address the treatment of export proceeds received through specified rupee-denominated accounts, the set-off of export receivables against import payables, certain sector-specific payment arrangements and the consequences of non-realisation of export proceeds in the case of goods exports.

Key clarifications

A. Receipt of foreign remittance in respect of export of services in Nostro and Special Non-Resident Rupee (SNRR) accounts:

The present CBIC circular has clarified that wherever the payment for export of service made by the Indian exporters is received in convertible foreign exchange or in repatriable rupee (INR) accounts, such as SNRR Account or INR Nostro account, or any other similar account for repatriation of foreign exchange, the same shall be considered to be fulfilling the conditions of sub-clause (iv) of clause (6) of section 2 of IGST Act, 2017.
The Circular also clarifies that services provided by Indian stockbrokers to overseas clients, including FPIs, NRIs and OCIs, are typically settled in INR. Accordingly, receipt of consideration through repatriable INR accounts, such as SNRR and NRE accounts, would satisfy the condition prescribed under Section 2(6)(iv) of the IGST Act. Further, where payments are received through NRO accounts, the same must be routed through repatriable INR accounts in accordance with RBI guidelines to qualify as valid receipt of consideration for export of services.
·The Circular clarifies that set-off of export receivables against import payables, where undertaken in accordance with the applicable RBI and FEMA framework, constitutes a valid mode of settlement. Accordingly, such transactions would be regarded as satisfying the consideration requirement prescribed under Section 2(6)(iv) of the IGST Act. The Circular also notes that the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, effective from 1 October 2026, have removed the earlier requirement for matching goods exports with goods imports and services exports with services imports in respect of the permitted set-off arrangements.
Further, in respect of receipt of remittance by reinsurance brokers through the net retention mechanism, the commission charged by an Indian reinsurance broker for providing broking services to the foreign reinsurers is settled by net settlement rather than by a separate inward remittance in foreign exchange. Since FEMA permits the foreign reinsurer/broker to authorise the Indian broker to retain its commission from the funds received before remitting the net premium overseas, such commission, though not received through a separate inward remittance, shall be treated as satisfying the condition prescribed under Section 2(6)(iv) of the IGST Act.

B. Realisation of export proceeds in case of export of goods:

Rule 96B of the CGST Rules, 2017 provides that where sale proceeds of export goods are not realized, within the period prescribed under the Foreign Exchange Management Act (FEMA), 1999, including any extension granted thereunder, the refund amount paid shall be liable to be deposited/ recovered, to the extent of such non-realization, along with applicable interest thereon. Rule 96B further provides that no such recovery shall be effected where the requirement of realization has been written off, either wholly or partly, by the Reserve Bank of India on merits.
The present CBIC Circular clarifies that the period for realisation of export proceeds for purposes of Rule 96B is the period prescribed under the relevant RBI Master Direction on export of goods and services, as amended from time to time, including any permitted extension. The same has been prescribed in FED Master Direction No. 16/2015-16 dated 1 January 2016 issued by the RBI as amended.
The Circular further clarifies that recovery under Rule 96B is not to be undertaken to the extent that the requirement of realisation has been written off, wholly or partly, by the authorised dealer (‘AD’) bank in accordance with the applicable framework.