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Can I stay in the GST composition scheme if I get one foreign client?

Author:
Editorial team, serviceexportguide.com
Verified by:
Editorial team
Published
Last modified
Reading time
2 min read

Short answer

No. The composition option for service providers in section 10(2A) of the CGST Act is not available to anyone "engaged in making any inter-State outward supplies of goods or services", and section 7(5)(a) of the IGST Act treats a supply where the supplier is in India and the place of supply is outside India as inter-State.12 A composition taxpayer who takes on a foreign client must move to normal tax from that day and file FORM GST CMP-04 within seven days.3

The composition scheme suits some small Indian service businesses: a coaching centre, a local design studio or a small consultancy with turnover up to ₹50 lakh pays a flat rate and files fewer returns.1 Then a client in Australia or Canada comes along. Can the business keep its composition status?

Why does one foreign client end composition?

One foreign client ends composition because of two provisions read together:

  • Section 10(2A) of the CGST Act lets a registered person whose aggregate turnover in the preceding financial year did not exceed ₹50 lakh opt to pay tax at a concessional rate, but clause (b) excludes anyone "engaged in making any inter-State outward supplies of goods or services".1
  • Section 7(5)(a) of the IGST Act treats a supply as inter-State when the supplier is located in India and the place of supply is outside India.2

Every export of services is therefore an inter-State outward supply, and it disqualifies the supplier from section 10(2A). The same bar appears in section 10(2)(c) for the main composition scheme.1

What do I have to do if I am already in composition?

Under rule 6(2) of the CGST Rules, a composition taxpayer becomes liable to pay tax normally from the day it stops meeting a condition, must issue a tax invoice for every taxable supply from then on, and must file an intimation of withdrawal in FORM GST CMP-04 within seven days.3

  1. Stop issuing bills of supply from the date of the first export.
  2. File FORM GST CMP-04 within seven days.3
  3. File a Letter of Undertaking (LUT) in FORM GST RFD-11 before the export invoice, so it can go out without IGST.4 See how to file an LUT.
  4. Charge GST at the regular rate on your Indian invoices from the switch date.

Is there an alternative for very small exporters?

Yes, if you are not registered at all. A service exporter whose aggregate turnover is within the registration threshold can stay unregistered, charge no GST on any invoice and export freely; see registration with only foreign clients. Once registered, the choice is between composition with no exports, or normal registration with exports under an LUT. The composition and exports guide compares the two, and a chartered accountant (CA) can help with the switch.

How did we verify this?

We checked this page against the sources below on 28 October 2026. Read our methodology or report an error.

  1. [1]CBIC: CGST Act, 2017, section 10 (composition levy), sub-sections (1), (2A) and (4)
  2. [2]CBIC: IGST Act, 2017, section 7 (inter-State supply), sub-section (5)
  3. [3]CGST Rules, 2017 (consolidated), rule 6 (validity of composition levy), CBIC
  4. [4]CBIC: CGST Rules, 2017, rule 96A (export under bond or Letter of Undertaking)

Frequently asked questions

Is a single small export invoice enough to lose composition?+

Yes. Section 10(2A)(b) excludes anyone engaged in making any inter-State outward supplies, with no minimum amount.12

Can a composition taxpayer file an LUT?+

Not while in the scheme. Once you move to normal tax, you can file an LUT under rule 96A before invoicing the foreign client without IGST.4

Can I claim input tax credit after leaving composition?+

Section 10(4) bars credit only for a person paying tax under composition. After moving to normal tax, credit rules for regular taxpayers apply; ask a CA about the transition.1

This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.

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