Almost every Indian SaaS company built in the last decade has had the same conversation with its finance team. The product is selling internationally. Payments are processed through gateways like Razorpay, or PayPal. The money lands in an HDFC or ICICI account in Indian rupees. And then the GST refund claim gets stuck — because a divisional officer has decided that "convertible foreign exchange" must mean dollars hitting the bank, not rupees credited by an intermediary.
This is not a niche issue. It can affect any exporter of services receiving payments through regulated gateways. And yet, export benefits like refund rejections continue on the premise that the mode of receipt breaks the export condition.
This article examines why that premise fails — in law, in regulation, and in practice.
01 / The Money TrailHow a payment gateway actually works
These transactions are actually pretty straightforward. A foreign customer subscribes to an Indian exporter's service and pays through PayPal. The payment gateway collects the consideration in foreign currency in its overseas account, deducts its fee, and remits the Indian rupee equivalent to the exporter's bank account. The authorised dealer bank issues a FIRA confirming the underlying foreign exchange realisation.
The controversy arises from the interpretation of Section 2(6) of the IGST Act, which requires that consideration for export of services be received in convertible foreign exchange, or in Indian rupees wherever permitted by the Reserve Bank of India. This second limb, inserted by the Finance Act, 2021 with effect from 1 October 2021, statutorily aligns GST with the RBI framework governing cross-border receipts.
Even before the 2021 amendment, the RBI's OPGSP framework (A.P. (DIR Series) Circular No. 17 dated 16 November 2010) recognised payment gateways as authorised intermediaries for receipt of export proceeds.
Despite this, export benefits like refund claims are rejected by placing isolated reliance on CBIC Circular No. 88/07/2019-GST to argue that INR realisation is permissible only through specified Vostro arrangements. That interpretation does not sustain when read in conjunction with the FEMA framework it is intended to operate within.
02 / What the Law Actually SaysThe statutory and regulatory position
The statutory and regulatory framework, when read together, leaves little or no room for ambiguity.
Section 2(6) of the IGST Act requires that payment for exported services be received in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI. The second limb — inserted w.e.f. 1 October 2021 — is not a relaxation. It is a recognition of what the RBI had already been permitting for over a decade.
Regulation 3 of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 (Notification No. FEMA 14(R)/2016-RB dated 2 May 2016) prescribes the permissible modes of receipt of foreign exchange. Regulation 3(2)(b) permits receipt of export proceeds through any mode in accordance with the directions issued by the RBI to authorised dealers from time to time. Regulation 3(3) expressly permits authorised dealers to allow receipts from third parties — i.e., parties other than the buyer — as per RBI guidelines.
A payment gateway operating under the OPGSP framework is precisely such a third party. It receives the foreign currency on behalf of the exporter, remits the INR equivalent through an authorised dealer, and the AD bank issues the FIRA confirming the forex realisation. The chain is RBI-compliant at every step.
03 / The RulingAfortune Trading and the end of the argument
In Afortune Trading Research Lab LLP v. Additional Commissioner, the Madras High Court was asked to decide whether an Indian online research service, paid by US clients through PayPal, satisfied the export condition under Section 2(6) of the IGST Act. The department had rejected eight refund applications on the ground that the proceeds came in as INR, not forex.
(2024) 15 Centax 520 (Mad.)
04 / The Bigger PictureWhat needs to change — and what you can do now
The RBI framework has existed since 2010. The FEMA regulations have consistently permitted third-party receipts. The IGST Act was amended in 2021 to expressly recognise INR realisation wherever permitted by the RBI. The position has now been judicially affirmed in Afortune Trading Research Lab LLP v. Additional Commissioner.
And yet, refund rejections on this ground continue, not because the law is unclear, but because it is applied in isolation from the regulatory framework it operates within.
The fix is administrative. A single clarification from the CBIC adopting the reasoning by Madras HC and recognising payment gateways as authorised intermediaries within the FEMA framework would eliminate a recurring source of dispute. It would require no legislative change, align GST practice with RBI regulation, and release working capital currently locked in litigation.
Until such clarification comes, the burden of getting the law right at the counter falls on the exporter and their advisors.
If your export refund has been denied on the basis that receipts through PayPal or Stripe are in INR and not in convertible foreign exchange, the position in law is now settled. It is supported by the FEMA framework, the 2021 amendment to Section 2(6) of the IGST Act, and judicial affirmation in Afortune Trading Research Lab LLP v. Additional Commissioner.