For businesses exporting goods and services from India, managing GST compliance is essential for smooth operations. Understanding what is LUT can help exporters simplify their processes and avoid unnecessary tax-related challenges. It allows businesses to focus on growth by improving cash flow and reducing paperwork. By using the LUT effectively, exporters can ensure timely shipments and stay compliant without delays. This makes it a practical tool for businesses aiming to expand their global presence while staying competitive.
What is LUT (Letter of Undertaking) in GST
A Letter of Undertaking (LUT) is a formal document submitted to GST authorities by exporters. It allows them to export goods or services without paying Integrated GST (IGST). Essentially, it’s a promise by the exporter to follow all the rules and conditions set by GST laws for exports.
Also read: Difference Between Pre and Post Shipment Finance
Under Rule 96A of the CGST Rules, the LUT enables exporters to ship goods or services without paying IGST. By submitting an LUT, the exporter agrees to:
- Export the goods or services within a set time frame.
- Bring the foreign earnings back to India within the required period (usually 9 months from the export date).
- Follow all the rules and conditions for exports under GST.
The LUT simplifies the process for exporters by replacing the older system, which required bonds with bank guarantees. It aligns with the GST principle that taxes should not be added to exported goods and services, helping Indian exports remain competitive globally.
What is Eligibility for Filing LUT Under GST
The Government of India has set specific eligibility criteria for filing a Letter of Undertaking (LUT) under Notification No. 37/2017-Central Tax (dated October 4, 2017) and its updates. To qualify for LUT filing, businesses must meet the following conditions:
1. Registered Exporters
Any registered person intending to export goods or services without paying IGST can furnish an LUT.
2. No Serious Tax Offences
The exporter must not have been prosecuted for any offense under the CGST Act, 2017 or IGST Act, 2017, or any previous tax laws where the tax evasion exceeds ₹2.5 crore.
3. Submission Requirements
The LUT must be:
- Furnished on the registered person’s letterhead.
- Submitted in duplicate for a financial year.
- Executed by an authorized signatory, such as a working partner, Managing Director, Company Secretary, or proprietor.
Now that you know who can file an LUT, let’s look at the documents required.
Important Things to Remember About the LUT Bond in GST
Exporters using the Letter of Undertaking (LUT) should take note of these essential details to ensure smooth export processes, comply with GST regulations, and avoid penalties or delays:
1. Validity Period
A Letter of Undertaking (LUT) under GST is valid for one financial year. This means it is valid from the date you submit it until March 31 of that financial year.
For example, if you submit an LUT on September 30, 2024, it will be valid until March 31, 2025.
2. Filing Timeline
Exporters must submit and get approval for the Letter of Undertaking (LUT) before exporting without paying tax. If they don’t, they will have to pay IGST on their exports and apply for a refund later.
3. Approval Process
As per Circular No. 40/14/2018-GST (dated April 6, 2018), an LUT is automatically accepted once the Application Reference Number (ARN) is generated. However, if tax authorities later find the exporter ineligible, the LUT can be rejected retroactively (ab initio).
4. LUT Number
Once approved, the exporter receives an LUT number that must be quoted on all export invoices and shipping documents.
5. Compliance Requirements
Exporters must:
- Maintain Export Documentation: Keep tax invoices, shipping bills, and other records as per GST rules.
- Timely Payment Receipt: Receive export payments in foreign currency or permitted INR within 9 months.
- File GSTR-1 Accurately: Report all export transactions in GSTR-1 for compliance and refunds.
- Submit LUT/Bond: File GST RFD-11 to export without IGST payment, valid for one financial year.
What are the Documents Required for LUT under GST?
To successfully file a Letter of Undertaking (LUT) under GST, exporters need to prepare and submit the following documents:
1. GST Registration Certificate: Proof that the business is registered under GST.
2. PAN Card: A copy of the business’s Permanent Account Number (PAN).
3. Import Export Code (IEC): Required if the business is involved in exporting goods or services.
4. KYC of Authorized Signatory: Identification and address proof (such as an Aadhaar card, passport, or driver’s license) of the person who will sign the LUT.
5. Cancelled Cheque: A cheque from the business bank account to verify banking details.
6. Authorization Letter/Board Resolution: A document authorizing a specific person to file the LUT on behalf of the business.
7. Witness Details: The names, addresses, and occupation details of two independent witnesses.
8. Form GST RFD-11: The official form required to apply for an LUT.
Advantages of Filing LUT for Exporters
1. No GST Payment on Exports
Exporters can send goods or services outside India without paying GST. Without an LUT, they must pay IGST first and then wait for a refund, which is time-consuming. With a LUT, exports are tax-free from the start, saving time and money.
For example, a textile manufacturer exporting fabrics to Europe avoids paying IGST upfront by using a LUT, making the process simpler and cheaper.
2. Improved Cash Flow
Exporters don’t need to pay GST upfront, so their money isn’t tied up in taxes. This keeps cash flow steady, allowing businesses to buy materials, grow production, or explore new markets. Without an LUT, waiting for refunds can strain finances.
3. Less Paperwork
The LUT process is online and requires minimal documents. It cuts down on the hassle of paying GST and filing refund claims, reducing administrative work. For instance, a software company providing IT services abroad avoids paying IGST and filing refunds by using a LUT, saving time and effort.
4. No Refund Delays
Without an LUT, exporters must wait weeks or months for tax refunds, which can disrupt operations. With a LUT, they skip the refund process entirely, getting paid faster and reinvesting sooner.
5. Year-Long Validity
An LUT is valid for the entire financial year, so exporters don’t need to renew it frequently.
For example, an engineering goods exporter filing an LUT in April can export tax-free until March of the next year without extra paperwork, saving time and effort.
The Letter of Undertaking (LUT) is an important part of India’s GST system. Understanding what is LUT can help exporters navigate GST compliance effectively. To make the most of the LUT, exporters need to know the rules, follow them on time, keep their documents in order, and stay informed about any updates to GST laws. By doing so, they can avoid penalties and delays, ensuring smooth export operations. Proper use of the LUT not only benefits individual businesses but also supports India’s overall export growth.
Frequently Asked Questions
1. How can I file a Letter of Undertaking (LUT)?
To file a Letter of Undertaking (LUT), log in to the GST Portal and go to ‘Services’ > ‘User Services’ > ‘Furnish Letter of Undertaking (LUT).’ Select the financial year, enter the details of two independent witnesses, and complete the self-declaration. Submit the form using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). Once submitted, an Application Reference Number (ARN) is generated, and you can download the acknowledgment for records.
2. What happens if I export without an LUT?
Exporting without an LUT means paying IGST upfront and claiming a refund later. However, authorities may allow zero-rating benefits if exports are genuine.
3. Can I preview the LUT application?
Yes, before signing and filing the application, you have the option to preview it and save it in PDF format.
4. Can I view my LUT application after filing?
After submitting your LUT on the GST Portal, you can check its status by logging in and going to 'Services' > 'User Services' > 'View My Submitted LUTs.' Here, you can track your application and download copies if needed.
5. What will happen if a Tax Official doesn't process the LUT application?
If the tax official does not process the LUT application within the stipulated time, the application may be deemed approved. It's advisable to regularly check the status of your application and follow-up with the tax office if there are significant delays.
