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A guide to Letter of Undertaking (LUT) and its role in exporting from India

Exporters are required to furnish Letter of Understanding (LUT) on the GST portal to export their products from India without the payment of IGST. Here’s a complete guide for exporters on LUT under GST.

In export trade, one of the key documents that is required before selling internationally is Letter of Undertaking (LUT). All registered exporters who are currently exporting or intend to start their export journey are required to submit Letter of Undertaking on the GST portal. This enables them to export their products without the payment of IGST (Integrated Goods and Services Tax).

What is a Letter of Undertaking (LUT)?

An exporter requires a Letter of Undertaking, which acts as a guarantee given by the bank of the importer to the bank of the exporter. This enables the exporter to conduct transactions involving zero rated supply to SEZ without payment of IGST and export of goods to a country outside India without payment of IGST¹.

What is a Letter of Undertaking (LUT) in GST?

When an exporter wants to export products and claim a GST refund, it becomes mandatory to submit an LUT, as per the Central Goods and Service Act 2017. Once filed, the Letter of Undertaking is valid for that particular financial year². Hence, unlike the refund process, an exporter does not need to go through the procedural requirements every time an export consignment is carried out.

Benefits of using a Letter of Undertaking in GST

1. A Letter of Undertaking eliminates blocking of funds by way of tax payments, and thus, exporters do not have to apply for refunds.
2. By filing an LUT, an exporter can export goods or services without the burden of immediate tax payment.
3. Exporters filing for a Letter of Undertaking are not required to provide additional bank guarantees to the importer.

Eligibility criteria for a letter of undertaking

A letter of undertaking (LUT) can be furnished by any registered taxpayer involved in the export of goods and services. However, individuals facing prosecution for tax evasion exceeding INR 2.5 crore or more are not eligible to use this option, and they are required to provide an export bond. ⁴
Additionally, individuals should consider the following factors before applying for an LUT:

Intent to export:

The applicant must intend to supply goods or services domestically, to foreign countries, or to Special Economic Zones (SEZs).

GST compliance:

The applicant must be registered under the GST framework.

Tax benefits:

Applicants aiming to export goods and services without incurring integrated tax should consider applying for an LUT.5

Documents required to file Letter of Undertaking (LUT) under GST

Some of the documents required are⁴:

• PAN card of export business
• IEC certificate
• GST registration certificate
• Two witnesses with their address proof and PAN
• Cancelled cheque of the exporter’s current account
• Aadhar card of exporter
• GST RDF 11 form
• Copy of GST registration
• KYC of the authorized person
• Authorized letter

Step-by-step process to file a Letter of Undertaking

Step 1:

Step 2:

Click on the services tab. Select ‘users services’ and then select furnish ‘Letter of Undertaking (LUT)’.

Step 3:

Select the financial year for which the Letter of Undertaking is applied for from the ‘LUT Applied for Financial Year’ drop-down list.

Step 4:

Fill in the required details on the form.

Step 5:

Check the preview and ensure all the details filled are appropriate.

Step 6:

Post this, you are required to sign and submit the form. You can sign the application using the registered digital signature certificate of the selected authorized signatory. You can also sign and file with EVC (you will receive OTPs to the registered mobile number and email address).

Step 7:

Once you've completed the form, submit it. You will see an acknowledgment on the screen. You can download it for future reference.⁷

Visit Exports Compliance Dashboard to get support to obtain LUT

Contents of a letter of undertaking (LUT)

A letter of undertaking (LUT) includes the following details:

Information of exporter

Exporter’s name, address and GSTIN

Financial period

The relevant financial year

Exported goods

Description of goods being exported

Export transaction specifications

● Invoice details, including date and number
● Description of goods and services
● Unit and quantity
● Value of goods and services
● Destination

Declaration

● Consent to adhere to all GST regulations
● Exemption from all reverse charges for export

Authorized signatory

● Name and designation of the authorized person
● Date and signature⁸

Key pointers about LUT bond in GST

Here are some essential details about LUTs under GST:

Validity period

A LUT is valid for one year from its submission date.

Conditional acceptance

If an exporter fails to adhere to the terms of an LUT, their privileges could be revoked, and they may be asked to provide an export bond.

Export bond for GST

Those who do not qualify for an LUT can provide an export bond instead. This bond needs to be submitted along with a bank guarantee. It should include the tax amount involved in the export based on the estimated tax liability as assessed by the exporter.

Submission form

An LUT should be filed using the official GST RFD-11 form. Authorized personnel such as the Managing Director, company secretary, or partners of a firm can submit this form.

Bank guarantee for export bond

Export bonds need to include a bank guarantee which should not exceed 15% of the bond amount. However, the jurisdictional GST Commissioner may waive this requirement based on the exporter’s trade history.⁹

A LUT is an important document required in international trade, and all eligible exporters who want to export their products without paying IGST need to submit this document on the GST portal. For additional support on documentation and compliance, exporters can also avail of the services offered by e-commerce export programs like Amazon Global Selling.

Amazon Global Selling: Your passport to easy e-commerce exports from India

With e-commerce exports, selling internationally has not just become easy but also simple. Through Amazon Global Selling, you can sell your Indian products in 18 international marketplaces like Amazon USA, UK, UAE, Australia, Singapore and more from the comfort of your home in India. From reaching millions of customers and product listing to international shipping and payments, Amazon provides assistance in every step of your export journey.

Frequently Asked Questions

What is the purpose of Letter of Undertaking?

Letter of Undertaking is a document that exporters file to export products without having to pay taxes – Integrated Goods & Services Tax (IGST). Under GST, all exports are subject to IGST, which can later be reclaimed via a refund against the tax paid. However, by obtaining an LUT, an exporter can avoid paying tax and thus, there is no requirement of claiming returns.

What is the validity of the Letter of Undertaking?

The validity of an LUT is one year – the financial year in which it has been filed.

What happens if a tax official does not process a LUT application?

If a LUT application is not processed by a tax official, or the tax official does not issue any notice for clarification within three working days, then the application will be deemed approved. The status of the LUT application changes to ‘Deemed Approved’¹.

Who has to sign the LUT application?

The primary authorized signatory or any other authorized signatory must sign and file the verification with DSC/EVC. An authorized signatory can be the operating partner, managing director, or proprietor, or a person authorized by the working partner, or the Board of Directors of the company or proprietorship.¹⁰

What happens when the exporter fails to furnish the LUT?

If an exporter fails to supply the LUT, they will have to either furnish an export bond or pay the IGST.¹¹

Published on May 13, 2022.

Sources:
1. https://tutorial.gst.gov.in/userguide/refund/Furnishing_of_Letter_of_Undertaking_for_Export_of_Goods_or_Services.htm
2. https://www.indiafilings.com/learn/export-bond-gst/#:~:text=Entities%20involved%20in%20the%20export,at%20this%20procedure%20in%20detail.
3. https://legal251.com/resources/letter-of-undertaking/
4. https://taxguru.in/goods-and-service-tax/eligibility-documents-required-process-filing-letter-undertaking-lut-gst.html
5. https://taxguru.in/goods-and-service-tax/letter-undertaking-gst.html

6. https://taxguru.in/goods-and-service-tax/letter-undertaking-gst.html
7. https://www.indiafilings.com/gst-lut
8. https://www.indiafilings.com/learn/export-bond-gst/#:~:text=Entities%20involved%20in%20the%20export,at%20this%20procedure%20in%20detail.
9. https://vakilsearch.com/blog/letter-of-undertaking-lut-gst/

10. https://tutorial.gst.gov.in/userguide/refund/Furnishing_of_Letter_of_Undertaking_for_Export_of_Goods_or_Services.htm
11.
11. https://www.indiafilings.com/learn/export-bond-gst/#:~:text=Entities%20involved%20in%20the%20export,at%20this%20procedure%20in%20detail.

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