A Letter of Undertaking (LUT) under GST is a vital tool for exporters in India. It allows them to export goods and services without paying Integrated Goods and Services Tax (IGST). This mechanism simplifies the compliance process and improves cash flow for businesses by eliminating the need for upfront tax payments and subsequent refund claims. 

Exporters can leverage LUT to classify their supplies as zero-rated under GST law, ensuring smoother transactions. By understanding and using LUTs, businesses can avoid the complexities of bonds and focus on expanding their global reach.

In this article, we’ll guide you through everything about LUT in GST, including its filing process, required documents, validity, and recent updates. By the end, you’ll have actionable insights to make the most of LUT in GST compliance. 

Understanding Letter of Undertaking (LUT) in GST 

A Letter of Undertaking (LUT) is a declaration exporters file under GST law to make zero-rated supplies without paying IGST. This facility is particularly beneficial for small businesses, as it ensures better liquidity and less procedural hassle compared to bonds. 

Legal Provisions:

Rule 96A of the CGST Rules, 2017 governs the filing and use of LUT. Exporters can declare their intent to meet GST compliance without monetary guarantees, thanks to the streamlined process. 

Who Can Apply for LUT? 

Any registered taxpayer involved in exporting goods or services is eligible to file LUT, provided they have no history of tax evasion or prosecution. For instance, a small textile exporter shipping products to Europe can use LUT to save on IGST payments. 

Key Benefits of LUT: 

• Zero tax on export supplies. 
• No need for bonds or bank guarantees. 
• Faster refunds and improved working capital. 

Step-by-Step Procedure to File LUT under GST 

The process to file a LUT is simple but requires attention while filing. Here’s a step-by-step guide: 

Step 1: Log in to GST Portal:
Log in to GST.gov.in using your credentials. 

Step 2: Under the “Services” menu, navigate to User Services > Furnish Letter of Undertaking (LUT). 

Step 3: Filling Form GST RFD-11:
Provide details like GSTIN, legal name, and address. Enter export details and declare compliance with the terms of Rule 96A. 

Step 4: Choose Submission Method:
Use either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC) to authenticate your form. 

Step 5: Upload Required Documents:
Attach scanned copies of supporting documents like ID proofs and export agreements. 

Step 6: Download Acknowledgement For LUT:
Once submitted the application, you can download the Acknowledgement by clicking on Download button. You can also check out the furnished letter of undertaking on the GST portal. 

Documents Required for Filing LUT Under GST 

Proper documentation is critical for a seamless LUT filing experience.

Here’s a list of essential documents: 

• PAN Card: To validate the business entity. 
• GST Registration Certificate: Proof of GST compliance. 
• Authorized Signatory ID Proof: Aadhaar or Passport. 
• Export Agreements: To establish the nature of export transactions. 

Tips for Accurate Documentation:
Ensure all document details match the GST portal records. Errors like mismatched names or incorrect GSTINs can cause delays. 

Validity and Renewal of LUT in GST 

An LUT is valid for one financial year and must be renewed annually. Failure to renew can result in suspension of zero-rated export benefits. 

Duration of LUT Validity

The validity of an LUT extends from the date of filing and approval until the end of the current financial year (March 31). 

• If you file an LUT on June 15, 2023, it will remain valid until March 31, 2024. 
• A new LUT must be filed for exports made from April 1, 2024, onwards. 

Failing to renew an LUT can result in exporters being unable to make zero-rated supplies, forcing them to pay IGST on their transactions. 

Renewal Process for LUT

Renewing an LUT is a straightforward process, but it must be done before the start of the new financial year to ensure continuity. Here’s how you can renew your LUT: 

• Access the GST Portal: Log in to GST.gov.in using your credentials. Navigate to the “Services” tab and select “User Services > Furnish LUT.” 

• Fill Form GST RFD-11: Provide details like business name, GSTIN, and export information. 

• Submission Options: Sign the form digitally using a Digital Signature Certificate (DSC) or verify electronically via an Electronic Verification Code (EVC). 

• Track Application Status: Once submitted, track the status under “View Submitted LUTs” for confirmation. 

Renewal Timeline and Considerations

• Timely Renewal: Start the renewal process in March to ensure approval before 1st April. Delays can disrupt export operations and force you to pay IGST. 

• Compliance History: Ensure all previous LUT conditions have been met (e.g., timely submission of export details) to avoid complications during renewal. 

• Documentation Accuracy: Double-check all details to ensure they match your GST registration records. 

Pro Tip: Set reminders or calendar notifications to begin the renewal process well in advance of the financial year-end.

Consequences of Not Renewing LUT

Failure to renew an LUT can have serious implications: 

• You will be required to pay IGST on all export transactions until a new LUT is filed and approved. 
• Refund claims for IGST paid may take longer to process, impacting liquidity. 
• Non-compliance with GST regulations could lead to penalties or fines. 

Differences Between LUT and Bond in GST 

Both LUTs and bonds serve the same purpose: allowing zero-rated supplies. However, they differ significantly in terms of eligibility and procedural requirements. 

Aspect	LUT	Bond
Filing Cost	Free	Requires bank guarantees
Eligibility	Available to all registered exporters	Restricted to high-risk exporters
Usage	Ideal for frequent exporters	Suitable for one-time transactions

Common Challenges and Solutions in LUT Filing 

Despite being a straightforward process, LUT filing comes with its own set of challenges: 

• Portal Issues:
  Exporters often face technical glitches while filing LUTs.
  Solution: Avoid peak hours or use updated browsers for a smoother experience. 

• Document Errors:
  Inaccurate or incomplete document uploads can delay approvals.
  Solution: Use GST portal tools to validate details before submission. 

• Approval Delays:
  Applications can get stuck in processing.
  Solution: Follow up with the GST helpdesk if the status doesn’t update within a week. 

Impact of LUT on Export Refunds and Tax Liability 

A Letter of Undertaking (LUT) under GST has a significant impact on how exporters manage their tax liabilities and claim refunds. By using an LUT, businesses can operate with greater efficiency, avoid unnecessary financial burdens, and maintain compliance with GST regulations. Below is a detailed breakdown of how LUT affects export refunds and tax liabilities: 

#1 – Zero-Rated Supplies Explained

Under GST, exports are categorized as zero-rated supplies. This means that goods or services exported from India are exempt from GST. However, in the absence of an LUT, exporters are required to pay IGST at the time of export and subsequently claim a refund. This process ties up working capital, causing financial strain. 

Impact of LUT:
Filing an LUT allows exporters to bypass the payment of IGST entirely. For example, a textile manufacturer exporting garments to the US can ship their products without paying IGST upfront, ensuring better cash flow.

#2 – Simplification of Refund Process

For exporters who do not file an LUT, claiming a refund for IGST paid involves detailed documentation and longer processing times. This adds administrative overhead and delays access to funds. 

With an LUT: 

• Exporters can directly supply goods or services without paying IGST, eliminating the need for complex refund processes. 
• Refund claims, if required (e.g., for unutilized Input Tax Credit), are simpler and faster because LUT ensures compliance and clear documentation. 

#3 – Reduction in Tax Liability

By opting for an LUT, exporters avoid the need to calculate and remit IGST on every export transaction. This reduces their overall tax liability and simplifies accounting processes. 

#4 – Impact on Input Tax Credit (ITC) Claims

Input Tax Credit (ITC) allows businesses to offset taxes paid on purchases against their tax liability. For exporters using LUT, ITC remains unaffected, and they can continue claiming credits for GST paid on domestic purchases. 

How LUT Helps ITC Claims: 

• LUT ensures that businesses don’t have to wait for IGST refunds to claim ITC. 
• It streamlines GST reconciliation, as zero-rated supplies under LUT are treated as tax-exempt. 

#5 – Importance of Maintaining Records

Exporters filing an LUT must maintain proper records of their transactions to stay compliant with GST regulations. The GST portal requires detailed documentation for all zero-rated supplies under LUT. Failure to maintain accurate records can result in penalties or loss of LUT benefits. 

#6 – Boost in Operational Liquidity

One of the most significant impacts of LUT is the boost in liquidity for businesses. Without the need to pay IGST upfront, exporters can allocate their funds to other critical business operations, such as procurement, marketing, or expansion. 

Recent Updates and Amendments 

The GST Council frequently updates LUT-related guidelines to simplify compliance.

Recent changes include: 

• Simplified Filing: Automated document validation processes introduced in 2023. 
• Expanded Eligibility: Newly registered exporters can file LUTs without prior compliance history.
• Future Trends: The government plans to integrate AI tools into the GST portal for error detection during LUT filing. 

Conclusion 

The Letter of Undertaking (LUT) is a crucial mechanism for exporters under the GST framework, offering a simplified and cost-effective way to ensure compliance. By filing an LUT, businesses can supply goods and services to international clients without paying IGST upfront, freeing up working capital and improving operational efficiency. This makes LUTs especially beneficial for small and medium-sized enterprises (SMEs) aiming to expand their global reach. 

Understanding the procedural aspects of LUT filing, such as the documentation requirements, portal navigation, and renewal timelines, is essential for exporters to make the most of this facility. Keeping track of updates and amendments is equally important, as GST laws evolve frequently to accommodate dynamic trade requirements.