A Letter of Undertaking (LUT) or export loan is a document that an exporter can produce to export goods or services without paying taxes.
To promote the export of goods or services, the government has provided various reliefs and benefits under GST. Exports help to create employment, achieve a favourable balance of payment situation and boost the economic growth of the country. GST law provides 2 options to exporters:-
1) Export without payment of Taxes by applying for LUT or Export Bond.
2) Export with payment of Taxes and claim refund later.
Generally, when an entity exports goods or services, they are required to pay taxes on such exports. However, the GST law allows taxpayers to claim a refund of these taxes paid. The GST method also offers attractive alternative options, wherein the taxpayer can apply for Letter of Undertaking (LUT) or Export bonds with the GST department and if the application is accepted by the department then the taxpayer is not required to pay any taxes on export thereby sparing the efforts for claiming a refund and also avoid blocking of funds by way of payment of taxes.
The Letter of Undertaking (LUT) is a prescribed document to be furnished in Form GST RFD 11 under rule 96A, whereby the exporter declares that he/she would fulfil all the requirements prescribed under GST while exporting without making IGST payment. Any person registered under GST can submit a LUT only if they have not been prosecuted for tax evasion exceeding Rs. 2.5 Crore, or for any other offence under the CGST Act, the IGST Act 2017, or any other existing law. If the exporter does not meet the LUT requirements, his privileges can be revoked and he must leave a deposit. Please note that this Letter of Undertaking (LUT) is to be filed online before exporting any goods/services.
Exporters who are ineligible to apply for LUT, including exporters who have been prosecuted for tax evasion, will have to furnish an export bond along with a bank guarantee if the export is being made without payment of IGST. This bond should cover the estimated amount of tax liability on the exports as assessed by the exporter itself. If the exporter is involved in the export of goods or services on a regular basis, he can opt for a running export bond which will give him the benefit of not furnishing a new export bond for every new transaction. A bank guarantee may or may not be mandated with the bond depending on the track record of the exporter. Normally, the GST commissioner demands a bank guarantee not exceeding 15% of the bond value.
The department issues a signed letter accepting the export without payment of taxes, within 2 to 3 days of filing the documents.
We have a well versed team of GST experts who can advise you on GST on Exports and also file your GST LUT form or export bond form.
All exporters of goods and services who do not want to pay tax upfront should apply for LUT or Bond.
A person who has been recognized as an authorised signatory on the GST portal can sign the LUT application.
If you don’t file LUT, then tax shall be imposed on all your exports. However, you can apply for a refund of such taxes paid.
For a LUT that has been manually provided and approved by the tax officer for the current fiscal year, the taxpayer can upload that LUT and submit an online application that provides the LUT to request online approval of the previous LUT. However, it is not mandatory to record the manual LUT online.
If the transmission is successful, the system generates an ARN and a confirmation, which would be informed to you via SMS and email. You can also download the confirmation as PDF.
LUT will be valid for the entire financial year i.e. a LUT which is furnished in FY 2019-20 will expire on 31st March 2020.
In case the tax official does not process the LUT application or does not issue any notice for clarification within 3 working days, then the application shall be deemed to be approved.