Introduction to LUT

The Letter of Undertaking (LUT) is a legal document that authorizes exporters to deliver goods or services abroad without paying taxes beforehand under GST regulations. It also includes the Integrated Goods and Services Tax (IGST), that can be later reclaimed via a refund by the exporters. By GST LUT filing, exporters can escape the administrative burden of seeking refunds and prevent their funds from being tied up in tax payments.

Under GST Notification No. 37/2017 – Central Tax, exporters must submit an LUT to export goods or services if they are not paying IGST; as consequence of failing to do so either requires payment of IGST or provision of an export bond. A long ago, LUTs were being filed offline, but the process has now been streamlined with online filing.

The cardinal function of filing a GST LUT is to facilitate GST-free exports, in particular to Special Economic Zones (SEZ) developers/units, under Rule 96 A of the CGST Rules, 2017. This declaration ensures compliance with all GST regulations, with penalties under the Rules for non-compliance. Alternatively, exporters can provide an export bond backed by a bank guarantee equivalent to 15% of the bond amount in lieu of an LUT.

GST LUT Eligibility, Forms and Documents

Registered taxpayers engaged in exporting goods or services must submit a Letter of Undertaking (LUT) using Form GST RFD-11 on the GST portal as per the CGST Rules, 2017. It is necessary for facilitating tax-free exports without paying Integrated Goods and Services Tax (IGST).

To apply for an LUT, eligible entities must:

• Intend to supply goods or services within India, overseas, or to Special Economic Zones (SEZs).
• Be registered under GST.
• Seek to export goods or services without paying integrated tax.

Required documents for the LUT application include:

• LUT Cover Letter signed by an authorized person.
• Confirmation of eligibility criteria compliance (no serious tax evasion cases).
• Copy of GST Registration certificate.
• PAN Card of the entity.
• KYC documents of the authorized signatory.
• Form GST RFD-11.
• Copy of Importer-Exporter Code (IEC) Certificate
• Cancelled cheque from the associated bank account.
• Authorization letter granting signing power.
• KYC documents of two witnesses and their employment details.
• Copy of the previous year’s LUT, if applicable.

Process of LUT Filing

The GST LUT form can be easily filed online through the official GST website. This streamlined process involves completing and submitting Form GST RFD-11 with correct details and declarations. The authentication by the authorized signatory using Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is mandatory for submission.

Here are the detailed steps:

1. Access GST LUT Filing Service: Log in to your GST account on www.gst.gov.in. Navigate to Services > User Services > Furnish Letter of Undertaking (LUT).
2. Fill Out GST LUT Form: Select the relevant financial year and upload any previous LUT form if applicable (PDF or JPEG, max size 2 MB).
3. Declaration: Agree to three declarations ensuring compliance with GST laws, consequences of non-compliance, and confirmation of tax-free supply to SEZs.
4. Witness Details: Enter names, full addresses, and occupations of two independent witnesses who support the LUT bond.
5. Authorized Signatory: Provide details of the authorized signatory, typically a director in a company or a managing/designated partner in a partnership firm or LLP.
6. Authentication: Authenticate the form using either DSC upload or EVC.

DSC – After clicking on ‘Sign and file with DSC,’ a warning message box will appear. Click on the ‘PROCEED’ button, and the system will generate the application reference number.

EVC – Click on ‘Sign and file with EVC.’ Subsequently, an OTP will be sent to your registered mobile number, accompanied by an email notification. Enter the OTP in the pop-up message, after which a warning box will prompt for submission. Click ‘PROCEED’ to obtain your application reference number.

• Submission and Acknowledgement: After successful authentication, submit the form. A success message with an Acknowledgement Reference Number (ARN) will be displayed. The ARN is also sent to the registered mobile number and email. An option to download the acknowledgement receipt is available post-submission.

Benefits of GST LUT Filing

The advantages of filing the GST LUT Form are manifold and significantly enhance business operations. Some of them are as follows:

• Tax Exemption Benefits: It enables exporters and SEZ suppliers to avoid immediate IGST payments on their transactions. Moreover, it facilitates seamless cross-border transactions without tax burden.
• Enhanced Financial Flexibility: Improvement of liquidity is achieved by retaining funds that would otherwise be allocated to tax payments. It enhances cash flow, supporting business growth and operational stability.
• Simplified Compliance: By eliminating the need for separate GST refund claims, it reduces administrative complexity. It streamlines compliance efforts, that allows businesses to focus on strategic objectives.
• Competitive Advantage: It enables suppliers to offer competitive pricing on goods and services, enhancing market competitiveness. It also encourages cost-effective export strategies, potentially increasing market share.
• Expedited Operations: Export clearance processes is sped up by facilitating timely delivery to international markets. It further reduces administrative delays and bureaucratic hurdles, ensuring smoother operations.
• Strategic Resource Allocation: Working capital resources are unblocked for reinvestment in business expansion and development. Additionally, it supports SMEs by providing financial flexibility to meet operational demands.
• Operational Efficiency: It simplifies the export procedures, freeing up time and resources for core business activities. It also minimizes repetitive administrative tasks associated with tax refunds, enhancing overall efficiency.

Conclusion

Filing a GST LUT (Letter of Undertaking) is crucial for exporters and suppliers to SEZs who want to streamline their operations and improve financial efficiency. Now, we understand the utility of the GST LUT and how it allows businesses to enjoy zero tax liability, better liquidity, reduced compliance requirements, and faster export processes. As a result of which, significant competitive edge can be observed in the global market. The online filing process is straightforward, and the LUT’s annual validity helps exporters focus on their core business activities without getting bogged down by tax-related issues. By taking advantage of the GST LUT, businesses can grow and expand more effectively, creating a more dynamic and agile operational framework. Therefore, it is essential for eligible entities to understand and utilize this beneficial provision under the GST system.

Frequently Asked Questions (FAQs)

What is GST LUT (Letter of Undertaking)?

GST LUT is a declaration filed by exporters to supply goods or services without paying Integrated Goods and Services Tax (IGST). It replaces the need for upfront tax payment and subsequent refund claims.

Who needs to file GST LUT?

Registered taxpayers engaged in exporting goods or services, including supplies to Special Economic Zones (SEZs), can file GST LUT to avoid IGST payment.

What are the benefits of filing GST LUT?

Filing GST LUT exempts exporters from paying IGST, enhances liquidity, simplifies compliance, and facilitates faster export clearances.

How long is the GST LUT valid?

Once filed, the GST LUT remains valid for the entire financial year in which it is submitted. It needs to be renewed annually.

What documents are required for filing GST LUT?

Documents typically include KYC documents of witnesses, previous year’s LUT (if applicable), GST registration certificate, PAN card of the entity, and details of the authorized signatory.

Can I file GST LUT online?

Yes, GST LUT can be filed online through the GST portal using Form GST RFD-11. It requires authentication by the authorized signatory using Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

What happens if I fail to file GST LUT?

Failure to file GST LUT results in the requirement to pay IGST on exports or provide an export bond, subject to the discretion of tax authorities.

How can I track the status of my GST LUT application?

You can track the status of your GST LUT application on the GST portal using the Application Reference Number (ARN) provided upon submission.

Can I amend or cancel a filed GST LUT?

Once submitted, a GST LUT cannot be amended. However, it can be canceled if not yet utilized for exports. A new LUT can then be filed if needed.

What are the consequences of non-compliance with GST LUT regulations?

Non-compliance may lead to penalties or legal consequences under GST laws, including the requirement to pay IGST and potential loss of export privileges.

Is there a fee for filing GST LUT?

No, there is no fee for filing GST LUT. It is a declaration made by the taxpayer to facilitate tax-free exports under specific conditions.

How long does it take to receive the ARN after filing GST LUT?

Typically, the ARN (Acknowledgement Reference Number) is generated immediately upon successful submission of the GST LUT application on the portal.