The Letter of Undertaking (LUT) is the primary mechanism that allows exporters to supply goods or services without payment of IGST and claim refund of accumulated ITC. Incorrect LUT filing or non-renewal results in mandatory IGST payment on exports, blocking working capital and triggering avoidable refund cycles.
1. Introduction
Under GST, exports are treated as zero-rated supplies. Exporters can:
export on payment of IGST and claim refund, or
export without payment of IGST under LUT and claim ITC refund.
Most exporters opt for LUT due to cash-flow efficiency.
LUT converts export GST from a cash cost to a credit recovery.
2. Legal Framework for LUT
LUT is governed by:
GST law provisions relating to zero-rated supplies, and
prescribed GST rules and notifications.
It replaces the earlier bond mechanism for most exporters.
3. Who Is Eligible to Furnish LUT
LUT can be furnished by:
registered exporters of goods, and
registered exporters of services.
Eligibility is subject to compliance history conditions prescribed under GST law.
4. Cases Where LUT Is Not Permitted
LUT is not permitted where:
the exporter has been prosecuted for serious GST offences, or
specific disqualifications apply.
Such exporters may be required to furnish a bond instead.
5. Validity Period of LUT
An LUT:
is valid for the entire financial year, and
must be renewed every year.
Failure to renew on time leads to automatic ineligibility.
LUT validity lapses annually, not transaction-wise.
6. Step-by-Step Process to File LUT
The LUT filing process involves:
logging into the GST portal,
selecting the LUT option under services,
furnishing basic exporter details,
uploading required declarations, and
submitting using DSC or EVC.
No physical submission is required.
7. Key Declarations in LUT
By furnishing LUT, the exporter undertakes to:
comply with GST laws,
realise export proceeds within prescribed timelines, and
pay applicable tax with interest if conditions are violated.
These undertakings have legal consequences.
8. LUT for Export of Services — Special Considerations
For services exports:
receipt of foreign currency within prescribed time is critical, and
non-realisation triggers tax liability.
Proper tracking of foreign remittance is essential.
9. LUT and Shipping Bill / Invoice Linkage
Exports under LUT must:
clearly mention “Supply under LUT without payment of IGST”, and
be correctly linked with shipping bills or service export invoices.
Incorrect endorsement leads to refund issues.
10. Common Errors in LUT Filing
Frequently observed mistakes include:
delay in annual renewal,
incorrect financial year selection,
mismatch between LUT and invoice declarations, and
misunderstanding of service export conditions.
Most errors are procedural but have financial impact.
11. Consequences of LUT Non-Compliance
Non-compliance may result in:
demand of IGST with interest,
denial of refund claims, and
scrutiny during audit.
LUT violations are treated as breach of undertaking.