Letter of undertaking (LUT) under GST 

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What is LUT in GST?

Letter of Undertaking or LUT is an undertaking filed by an exporter of goods or service which permits him to export goods or services without payment of IGST subject to the condition that he will complete the process of export of goods or services within the prescribed time limit.

According to the Notification No. 37/2017 – Central Tax, it’s mandatory to file LUT for exporting goods or services or  each while not paying the IGST. 
In case, an exporter fails to submit LUT the person needs to pay IGST or has to provide an export bond. Earlier LUT was only available to file offline at the concerned GST office. But now, the Government of India has made the LUT filing process online to ease the process.

 
Thus, There are two ways possible to export under GST, one is export with payment of GST and second is export without payment of GST. To settle on second possibility, you need to file the bond or LUT with the tax department stating that you shall fulfil all the export requirements. 

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Objective of LUT

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As per section 16 of the Integrated Goods and Service Act, 2017 (“IGST Act”), Export of goods or services, i.e., zero-rated supply, doesn't come under the GST
Accordingly, in such case, exporters can claim refund through either of the following options:

Option-1:  The person may supply goods or services under bond or Letter of Undertaking (“LUT”) without payment of integrated tax and can claim refund of unutilised input tax credit.

Option-2: The person may supply goods or services on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. For the purpose of payment of GST on goods/services exported, exporters may utilise corresponding ITC claims.

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Therefore, on filing of LUT, supplier may supply goods or services without payment of IGST subject to fulfilment of conditions given under GST law. 

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 Eligibility criteria to apply for LUT

A person intending to supply goods/services
1. To or outside India or
2. Places covered under Special Economic Zone
3. Without paying integrated tax and
4. Is also registered under goods and services tax

An individual is eligible to apply for LUT if the below-mentioned conditions are fulfilled.

1. There has never been the prosecution of the person under the Central Goods and Services Act (CGST) or the Integrated Goods and Services Act (IGST), 2017 or any other existing laws. Where, the amount of tax levied exceeds Rs. 250 lakhs.

2. The LUT shall be provided on the letterhead of the person registered under GST. It should be furnished in duplicate for a financial year. LUT is presented in the annexure to form GST   RFD-11 and can be issued by the partner, MD, Company Secretary or by the person duly signed by the company or the proprietor.

3. If a person fails to pay the tax within the stipulated time as mentioned under the Central Goods and Services Act, the facility of exporting without payment of IGST is withdrawn till it is paid.

Documents Required for LUT under GST

1. LUT cover letter – request for acceptance – duly signed by an authorised person.
2. An LUT can be submitted by anyone registered under GST, provided they have not been prosecuted for tax evasion exceeding Rs. 250 lakhs, or for any other offence under the CGST Act, the IGST Act 2017, or any other prevailing statute.
3. Copy of GST registration.
4. Pan card of the entity.
5. KYC of authorised person/signatory.
6. GST RFD 11 form.
8. Cancelled Cheque.
9. Authorized letter.

Process for filing LUT certificate

The first step in furnishing an LUT in GST refund process is to log into your profile on the GST portal.
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• Under the ‘Services’ tab, the ‘User Services’ drop-down has the option of ‘Furnish Letter of Undertaking (LUT)’.

• Once this is selected, the first thing to do is to select the financial year. This is where a manually furnished LUT can also be uploaded in PDF or JPEG format.

• Next, a self-declaration must be filed, in which one undertakes to:

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Complete the export of goods/services within three months of the date of issue of export invoice, or such further period as allowed by the Commissioner
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Adhere to the GST laws with respect to exports
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In case of failure to export, pay the IGST along with interest at the rate of 18% from the invoice date to the date of payment of IGST
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• You are required to fill in the names of two independent witnesses, along with their occupations and addresses.

• In the next screen, enter the place of filing. Once this procedure is complete, you may preview the form.

• The application can be signed with a registered digital signature certificate or via electronic verification code. Both options appear on the form. Once signed and submitted, the form cannot be edited.

• You can download the letter of undertaking application from the GST

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Benefits of filing LUT under GST

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1. Eliminated  difficulties faced for tax refunds 
Given the difficulties faced by many exporters in processing of tax refunds, alternative options can seem very attractive. An LUT spares exporters the effort of pursuing a refund and eliminates the blocking of funds by way of tax payments. 

 

2. Exports without tax payment
By filing LUT under GST, an exporter can export goods or services without paying the taxes. If LUT is not filed, the exporter must first pay the required tax while making exports and then claim a refund to avail benefit of zero-rated exports.

 

3. Saves Working Capital
The regular exporters are at a huge benefit by filing LUT online as the refund process under another route is a time-consuming process. During which the bunch of capital is blocked in the form of a due refund. With this mode, the capital is free to be utilized for other necessary requirements. It also reduces the cost of exports.

 

4. An Entire Financial Year Validity
The Letter of Undertaking, once filed is valid for the whole financial year in which it is filed. Hence, unlike refund process, an exporter does not need to go through the procedural requirements every time an export consignment is carried out.

 

5. Simple and online process
The filing of LUT and its acceptance, both are made online since April, 2018. The applicant does not need to visit the officers for acceptance. The whole process can be completed online by submitting a few required documents making it super-easy and quick.

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Key Points about LUT bond

Let’s now look at some important information related to LUTs:

• An LUT remains valid for 12 months from the date of its submission.

• The LUT is accepted subject to certain conditions. Failing to comply with these can lead to the revocation of privileges associated with the document. In such cases, the exporter would be required to furnish a bond.

• A bond can also be furnished by entities that are not eligible to submit an LUT. It must be on non-judicial stamp paper and accompanied by a bank guarantee. The bond must cover the estimated tax liability based on the assessment of the exporter.

• An LUT is required to be filed on the letterhead of the registered person who intends to supply goods/services without the payment of integrated tax.

• The LUT must be duly applied for in the prescribed GST RFD-11 form. It can be filed by the MD, company secretary, or other authorized people. In the case of a company, the form can be filed by the partner of a partnership firm, or by the proprietor.

• The bank guarantee accompanying the bond should not exceed 15% of the bond amount, and it may be waived by the jurisdictional GST Commissioner.

 

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DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.
It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information.

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