GST Letter of Undertaking (LUT): A Complete Guide

• Goods and Services Tax (GST)
• ||
• February 14, 2024

Are you familiar with India’s essential export regulations?

If you receive payments from abroad in foreign currency, you are exempt from paying GST.

Per the export regulations set by the Indian government, the export of goods and services is considered a zero-rated supply if payments are received in foreign currency.

Since payments are received later, the GST department requires suppliers to pay IGST on each transaction and then claim a refund of the IGST paid once the goods or services are exported. Alternatively, there is an option to forego GST payment.

The Letter of Undertaking (LUT). But what exactly is an LUT, and how can you leverage it for smoother exports? This blog aims to be your one-stop guide to effectively understanding and utilizing the GST LUT.

What is a GST LUT?

Think of the LUT as a legal commitment to the government, declaring your intent to fulfill all GST obligations related to your exports.

It helps you do better tax planning and allows you to export goods or services without paying the Integrated Goods and Services Tax (IGST) upfront. This can significantly improve your cash flow and working capital.

Who needs an LUT?

Any person can apply for LUT in GST RED 11, if they intend to supply goods or services to Overseas or SEZs for their authorized operations under Rule 96A CGST 2017.

Conditions of LUT:

By applying the LUT, the registered person legally agrees to pay the tax due along with the interest. Within a period of —

• 15 days after the expiry of three months, or a further period if allowed by the Commissioner, from the invoice date for export, if the goods are not exported out of India, or
• 15 days after the expiry of one year, or a further period if allowed by the Commissioner, from the invoice date for export, In a condition that the payment of such services is not received by the exporter in convertible foreign exchange.

Also, in terms of Circular No. 45/19/2018 dated 30.05.2018, it has been clarified that in respect of refund claims on account of export of non-GST and exempted goods without making upfront payment of integrated tax, LUT/bond is not required.

The Government vides Notification No. 37/2017 – Central Tax dated 04.10.2017 has clarified that any registered person who has been prosecuted for any offense under GST or any existing laws in force with tax evaded exceeding Rs.2.5 crores shall not be eligible for furnishing LUT.

Benefits of using an LUT:

• Improved cash flow: By avoiding upfront IGST payment, you free up working capital for other business needs.
• Faster exports: No need to report the tax liability in the export invoices, hence easy settlement by the importers.
• Simplified compliance: LUT simplifies documentation and compliance processes for exports.
• Tax Planning: It helps you to plan your GST return, which gives you the freedom of easy export

Documents Required for LUT Filing Under GST

• KYC documents of two witnesses
• Nature of employment of witnesses
• Copy of last year’s LUT (if any).

Steps to obtain an LUT:

Eligibility check: Ensure you meet the eligibility criteria mentioned above.

File Form GST RFD-11: This form requires details like your GSTIN, financial year, and witness information. You can file it online on the GST portal post-digital signature by primary/any other authorized signatory.

Submit with Digital Signature Certificate (DSC) or EVC (Electronic Verification Code): Choose your preferred signing method and submit the form.

Procedure for submitting a LUT certificate.

• First, you have to visit the GST portal to submit the LUT certificate. Under “SERVICE TAB,” Select “USER SERVICES.”
• In the drop-down, there is an option to FURNISH LETTER OF UNDERTAKING (LUT)
•  After selecting this option, you have to choose the financial year for which you want to upload a certificate instead of uploading a PDF copy of the last financial year’s LUT (if any).
•  Enter the names of the two witnesses along with their addresses and occupations, after which you have to fill in the form.
• After completing this process, you can preview the form. The application can be signed with a digital signature certificate or an electronic identification code.
• The letter suggests two options. Once signed and submitted, the form cannot be edited. You can download the undertaking application form from the GST portal.

Important points to remember:

• An LUT is valid for a financial year. You need to renew it annually.
• Failure to comply with GST obligations after furnishing an LUT can lead to penalties (including interest) and cancellation of the LUT.
• Maintaining proper records and documentation to support your export claims is crucial.

At Mercurius, we offer our clients support and guidance with various GST-related issues, including GST registration, filing returns, refund claims, and audits. If you have any queries about GST compliance, please contact us.

­FAQ

Q1. Is it necessary to register a LUT for GST?
Ans. It is mandatory to register a LUT if:

• You are a registered taxpayer engaged in the export of goods or services.
• You want to export without paying Integrated Goods and Services Tax (IGST) upfront.

But in other cases, LUT registration is not mandatory.

Q2. Is it mandatory to mention the LUT number on the invoice?
Ans. Yes, mentioning the LUT number on your invoice is mandatory when you are availing the benefit of LUT for GST. This requirement applies to both goods and services exports under LUT.

Q3. Why is it mandatory to mention the LUT number on the invoice?
Ans. It is mandatory because:

• Identifying exempt status: Including the LUT number on your invoice indicates that the export is exempt from IGST payment due to the LUT submission. This helps customs authorities and other stakeholders verify the legitimacy of your zero-rated export claim.
• Compliance and record-keeping: Mentioning the LUT number is a documentation step, ensuring proper record-keeping and compliance with GST regulations.

Q4.  How do I verify my LUT number?
Ans. There are two primary ways to verify your LUT number:

1. Through the GST Portal: You can log in on the GST portal and select the period. There, you will see a list of LUTs you have submitted for that period. Click on the specific LUT you want to verify, and you will see the detailed information, including your LUT number (ARN number).

2. Through Acknowledgement Receipt: You can find your LUT number there if you remember receiving an acknowledgment receipt when you submitted your LUT application. It should be mentioned explicitly as the Application Reference Number (ARN).

Q5. When to apply/file an LUT?
Ans. For Exports:

• Ideally, file your LUT before you make any exports. This ensures everything is in order, and you can claim the IGST exemption smoothly.
• You can file anytime within the financial year: The LUT is valid for the entire financial year (April 1st to March 31st) in which it is filed.
• File a new LUT each year: You need to renew your LUT for each financial year to maintain its validity.
• Consider filing early if you anticipate frequent exports: A valid LUT readily available saves time and simplifies the export process.

For Zero-Rated Supplies within India:

• File the LUT before making the supply: You can avoid paying GST upfront and claim a refund later.
• Consider filing in advance if you expect regular zero-rated supplies: This helps maintain compliance and simplifies claiming refunds.

Q6.  What if the export is done without LUT?
Ans. If you export goods or services without having a Letter of Undertaking (LUT) registered, there can be several consequences depending on the specific context:

• Loss of IGST exemption: You will lose the benefit of exempting your export from Integrated Goods and Services Tax (IGST) payment, meaning you’ll have to pay the tax due. This can significantly impact your profit margins and competitiveness.
• Additional tax demands and penalties: The authorities may demand payment of IGST along with interest and penalties for non-compliance with regulations.
• Disrupted export process: Depending on the authorities’ response, your export shipment might be held or delayed until the tax dues are cleared.

Q7. Can LUT be filed after the due date?
Ans. Filing a LUT after the due date doesn’t make it valid, and you will not be able to avail the benefits associated with it, such as exemption from paying IGST on exports and claiming a refund on zero-rated supplies within India.

Q8. How to obtain GST LUT in a hassle-free manner?
Ans. You can obtain GST hassle-free with us. We understand your priorities, allowing you to focus on what matters while we handle the rest. Mercurius ensures your GST LUT is conveniently delivered to your inbox. For additional assistance, contact us.