What is LUT in GST? Letter of Undertaking Meaning & Full Form

 In the dynamic world of international trade, Indian exporters constantly seek mechanisms that can streamline operations, reduce costs, and improve cash flow. One such pivotal instrument under the Goods and Services Tax (GST) regime is the Letter of Undertaking, universally known by its acronym, LUT.

Understanding LUT in GST, its meaning, and its complete form is crucial if you are or want to be an exporter. This thorough guide by EximPe will help you understand the Letter of Undertaking, its purpose, its many advantages, the eligibility requirements, and the 2025 online application process.

What is LUT?

Letter of Undertaking is referred to as LUT. An LUT is a formal document that, under the GST framework, permits registered exporters to export goods or services without having to pay the Integrated Goods and Services Tax (IGST) up front.

Exporters used to be required to pay IGST on their exports and then request a refund. Exporters can ship goods or render services without having to pay the tax up front by submitting a LUT to the GST authorities. This allows for quicker export processing and improved cash flow management.

Letter of Undertaking Meaning in GST

A Letter of Undertaking (LUT) is a type of declaration that an exporter or registered taxpayer submits on the GST portal to guarantee the government that they will fulfill their export obligations under GST law without having to pay IGST.

It acts as a tax compliance guarantee, helping avoid delays linked to payment and refund of IGST while exporting. Providing an LUT has made exporting easier, quicker, and financially less burdensome by removing the need to block funds.

Who is Eligible to File an LUT?

  • Any taxpayer registered under GST intending to export goods or services.
  • Exporters who have not been prosecuted for tax evasion exceeding ₹2.5 crore under CGST or IGST Acts.
  • Exporters supplying goods or services to outside India or Special Economic Zones (SEZs).
  • Taxpayers who want to export without paying IGST upfront.

If a taxpayer does not file an LUT, they have the option to export by paying IGST and later apply for a refund.

Importance and Benefits of LUT in GST

  • Cash Flow Improvement: No need to pay IGST upfront, saving working capital.
  • Fast Export Process: Eliminates the lengthy refund claim process.
  • Simplified Compliance: Single-year validity of LUT streamlines regulatory requirements.
  • Cost-Efficient: Reduces financial burden, enabling exporters to be more competitive globally.
  • Legal Assurance: Ensures government compliance with exporters' commitments to export laws.

Validity of LUT

  • An LUT is generally valid for one financial year (April to March).
  • It must be renewed annually to continue exporting without IGST payment.
  • If not renewed on time, exporters must either pay IGST upfront on exports or face non-compliance consequences.

Documents Required for Filing LUT

  • Valid GST registration (GSTIN).
  • KYC details of two independent witnesses (name, address, and occupation).
  • Previous year’s LUT copy (if renewing).
  • Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) for online filing.
  • Exporter details like name, address, and nature of business.

How to File LUT in GST? (Step-by-Step)

Step 1: Login to GST Portal

Visit the official GST portal and log in with your credentials.

Step 2: Navigate to LUT Filing Section

Go to:Services > User Services > Furnish Letter of Undertaking (LUT).

Step 3: Select Financial Year

Choose the financial year for which you want to file the LUT.

Step 4: Fill Exporter and Witness Details

Enter the required details, including two witnesses’ names, addresses, and occupations.

Step 5: Upload Previous LUT (If Applicable)

If renewing, upload a copy of the previous LUT.

Step 6: Submit and Verify

Preview the form, submit, and verify the application using either Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

Step 7: Receive LUT Number

After successful submission, an acknowledgment and LUT number are generated. You can download this for your records.

Difference Between LUT and Bond in GST

  • LUT: Can be furnished without any security deposit or bond, generally applicable if the exporter is not prosecuted for tax evasion exceeding ₹2.5 crore.
  • Bond: Required where the LUT is not applicable, and a refundable security deposit has to be submitted for export without IGST payment.

Most exporters prefer filing an LUT as it simplifies the process and avoids monetary deposits.

Why is LUT So Important for Exporters? The Benefits Unpacked

The Letter of Undertaking (LUT) is very important for exporters. It provides several clear benefits that make international trade smoother and more competitive:

  1. Zero-Rated Supplies without Upfront IGST Payment: This is the main advantage. By filing an LUT, exporters can ship goods or provide services outside India or to Special Economic Zones (SEZs) without paying Integrated GST (IGST) at the time of supply. Without an LUT, exporters must pay IGST first and then go through a long refund process.
  2. Improved Cash Flow: Avoiding upfront tax payments means your working capital is not blocked. Funds that would be tied up in taxes can be used for business operations, inventory, expansion, or covering other costs. This is crucial for the financial health and sustainability of any export business.
  3. Reduced Compliance Burden: The LUT mechanism significantly simplifies post-export compliance. It eliminates the need to pay IGST, file a refund claim, and follow up for that refund. This cuts down on administrative hassle and saves time and resources.
  4. No Refund Delays: Exporters often experience delays in processing GST refunds, which can hurt their cash flow. With an LUT, since no IGST is paid, the issue of refund delays on IGST paid on exports does not arise. However, you can still claim refunds for unutilized Input Tax Credit (ITC) on inputs or input services.
  5. Enhanced Competitiveness: By effectively removing the GST component from the upfront cost of exports, Indian goods and services become more competitive in the global market. This allows exporters to offer better prices without damaging their profit margins.
  6. Year-Long Validity: An LUT is usually valid for an entire financial year, from April 1st to March 31st of the next year. This means you only need to file it once a year, reducing repetitive paperwork.
  7. Digital and Hassle-Free Process: The entire LUT filing process is online on the GST portal, making it easy and relatively quick.

Important Points to Remember About LUT

  • Annual Renewal: An LUT is valid for only one financial year. A new LUT must be filed at the start of each financial year, ideally before April 1st, to continue benefiting from zero-rated supplies without paying IGST.
  • Consequences of Non-Compliance: If an exporter does not meet the conditions of the LUT, such as failing to export goods on time or not realizing foreign exchange, the option to export without paying IGST will be taken away. The exporter will then have to pay IGST on those exports, along with interest.
  • Bond as Alternative: For exporters who can't use an LUT, filing a bond, usually on non-judicial stamp paper, along with a bank guarantee that does not exceed 15% of the bond value, is the alternative for zero-rated supplies. Sometimes, this guarantee is waived.
  • Pre-supply Requirement: The LUT must be submitted before making the zero-rated supply, which means before the export invoice is issued or the goods are shipped.

Conclusion

The Letter of Undertaking (LUT) under GST is important for exporters. It provides an easy way to export goods and services without paying IGST upfront. Knowing what it is, who is eligible, and how to file can make compliance easier, improve cash flow, and help your business grow internationally. Exporters should file their LUT on time each financial year to get the most benefits and follow current GST rules.

FAQs: Letter of Undertaking (LUT) in GST

1. What is the full form of LUT in GST?

LUT stands for Letter of Undertaking.

2. What does Letter of Undertaking mean for exporters?

It is a formal declaration filed by exporters to carry out zero-rated exports without paying IGST upfront.

3. Who can file a LUT?

All GST-registered exporters who are not prosecuted for serious tax evasion and who export goods or services to destinations outside India or SEZs.

4. Is there any fee for filing LUT?

No, filing LUT on the GST portal is free of cost.

5. How long is an LUT valid?

It is valid for one financial year and must be renewed annually.

6. What happens if I don’t file LUT?

You must pay IGST upfront on exports and then claim a refund through a detailed refund process.

7. What documents are required to file LUT?

GST registration, details of two witnesses, digital signature or EVC, and previous LUT (for renewal).

8. Can I file LUT offline?

No, LUT filing is completely online via the GST portal.

9. What are zero-rated supplies?

Exports and supplies to SEZs are made without charging IGST (subject to furnishing LUT or bond).

10. Can services be exported using LUT?

Yes, LUT applies to both exports of goods and services.


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