GST compliance, LUT GST, Letter of Undertaking, Export of goods or services, EbizFiling

How LUT Can Simplify Your GST Compliance Process?


In India, an indirect tax known as the Goods and Services Tax (GST) is imposed on the provision of goods and services. It replaced various indirect taxes like value-added tax (VAT), central excise duty, and service tax. GST compliance can be a challenging task for businesses, particularly those that engage in exports. The introduction of the Letter of Undertaking (LUT) has simplified the GST compliance process for exporters. In this article, we will take a closer look at how LUT simplifies GST compliance.

What is a Letter of Undertaking (LUT)?

A Letter of Undertaking (LUT) is a legal document that exporters can submit to the GST department to claim an exemption from paying Integrated Goods and Services Tax (IGST) on the export of goods or services. The LUT is an alternative to paying IGST and claiming a refund of the same. The LUT is valid for one year and needs to be renewed every year.

How does LUT make GST compliance simpler?

LUT makes it easier for exporters to comply with GST in the following ways:

  1. Exemption from IGST Payment: Exporters that have an active LUT are exempt from paying IGST while exporting products or services. This eliminates the need for them to pay the tax upfront and then submit a claim for a refund, which can be an exhausting procedure. For exporters, IGST compliance is made simpler by the exemption from payment.
  1. Lesser requirements for working capital: Without a valid LUT, exporters must pay IGST upfront, which can severely restrict their ability to access working capital. However, IGST is not required for exporters who have a valid LUT, which lowers their demand for working capital. Exporters can more easily control their cash flows because of the decreased working capital requirements.
  1. Simplified Documentation: Exporters do not have to submit any refund requests to the GST department if they have a current LUT. This reduces the documentation requirements for exporters and eliminates the need to file multiple documents. The simplified documentation process saves time and reduces the compliance burden for exporters.
  1. Competitive Benefit: Exporters who have a valid LUT can charge their clients competitive prices because they are exempt from IGST. They can compete more successfully than exporters who lack a legitimate LUT because of this.
  1. Accelerated customs clearance: Exporters that have a current LUT can benefit from quicker customs clearance. This is so that the customs agents do not have to confirm the IGST payment. Exporters benefit from the shorter turnaround time for exports due to the quicker customs clearance procedure.

Conditions to apply for a LUT

Exporters that seek a LUT must apply to the GST department and include the required supporting documentation. The conditions for receiving a LUT are as follows:

  • The exporter should have GST registration.

  • The exporter should not have any tax arrears or any proceedings pending under GST.

  • The exporter should have a track record of complying with the GST regulations.

  • The exporter has to have generated at least Rs. 1 crore in revenue during the preceding fiscal year.

  • The exporter should have a bank guarantee of 15% of the bond amount or Rs. 25 lakh, whichever is lower.

Once the application is submitted, the GST department verifies the documents and approves the application if all the requirements are met. Once the LUT is obtained, the exporter can use it to claim an exemption from paying IGST on their exports.

Final Takeaway

LUT simplifies the GST compliance process for exporters by providing them with an exemption from paying IGST on the export of goods or services. The exemption from payment of IGST reduces the working capital requirements for exporters and simplifies the documentation process. Additionally, exporters with a valid LUT can enjoy faster customs clearance and offer competitive prices to their customers. Therefore, to simplify their GST compliance process and increase their marketability, exporters must obtain a valid LUT.


Suggested Read: How GST LUT Affects Invoicing and Accounting?

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