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