An Informative guide on LUT (Letter of Undertaking) for Exporters under GST 

LUTs (Letter of Undertaking) and bonds are documents that prove a taxpayer’s commitment to exports. We go over the specifics of when to use LUT and when to use Bond. In this article information on documents required for LUT under GST, validity of LUT under GST, where to submit LUT under GST, and information on LUT for export under GST.

Introduction

Any government in a developing economy wants to broaden its export base. The rationale behind this is to keep the balance of payments in check, in encouraging economic growth, and for creating jobs. The government fosters trade by offering specific perks and relief’s on exports. Exporters can take advantage of these perks and relief’s, allowing for a free-flowing and advantageous trade. Similarly, the government provides exporters with various perks under the GST framework. When an exporter exports products or services from India, there is no tax incidence (net effect).

The exporter can choose between two choices under the GST regime:

• Exporting under a bond allows you to avoid paying taxes.
• Export with tax payment and get a refund afterwards.

What is LUT for Exporter under GST?

The abbreviation LUT stands for Letter of Undertaking. The Letter of Undertaking is a document that the exporter submits to be able to export goods or services without paying taxes. In the event that the LUT is not filed, the exporter may pay the IGST and later obtain a refund of the tax paid. Because exporters do not want to deal with the difficulties of refunds and cash being blocked, filing LUT is more convenient than refund mode.

The eligibility conditions for applying for LUT are less stringent than in the previous system. The GST RFD 11 form is used to file the Letter of Undertaking. By submitting a LUT, the exporter guarantees that he will meet all of the standards for this route.

How Exporter will be benefited from LUT under GST?

Lowers the Price of Exports

Regular exporters benefit greatly from filing LUT online because the reimbursement process via another way is time-consuming. During this time the sum of money is held in reserve in the shape of a due refund. The capital is free to be used for other important purposes in this method. It also lowers the price of exports.

Easy and Fast online Process

Since April 2018, both the filing and acceptance of LUTs have been done online. It is not necessary for the applicant to appear in front of the officials for approval. The entire process can be completed by posting a few key documents to the internet.

Exporter can Export goods without Paying Tax

If an exporter files a LUT under GST, they can export goods or services without paying taxes. To be eligible for zero-rated exports, the exporter must first pay the relevant tax while exporting before demanding a refund if the LUT is not filed.

LUT is valid for whole Fiscal Year

The Letter of Undertaking is valid for the whole fiscal year in which it was filed. As a result, unlike the return procedure, an exporter does not have to go through all of the procedural requirements every time an export consignment is completed.

Refund of IGST (Integrated Goods and Service Tax) paid on Exports

The exporter has the option of paying IGST on exports and then claiming a refund under GST legislation. The process of requesting a refund has been simplified for export dealers. There is no need to file a refund application (GST RFD-01) separately for the export of goods or services, or both.

The exporter’s shipping bill is a refund claim in and of itself. On the invoice for export, the exporter charges IGST at the applicable rate (rates specified for different goods and services). After paying the IGST, you can seek a refund for the following two items:

• Input tax credits for products and services that were not used
• IGST paid on goods or services exported.

Read More: GST Returns on Exports & Refund Process

The legislation states that a shipping charge can be deemed a refund claim provided the following two conditions are met.

• The individual transporting export items must file an export manifest.
• Also, the applicant must have properly filed GSTR-3B returns.
• On filing table 6A in form GSTR-1, a refund is commenced.

 Documents required for LUT under GST

An LUT can be submitted by any GST-registered individual who has not been sentenced to death for tax evasion of more than Rs.250 lakh or any other felony.

• PAN Card of an entity
• IEC Code Certificate
• LUT Cover Letter – acceptance request and signed by an authorized person
• GST RED11 Form
• GST Registration
• KYC of Authorised Person
• Cancelled Cheque

Frequently Asked Questions on LUT under GST

1. What is a validity of LUT under GST?

Every financial year, the qualifying taxpayer must provide a LUT under GST. This means that a LUT issued under GST is only valid for one financial year. If the taxpayer fails to follow the terms and circumstances of the Letter of Undertaking, he or she must provide a bond instead of the LUT (LUT).

2. What must the exporter declare in the LUT Form Self-declaration?

• Export of goods or services must be completed within three months of the date of the export invoice being issued, or within any additional time authorized by the Commissioner.
• In the case of exports, should follow the GST Law.
• If she fails to export, she will be required to pay the IGST as well as any relevant interest.

3. What happens if the exporter fails to export the LUT after it has been submitted?

From the date of issuing of the export invoice to the date of IGST payment, the exporter must pay the applicable IGST plus interest at the rate of 18 percent per annum.

4. Is there a requirement for exporters to file a bond?

No, the obligation to post a bond is no longer in effect. A Letter of Undertaking must be filed online for exports that do not include the payment of taxes.

5. Is there a requirement for exporters to file a bond?

No, the obligation to post a bond is no longer in effect. A Letter of Undertaking must be filed online for exports that do not include the payment of taxes.

Points to be keep in Mind

Letters of Undertaking can be used by any registered taxpayer who exports goods and services. Anyone who has been convicted of tax evasion for an amount above Rs. 250 lakh is ineligible.

Such LUTs are only valid for one year, and an exporter must provide a new LUT for each financial year. If the LUTs’ conditions are not met within the given time frame, the exporter’s privileges will be removed, and the exporter will be required to post bonds.

If the export is made without the payment of IGST, other assesses must provide bonds. LUTs / Bonds can be used for a variety of purposes.

• Zero-rated supplies to SEZs without IGST payment.
• The export of commodities to a country outside of India without having to pay the IGST.
• It is not paying IGST because it is offering services to a client in a country outside of India.