India is a developing economy and the Indian government is aiming to bridge the gap of the trade deficit by expanding the country’s export rate. Growth in export rate leads to many benefits like the creation of more jobs, maintains the balance of payments, and also gives a boost to the country’s economy.

The government of India is continually promoting exports by providing certain incentives and concessions to the exporters. So, the businesses can claim benefits of government relief and contribute towards strengthening the country’s economy.

GST is an indirect tax being levied on goods and services. It is being paid by the consumers thereby making it a consumption-based tax. To understand the concepts of export we need to understand the first types of exports and letter of undertaking

Exports under GST

Under the GST regime, imports and exports are treated as inter-state supplies hence, IGST is applicable to them. As per the IGST provisions exports are treated as zero-rated supplies i.e they are taxed but at the nil tax rate. There are two options available for exporters for paying taxes.

  • Exports goods under a bond and no need to pay any tax
  • Export goods by paying the IGST taxes and claim a refund later

Earlier exporters needed to pay tax during purchasing raw materials and again while exporting. To reduce the burden of double taxation the government has introduced a letter of undertaking.

Letter of undertaking (LUT)

LUT is an abbreviated form of a letter of undertaking. It is a document filed by the exporter to get relief from paying IGST on the export of goods and services. According to notification no 37/2017- central tax it is mandatory for exporters to furnish LUT. In case, LUT is not filed then the exporter can export their goods by paying the tax and later claim a refund. It is better to file LUT than to pay taxes and indulge in refunds.

Earlier LUT was filed offline only but to ease the process the government has made the LUT filing process online by using the form GST RFD-11.

Documents required for filing LUT bond

For the following filing, GST LUT bond following documents are required

  • GST registration copy
  • LUT cover letter requesting acceptance duly signed by an authorized person
  • Notarized annexure of LUT
  • Two sets of original GST RFD-11 form
  • Information of at least two witnesses
  • PAN card of entity
  • Copy of IEC code
  • Copy of Authorization letter
  • Invoice summary raised against exports
  • Corporation documents
  • Cancelled cheque

Eligibility for applying LUT

According to the latest notification, all registered exporters under GST are eligible for availing of the facility of LUT without the need for any bank guarantee or past turnover.

However, if any person is prosecuted under any offense and tax evasion exceeding 2.5crores under the CGT or IGST are not eligible to file the GST LUT. In this case, they have to furnish an export bond.

Benefits of filing LUT

  • without paying tax - an exporter can export any amount of goods or services without paying any taxes. If the exporter hasn’t filed for LUT then they have to pay the taxes first and can avail refund claims later.
  • Saves capital – small businesses and regular exporters can save a lot of capital from blocking the refund process as it is time-consuming by filling LUT online.
  • Simple online process – applicants don’t need to visit the office for filing LUT. The whole process can be done online by submitting the required documents
  • No additional compliance

Validity of LUT

The validity of a LUT is a complete financial year in which it is being issued. That means if you had filed LUT for 2018-19 FY, it will expire in March 2019 and again you have to file a fresh LUT for the forthcoming financial year. Further, if a person fails to comply with the conditions of LUT they may be asked to file a bond instead.

Process for filing letter of understanding (LUT)

For filing the LUT bond has been made online. follow the steps mentioned below

  1. Visit the official GST portal and log in using your valid login credentials
  2. Click on the services tab and from the subsections choose user services and then select furnish letter of undertaking from the list
  3. Now GST RFD-11 form will be displayed
  4. Now select the financial year for which LUT is being applied from the drop-down list
  5. Then click choose file and upload the documents required in PDF or JPEG format only
  6. After uploading the documents select declaration checkboxes and give the asked details such as name, address, and occupation of at least two witnesses
  7. Then enter the place of filing LUT form
  8. In the next step select the name of the primary or other authorized signatories who will sign the application form
  9. Click on the preview button to preview the form
  10. Next click the save button. Once the form is saved a confirmation message will be displayed on the screen
  11. To retrieve the saved form at a later date you can get it from my saved applications category under ‘services’.
  12. Click on sign and file with DSC/EVC option
  13. After signed, the form cannot be edited. So, kindly check before signing and submitting.
  14. Now the applicant has an option for downloading the acknowledgment for LUT.

You can also renew the old LUT if you have filed offline by attaching the LUT of the previous year under the ‘choose file’ option.

Export bond for GST

Entities that are not eligible for filing LUT as per the conditions mentioned above have to furnish an export bond along with a bank guarantee. The applicant must cover the amount of tax involved in export based on self-assessment of estimated tax liability.

The export bond has to be furnished in a non-judicial stamp paper of value as applicable in the state furnished. Exporters can also furnish a running bond to avoid generating export bonds for every export transaction.

A bank guarantee can be made compulsory in an export bond and the bank guarantee should not exceed 15% of the bond amount. But based on the exporter’s track record bank guarantee required for an export bond can be waived off by the GST Commissioner.

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