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
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.
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.
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.
For the following filing, GST LUT bond following documents are required
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.
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.
For filing the LUT bond has been made online. follow the steps mentioned below
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.
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.