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Application of LUT

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Application of LUT

An Overview

The Application of Letter of Undertaking (LUT) is a significant process within the Goods and Services Tax (GST) framework in India, designed to facilitate seamless exports by allowing exporters to conduct their business without paying Integrated Goods and Services Tax (IGST) on their exported goods or services. Here’s an overview:

1. Purpose of LUT: The primary objective of applying for an LUT is to enable exporters to undertake exports without the burden of paying IGST and subsequently claiming refunds, streamlining the export process and reducing working capital blockages.

2. Eligibility: Registered taxpayers engaged in the export of goods or services are eligible to apply for an LUT to avail the benefit of tax exemption on exports under GST.

3. Replacing Bonds with LUT: LUT serves as an alternative to furnishing a bond to the authorities. Previously, exporters were required to furnish a bond with bank guarantees to export goods without paying IGST.

4. Application Process: Exporters seeking an LUT need to apply through the GST portal by filling Form GST RFD-11. The application involves providing details about the exporter, nature of business, and a commitment to comply with GST regulations.

5. Validity Period: Upon acceptance, the LUT remains valid for a specified duration. Until July 1, 2019, exporters were required to renew the LUT annually. However, since then, the LUT remains in force until it is canceled or revoked.

6. Compliance and Obligations: Exporters availing the benefit of LUT must adhere to certain conditions and obligations, including timely filing of returns, adherence to GST laws, and proper maintenance of records.

7. Cancellation or Revocation: In instances of non-compliance or when exporters no longer engage in export activities, the LUT can be canceled or revoked. Failure to comply might lead to the payment of tax with interest.

8. Role in Export Procedures: An approved LUT enables exporters to export goods or services without paying IGST upfront, allowing them to claim refunds on Input Tax Credit (ITC) for inputs used in exports.

In summary, the Application of Letter of Undertaking (LUT) streamlines the export process by exempting exporters from upfront payment of IGST, provided they adhere to GST regulations and fulfill their tax obligations. This process significantly eases the financial burden on exporters and promotes smoother trade practices in the country.

Is It Mandatory?

Under the Goods and Services Tax (GST) regime in India, applying for a Letter of Undertaking (LUT) is not mandatory for exporters. However, obtaining an LUT offers certain advantages to exporters engaged in the export of goods or services:

  1. Exemption from IGST: With an approved LUT, exporters can undertake exports without paying Integrated Goods and Services Tax (IGST) on their exported goods or services, eliminating the need for upfront tax payment and subsequent refunds.

  2. Simplified Export Process: LUT simplifies the export process by removing the requirement to furnish a bond with bank guarantees, reducing the financial burden and administrative complexities for exporters.

  3. Claiming Refunds: Exporters with an approved LUT can claim refunds of Input Tax Credit (ITC) on inputs used for exports, enabling smoother cash flows and better working capital management.

While applying for an LUT is not mandatory, it offers considerable benefits and streamlines the export procedures for eligible exporters. It’s important to note that not having an LUT doesn’t prevent exporters from exporting goods or services; however, it might involve paying IGST initially and then claiming refunds, which could impact cash flows and working capital.

Therefore, while LUT application is optional, eligible exporters should consider applying for a LUT to avail the benefits and facilitate smoother export operations under the GST regime.

Information / Documents Required

General Documents / Informations Required from all assessees:

  • PAN Card: Personal Account Number (PAN) card of the applicant/entity applying for the LUT.

  • Address Proof: Valid address proof such as Aadhaar card, passport, voter ID, or utility bills in the name of the applicant.

  • Bank Details: Details of the applicant’s bank account including the account number, IFSC code, and a cancelled cheque or bank statement.

  • GST Registration Certificate: A copy of the GST registration certificate of the exporter.

  • Income Tax Returns: Previous year’s Income Tax Returns (ITR) and financial statements, if requested by the authorities.

  • Details of Business Activities: Information regarding the nature of business, types of goods or services being exported, and other business-related details.

  • Undertaking to Follow Rules: Declaration or undertaking to abide by the rules and regulations regarding the export of goods or services and comply with GST laws.

  • Authorization Letter: In case the application is filed by an authorized signatory, an authorization letter granting permission for the same.

Due Date

The Letter of Undertaking (LUT) for exports under the Goods and Services Tax (GST) regime in India does not have a fixed due date for application submission. Previously, exporters were required to renew the LUT annually before the beginning of each financial year.

However, from July 1, 2019, significant changes were introduced. Since then, an LUT remains valid until it is either canceled or revoked by the exporter. This means that once an exporter obtains an LUT and submits it to the GST authorities, it remains in effect until the exporter decides to cancel or revoke it or until the authorities decide to revoke it due to non-compliance or other reasons.

As per the current regulations, the validity of the LUT persists until the exporter informs the authorities about any change in circumstances that might affect the LUT’s status or if the exporter no longer intends to export goods or services.

Therefore, there is no fixed due date for the LUT renewal under the current system. Exporters need to ensure the compliance and fulfillment of the conditions mentioned in the LUT, and they must inform the authorities about any changes or revocations promptly to avoid any complications or non-compliance issues.

Benefits

A Letter of Undertaking (LUT) is a document that eligible exporters furnish to the authorities to export goods or services without payment of Integrated Goods and Services Tax (IGST) for their exports.

Obtaining an LUT is not mandatory, but it is beneficial for exporters to facilitate their exports without upfront payment of IGST.

An approved LUT allows exporters to conduct exports without paying IGST initially, streamlining the export process and avoiding the need for subsequent refund claims.

Documents such as PAN card, address proof, bank details, GST registration certificate, income tax returns, business details, and an undertaking to comply with GST laws might be required.

Since July 1, 2019, an LUT remains valid until revoked or cancelled by the exporter or the authorities due to non-compliance.

Yes, an LUT can be revoked or canceled by the exporter or the authorities if there is non-compliance, changes in circumstances affecting the LUT, or if the exporter ceases export activities.

Yes, exporters can apply for an LUT online through the GST portal by filling out Form GST RFD-11.

An approved LUT enables exporters to export goods or services without paying IGST upfront, facilitating smoother export procedures and allowing them to claim refunds on Input Tax Credit (ITC) for inputs used in exports.

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