Letter of Undertaking (LUT)

What is a Letter of Undertaking (LUT)?

Letter of Undertaking (LUT ) is a declaration filed in Form GST RFD-11 by eligible GST-registered exporters to make zero-rated supplies of goods or services without paying Integrated GST (IGST) upfront. It must be furnished on the GST Portal before making such supplies and is valid for the relevant financial year. LUT helps exporters avoid upfront IGST payment and the subsequent refund process, supporting better cash flow. 

Why is it important?

A LUT is important because it enables eligible exporters and suppliers in Special Economic Zones (SEZs) to make zero-rated supplies without blocking working capital by paying IGST in advance.

This improves liquidity, reduces reliance on the refund mechanism, lowers compliance costs, and simplifies export transactions. Since a LUT is valid for an entire financial year, businesses can continue making eligible supplies without obtaining approval for every export shipment or service transaction.

How does it work?

1. LUT filing

Eligible exporters and suppliers making zero-rated supplies submit Form GST RFD-11 on the GST Portal before exporting goods or services without paying IGST. The LUT is generally filed at the beginning of every financial year and remains valid until 31 March of that year.

2. Eligibility check

Before accepting the LUT, the GST system verifies whether the applicant is eligible. A registered person can furnish an LUT unless they have been prosecuted for tax evasion exceeding ₹2.5 crore under the CGST Act or any existing law.

3. Export supplies

Once the LUT is accepted, the exporter can make zero-rated supplies to overseas customers or eligible SEZ units or developers without paying IGST at the time of supply. This eliminates the need for upfront tax payment on eligible transactions.

4. Invoice declaration

For every export or eligible SEZ supply made under an LUT, the tax invoice should carry a declaration stating that the supply is made without payment of integrated tax under an LUT, as prescribed under the GST Rules.

5. Return reporting

The exporter reports these zero-rated supplies in the relevant GST returns, such as GSTR-1 and GSTR-3B, along with applicable shipping bill, export invoice, or service export details, ensuring consistency between GST and customs records wherever applicable.

Example

ABC Textiles Pvt. Ltd., a GST-registered exporter in Surat, receives an order worth ₹25 lakh from a buyer in Germany. Before exporting the goods, the company files Form GST RFD-11 on the GST Portal for the relevant financial year. After the LUT is accepted, ABC exports the goods without paying IGST upfront and mentions the prescribed LUT declaration on the tax invoice.

The company reports the zero-rated supply in its GST returns and retains export documents, such as the shipping bill and export invoice, to comply with GST and FEMA requirements. This allows ABC to preserve working capital by avoiding upfront IGST payment.

Key points to remember

• An LUT must be furnished separately for every financial year. An LUT filed for a previous financial year cannot be used for exports or eligible SEZ supplies in the next financial year.
• Businesses that are not eligible to furnish an LUT must execute a bond with the prescribed bank guarantee before making zero-rated supplies without payment of IGST.
• An LUT is available not only for physical exports of goods but also for exports of services, provided the transaction satisfies the conditions for export of services under the IGST Act.
• For export of services, payment should generally be received in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (RBI), subject to FEMA regulations.
• If the conditions applicable to zero-rated supplies are not fulfilled, the tax authorities may recover the unpaid IGST along with applicable interest in accordance with the GST law.