LUT in GST: Exporting Without Paying IGST Upfront

An LUT in GST is a Letter of Undertaking filed in Form GST RFD-11 that lets an exporter make zero-rated supplies without paying integrated tax on them. It is valid for one financial year, is filed online on the GST portal, needs no approval letter in return, and exists for one reason: so that money you would otherwise hand over as IGST and wait months to get back never leaves the business at all.

What zero-rated supply actually means

Section 16 of the IGST Act defines a small, precise category called zero-rated supply. It covers three things: the export of goods, the export of services, and the supply of goods or services to a Special Economic Zone developer or unit for their authorised operations. Nothing else is zero-rated, however low its rate happens to be.

The distinction between zero-rated and exempt is where most of the practical value sits. An exempt supply carries no output tax, but it also poisons the credit chain: the input tax you paid to make that supply is not available to you. A zero-rated supply carries no output tax and preserves the credit. Section 16 says so expressly — credit may be availed on inputs used to make a zero-rated supply even though the supply itself is exempt from tax. That is the whole architecture of export relief under GST, and it is why an exporter ends up with a credit balance that has no output liability to be set against.

Whether a service actually qualifies as an export is a separate test with its own conditions — supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange, and the supplier and recipient not being mere establishments of the same person. Getting that wrong makes the LUT irrelevant, because the supply was never zero-rated in the first place. If you are exporting services rather than goods, read the conditions carefully alongside the place of supply rules, and, if you are a solo consultant or agency, our guide to GST for freelancers and service exports works through the same test on realistic facts.

The two export routes, and the working-capital argument

Having established that exports are zero-rated, the law then offers two mechanically different ways to get the benefit. Both end in the same place. They differ entirely in when your cash moves.

Under the first route you furnish a Letter of Undertaking or a bond, invoice the export without charging integrated tax, and then claim a refund of the input tax credit that accumulates because you have no output liability to absorb it. Under the second you charge integrated tax on the export invoice, pay it out of your ledgers, and claim that tax back.

The arithmetic favours the first route for almost anyone who exports regularly. On the pay-and-claim route, every export invoice takes cash out of the business at the point of filing the return and returns it weeks or months later. The exposure is not one invoice but a rolling pipeline of them, so a business exporting steadily is permanently funding a float equal to several months of IGST. On the LUT route that money never leaves. The refund you claim is of accumulated credit, which is a smaller number and, more importantly, one you were never asked to fund in cash.

The pay-and-claim route keeps one genuine advantage for goods: it is administratively lighter, because the shipping bill itself is treated as the refund application and no separate claim is filed. An occasional exporter of goods may reasonably decide that is worth the float. A services exporter gets no such shortcut — services require a full refund application either way — so for them the LUT is close to a default.

What the LUT is and what you are undertaking

Form GST RFD-11 is short, and every clause in it is a promise with a consequence attached. Read as an undertaking rather than a form, it says three things.

First, that you will complete the export within three months of the date of the invoice, or within any further period the Commissioner allows. For goods this means physically taking them out of India. Second, that where the zero-rated supply is a service, you will realise the consideration in convertible foreign exchange within the period permitted under the Foreign Exchange Management Act — the RBI-prescribed realisation period, which is why the undertaking points at FEMA rather than fixing its own deadline. Third, that if you fail on either count, you will pay the integrated tax due together with interest, running from the date the invoice was issued rather than from the date the failure became apparent.

The undertaking is signed by a person authorised to bind the entity — a working partner, the managing director, the company secretary, the proprietor, or a person duly authorised by the board or partners — and it is witnessed by two independent witnesses whose names, occupations and addresses appear on the form. Have those details to hand before you begin; hunting for a witness address is the most common reason an otherwise two-minute filing turns into an afternoon.

Who can file an LUT, and when a bond is required instead

The facility is deliberately broad. Any registered person making zero-rated supplies may furnish an LUT — there is no turnover floor, no requirement to have a track record of exports, and no distinction between goods and services exporters.

There is one carve-out. A person who has been prosecuted for an offence under the GST law or an earlier indirect tax law, where the tax evaded exceeds the prescribed monetary limit, is excluded from the LUT and must furnish a bond backed by a bank guarantee instead. Two points of precision matter here. Prosecution is a criminal proceeding, not an assessment, a demand or a penalty order — a business that has lost a dispute has not thereby been prosecuted. And the exclusion is tied to a monetary threshold set by notification, with the permissible size of the bank guarantee capped by circular as a proportion of the bond amount. Both figures have been revised, so if you are anywhere near this territory, read the current notification and circular on cbic-gst.gov.in rather than relying on a number quoted in an article.

Filing Form RFD-11 on the portal

The filing itself is entirely online and takes a few minutes once the witness details are ready.

1. Log in to the GST portal and go to Services, then User Services, then Furnish Letter of Undertaking.
2. Select the financial year the LUT is to cover. The portal offers the current year and, at the turn of the year, the one about to begin.
3. If you filed an LUT manually for an earlier period, upload that document where prompted. Otherwise there is nothing to attach.
4. Tick the three self-declarations — completing the export within three months, adhering to GST law, and paying integrated tax with interest on failure. All three must be accepted; the form is not negotiable.
5. Enter the name, occupation and address of two independent witnesses.
6. Enter the place of filing, then submit with a digital signature certificate or EVC. Companies and limited liability partnerships must use a DSC.

On successful submission the portal generates an ARN and makes the filed undertaking available to download. That is the end of the process. No approval order is issued and none is needed — acceptance is deemed on filing, so you can raise a zero-rated invoice the same day. Save the acknowledgement with the ARN, because that reference goes on your export invoices and is the first thing an officer asks for if a refund claim is queried.

What goes on the export invoice

An export invoice is a tax invoice with additions rather than a document of its own kind, so everything in the standard GST invoice format still applies. Three things are specific to the LUT route.

The invoice must carry the prescribed endorsement — "Supply meant for export under LUT without payment of integrated tax", or the corresponding wording naming the SEZ unit or developer where that is the recipient. It should state the LUT reference or ARN, so that the zero rating on the face of the invoice is traceable to a filed undertaking. And it must show the place of supply along with the name of the destination country, because for an export the place of supply is outside India and that is what takes the transaction out of the domestic charge.

Show the tax fields explicitly as nil rather than deleting them. A blank tax column reads as an omission; a stated nil against an endorsement reads as a deliberate zero-rated supply. Where the invoice is denominated in foreign currency, record the exchange rate applied and the rupee equivalent, since the rupee figure is what flows into GSTR-1 and into the turnover ratio used in the refund formula. If your turnover brings you within the e-invoicing threshold, export invoices are reported to the Invoice Registration Portal like any other B2B document, with the export type flagged as being under LUT.

If the export or the remittance does not happen

The undertakings are enforced, and the mechanism is worth understanding before you need it. If goods are not taken out of India within three months of the invoice date, or if payment for an exported service is not realised in convertible foreign exchange within the FEMA-permitted period, the supply stops qualifying as a zero-rated export. Integrated tax then becomes payable on it, together with interest running from the date of issue of the invoice — not from the date the deadline was missed. Because the time of supply for the underlying transaction was fixed when the invoice was raised, the interest period can be considerably longer than the delay itself.

The Commissioner has power to extend the three-month period on an application, and that is the right first move when a shipment is genuinely delayed rather than abandoned. Where the tax does become payable, the LUT facility can be withdrawn until the dues are cleared, and is restored once they are. Losing it mid-year is disruptive in a way the tax alone is not, because every subsequent export invoice then has to carry IGST.

Claiming the refund on either route

The LUT stops tax going out; the refund brings credit back. On the LUT route you file Form GST RFD-01 under the category for input tax credit accumulated on exports without payment of tax. The refundable amount is not your whole credit balance. Rule 89(4) apportions it: Net ITC multiplied by zero-rated turnover, divided by adjusted total turnover. A business with both domestic and export sales therefore recovers only the export share of its credit, and the definitions of zero-rated turnover and adjusted total turnover in the rule — including the cap that ties the value of zero-rated supply of goods to a proportion of the like domestic supply value — do real work in the computation. Read the current text of the rule before building the claim; our guide to the GST refund process walks through the application, the ARN, the provisional sanction and the deficiency memo.

On the pay-and-claim route for goods, no refund application is filed at all. The shipping bill is deemed to be the refund application, and the claim is validated by matching the invoice data in your GSTR-1 export tables against the shipping bill at ICEGATE, with payment confirmed from GSTR-3B. A mismatch in invoice number, GSTIN or value means the claim silently fails to transmit. For services on that route you do file RFD-01, with proof of receipt of foreign exchange.

Either way, the credit has to be eligible in the first place. Section 17(5) blocks apply to exporters exactly as they do to anyone else, and credit that was never claimable cannot be rescued by a refund claim — the input tax credit rules govern the numerator of the Rule 89(4) formula before the apportionment ever happens.

The SEZ nuance

Supplies to SEZ units and developers are zero-rated on the same footing as exports, but they carry an extra evidentiary requirement. The supply must be for the authorised operations of the unit or developer, and you need the invoice endorsed by the specified officer of the zone confirming receipt of the goods or services for those operations. That endorsement is the document a refund claim on an SEZ supply stands or falls on. Ask for it at the time of supply, not at the time of claim, when the person who signed it may have moved on.

Frequently asked questions