LUT (Letter of Undertaking) in GST
Letter of Undertaking - Brief Description
In order to give boost to exports, the government provided certain facilities to the exporters under GST. As per section 16 of the IGST Act, 2017, export of goods and services is treated as Zero Rated Supply. This means that the GST would not be applicable to export of any kind of goods or services.
To understand how there is no incidence of tax in cases where goods or services are exported from India, you must know that exports under GST can be undertaken in the following two ways:
- Export under Bond/LUT without payment of IGST in which case the exporter can claim refund of the unutilized ITC
- Export along with the payment of IGST in which case the exporter claims refund for the IGST paid on such export of goods or services
Letter of Undertaking is commonly known as LUT. The Letter of Undertaking (LUT) is prescribed to be furnished in form GST RFD 11 under rule 96A, whereby the exporter declares that he/she would fulfil all the requirements prescribed under GST while exporting without making IGST payment. If the exporter fails to provide the LUT, then he has to pay IGST or provide an export bond. Earlier LUT could only be filed offline at the concerned GST office. But to further ease the process the Government has made the LUT filing online.
Eligibility criteria to apply for LUT
Under CGST Rules, 2017, any registered person can furnish a bond or LUT in form GST RFD 11 and export goods without the payment of integrated tax. They can apply for LUT if they:
- Are registered under GST
- Wish to supply goods without the payment of an integrated tax
- Intend to supply goods or services to outside India
- Intend to supply goods or services to Places covered under Special Economic Zone
All GST registered goods and service exporters are eligible to submit LUT except the exporters who have been prosecuted for any offence and the amount of tax evasion exceeds Rs.250 lakhs under the CGST Act or the Integrated Goods and Services Tax Act,2017 or any of the existing laws.
Document of LUT under GST
Self-declaration that the conditions of the Letter of Undertaking shall be accepted unless there is specific permission granted. In such cases, a self-declaration is required by the exporter to the effect that he has not been prosecuted should serve the purpose of notification- 37/2017- Central Tax on 4th October 2017. Verification if required may be carried out on a post-facto basis.
Process of Filing LUT Online
In order to file LUT for export of goods or services at the GST portal, you need to perform the following steps:
Step 1 : Visit GST Portal, on the Homepage, login to your account by using your valid Login Credentials. Once logged in, click the ‘Services’ Tab, choose ‘User Services’ as the sub category and then select ‘Furnish Letter Of Undertaking (LUT)’ option from the drop down.
Step 2 : Select the financial year for which Letter of Undertaking is applied for from the ‘LUT Applied for Financial Year’ drop-down list. Eg: 2020-21
Note: If Letter of undertaking has been already furnished manually for any of the previous periods, then, click the ‘Choose File’ button to upload the previous LUT. While uploading the previous LUT, remember, that only PDF or JPEG file formats are acceptable. And a maximum file size of 2MB can be uploaded.
Step 3 : Fill up the necessary details on the Letter of Undertaking Form/ GST RFD-11 that appears on the screen
Step 4 : Enter the Place of filing > Click on ‘SAVE’ > click on ‘PREVIEW’ to verify the correctness of the form before submission
Step 5 : Sign and file the form using either of the below options:
Submit with DSC: Sign the application using the registered Digital Signature Certificate of the selected authorized signatory.
To use this option, Click on ‘SIGN AND FILE WITH DSC’ > Warning message box appears > Click ‘PROCEED’> System generates a unique ARN (Application reference number)
OR
Submit with EVC: To use this option, Click on ‘SIGN AND FILE WITH EVC’ > The system will trigger an OTP to the registered mobile phone number and e-mail address of the authorized signatory. Enter that OTP in the pop-up to sign the application > Warning message box for submission appears > Click ‘PROCEED’> System generates a unique ARN (Application reference number)
Note : Companies and LLPs can file only using DSC
Step 6 : You can click on the DOWNLOAD button to download the acknowledgement.
You may also check out the Letter of Undertakings previously furnished on the GST Portal. On the home page, Go to ‘SERVICES’ > ‘ User Services’ > ‘View my Submitted LUTs’ > Select period > Check out the list of LUTs furnished during the selected period > Click ‘VIEW’ against the particular Letter of Undertaking to view the detail.
Benefits of filing LUT – for Exporters
By opting for the LUT, an exporter can export goods and services without having to pay taxes. If this option is not opted for, the exporter will have to pay tax on their export and later claim a refund on the zero-rated exports.
The LUT ensures that exporters don’t have to go to the trouble of claiming a refund or following up with the IT department. Much time can be saved by avoiding the refund route. Till the refund is received, any amount paid as the tax will remain blocked. In the case of regular exports, an amount will remain perpetually blocked in incoming tax refunds. An LUT frees up this working capital, particularly important for SME exporters struggling with financing and working capital issues.
The LUT is also beneficial for regular exporters. An LUT once filed remains valid for the entire financial year. The process of filing the LUT and its acceptance by the department has been made easy; the entire exercise can be conducted online. The submission of a few supporting documents along with the specified LUT form is sufficient to set the ball rolling, and help exporters save much-needed working capital from getting stuck in tax refunds.
Validity of LUT (Letter of Undertaking)
The LUT submitted is valid for the whole financial year in which it is submitted. You need to submit a new LUT for each financial year. If the goods for export are not exported within three months of Date of Invoice issue, then the Exporter is liable to pay GST along with 18% interest within 15 days according to Section 50 (1). Also in case of payment for services are not received within one year for which the LUT has been submitted, the exporter is liable to pay GST @ 18% within 15 days. Failing to do so will lead to withdrawal of LUT facility and on subsequent payments, it can again be restored.
Frequently Asked Questions
1. What is Letter of Undertaking (LUT) and Bonds ?
It is a type of bank guarantee, under which a bank allows its customer to raise money from another Indian bank’s foreign branch as a short-term credit. Letter of Undertaking is commonly known as LUT. The Letter of Undertaking (LUT) is prescribed to be furnished in form GST RFD 11 under rule 96A, whereby the exporter declares that he/she would fulfil all the requirements prescribed under GST while exporting without making IGST payment.
2. Who can use Letter of Undertaking (LUT) ?
Any registered taxpayer exporting goods or services can make use of LUTs. However, any person who has been prosecuted for tax evasion for an amount of Rs. 2.5 Crores or above under the act is not eligible to furnish LUTs.
3. What is the validity of LUT ?
The validity of such LUT’s is for a period of one year (till the end of financial year). An exporter furnishing LUT’s are required to furnish fresh LUT for each financial year. If the conditions mentioned in LUT are not satisfied within the time-limit, the privileges are revoked and the exporter will have to furnish bonds.
4. What is to be filled in LUT ?
Once a taxpayer gets logged in to the GST Portal, his GSTIN and Name (Legal Name) would get auto-populated. Then, the taxpayer needs to select the financial year for which LUT is being filed, enter the name, address and occupation details of two independent and reliable witnesses. Taxpayer also needs to select all the points of self-declaration before filing the LUT.
5. How can I file LUT ?
All registered taxpayers making zero-rated supply of goods or services have to furnish LUT in Form GST RFD-11 on the GST Portal before making such a supply. They need to access the GST portal and login using valid username and password.
Then, they need to click the ‘Services’ Tab on the homepage. Under ‘Services’ category, they need to select ‘User Services’ and then ‘Furnish Letter of Undertaking (LUT)’ sub-category to file LUT.
6. Is it mandatory to record the manually approved LUT in online records ?
It is not mandatory to record the manually approved LUT in online records. But if a taxpayer wants to record the manually approved LUT to be available in online records, then he can furnish it with online application.
7. What is the benefit of LUT ?
If you furnish LUT, then you can export goods and services without payment of IGST.
8. Is there any limitation regarding the upload of previous LUT ?
Yes! Only one previous LUT document not exceeding 2 MB in size can be uploaded in one application. In case the taxpayer wants to upload another LUT, he needs to file a new application.
9. Who has to sign the LUT application ?
The Primary authorized signatory or any other Authorized Signatory needs to sign and file the verification with DSC/EVC. The Authorized signatory can be the working partner, the managing director or the proprietor or by a person duly authorized by such working partner or Board of Directors of such company or proprietor to execute the form.
10. How would I know that the process of furnishing LUT has been completed ?
The system will generate ARN and acknowledgement after successful filing of the LUT application by the taxpayer. The taxpayer will be informed about successful filing via SMS and Email. So, the taxpayer can also download the acknowledgement as PDF.
11. What will happen if a Tax Official doesn’t process the LUT application ?
In case the tax official does not process the LUT application or does not issue any notice for clarification within 3 working days, then the application shall be deemed approved. Furthermore, the status of LUT application will change to “Deemed Approved”.
Thus, when the application is deemed approved, then an order copy will be generated through the GST Portal. This order will be available to the taxpayer in the downloadable form under Dashboard > Services > User Services > View Additional Notices/Orders option.
Ramesh Kumar Gupta (Team TAXAJ)
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