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All You Need to Know About Letter of Undertaking (LUT)

All You Need to Know About Letter of Undertaking (LUT)
rohit
Rohit29 November 2023

Skydo: Hey, have you heard about the export rules in India? If we accept foreign payments in Indian currency instead of foreign currency, we'll be liable for GST!

Tech Exporter A: Really? You don't have to pay any GST if you receive international payments in a foreign currency?

Skydo: Yes, we don't. According to Indian government regulations, the export of goods and services is a zero-rated supply if you receive payments in foreign currency. 

Since payments are received later, the GST department asks suppliers to pay IGST on each supply and get a refund of such IGST paid once the goods or services are exported. However, there is another option, where you can skip paying the GST. 

You need to submit an LUT to the tax authorities, where you promise the government that if you fail to comply with the conditions, you will pay the applicable GST along with interest.

Tech Exporter A: That sounds interesting! How does the LUT work exactly?

Skydo: Well, the LUT is a declaration that you submit to the authorities stating that you fulfil certain criteria and will fulfil the export obligations. You can simply log in to the GST portal and submit the declaration.

Tech Exporter A: Tell me more! How do I apply for an LUT?

Let's delve deeper into understanding everything there is to know about LUTs for your technology export business!

What is a Letter of Undertaking (LUT)? 

The LUT meaning is a Letter of Undertaking, a formal declaration submitted by an exporter to the relevant GST authorities. It serves as a bridge wherein the exporter fulfils certain obligations and adheres to specific conditions laid down by the GST department. 

This undertaking aims to establish the exporter's commitment to following the necessary rules and regulations related to exports under the GST regime. It grants you the privilege of being exempt from paying Integrated Goods and Services Tax (IGST) on your export services.

LUT Eligibility

To be eligible for availing the benefits of a Letter of Undertaking (LUT), an exporter must meet the following criteria.

LUT Eligibility
  • The exporter should be a registered taxpayer under the Goods and Services Tax (GST) regime.
  • You must be engaged in the export of goods or services. The LUT facility is primarily available for exporters to facilitate the export of goods or services without paying IGST.
  • The exporter should have no pending tax liabilities or arrears. It is important to ensure compliance with all tax obligations before applying for an LUT under GST.
  • Business owners must have a satisfactory compliance track record, which includes timely filing of GST returns and adherence to other tax-related requirements.

According to the CGST Rules of 2017, a registered individual can provide a LUT in the GST RFD 11 form to export goods or services without paying integrated tax as long as they meet all the eligibility requirements.

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