Goods and Services Tax (GST)
LUT Registration
Letter of Undertaking (LUT) in GST: A Simplified Export Process
For Indian exporters, the Goods and Services Tax (GST) introduced a simplified method for exporting goods without upfront payment of Integrated Goods and Services Tax (IGST). This method utilizes a Letter of Undertaking (LUT).
What is a Letter of Undertaking (LUT) in GST?
An LUT is a self-declaration submitted by a registered taxpayer to the GST authorities. By filing the LUT, the exporter undertakes to:
- Fulfill all the compliances mandated under GST for exports.
- Pay any IGST liability that may arise due to non-fulfillment of export obligations.
Essentially, the LUT acts as a guarantee, allowing exporters to ship goods without immediate tax payment.
Who can file a Letter of Undertaking (LUT)?
Any GST-registered taxpayer intending to export goods or services (or both) can file an LUT, subject to one condition: they must not have been prosecuted for tax evasion exceeding Rs. 2.5 crore under the CGST Act/IGST Act/existing law.
Benefits of filing a Letter of Undertaking (LUT)
- Simplified Export Process: LUT eliminates the need for upfront IGST payment, streamlining the export process and improving cash flow.
- Reduced Compliance Burden: Compared to the alternative of furnishing an export bond, LUT has simpler compliance requirements.
- Improved Working Capital Management: By deferring tax payment, exporters can retain working capital for other business needs.
- Enhanced Competitiveness: Faster turnaround times due to a simplified export process can give exporters a competitive edge in the global market.
- Potential for Lower Interest Costs: With improved cash flow, exporters may be able to negotiate better terms on loans or lines of credit.
Important points to remember about LUT
- An LUT is valid for a specific financial year.
- Export must apply for LUT before exporting any goods or services under without payment option.
- Exporters must ensure they fulfill all export obligations as declared in the LUT.
- Non-compliance with LUT terms can lead to penalties and potential cancellation of the LUT facility.