icon Recharge Now for  ₹1000   & Get   ₹1600*   In Your Wallet. Use Code:   FLAT600   | Limited Period Offer On First Recharge

*T&C Apply.

Signup Now

Filters

cross

Follow Us

Letter of Undertaking (LUT) for Indian Exporters

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

May 17, 2024

9 min read

Are you prepared to step up your exporting? Let us talk about the Letter of Undertaking (LUT), a necessary document facilitating trade relations. When exporting products and services from India, foreign firms must pay close attention to its tax requirements, for which an LUT is essential. For exporters, it lowers taxes like the Integrated Goods and Services Tax (IGST). Companies may increase earnings in foreign markets and streamline export procedures by utilising LUT. 

Let’s explore the benefits and challenges of using LUTs.

Letter of Undertaking (LUT)

The Letter of Undertaking (LUT): An Overview

An official document known as an undertaking letter or letter of undertaking is a formal declaration made by one party to another stating that they have fulfilled or will fulfill a legal obligation. The letter of undertaking is generally used in commercial contexts to carry out certain legal obligations. An LUT is required when exporting products or services from India. This is a crucial document that will help you save on taxes like IGST. 

As per the Central Goods and Service Tax (CGST) Act of 2017, an LUT is required in India if you wish to export goods without having to pay IGST. Consider it as a formal commitment to the authorities that you will abide by all laws and regulations while exporting your products or services. Instead of paying taxes up front, you plan to comply with all GST regulations by submitting the LUT.

You must complete Form GST RFD 11 and attach the LUT to accomplish this. By submitting this form, you guarantee that you will follow the law and fulfill all of your tax responsibilities. You can proceed as soon as the GST department gives its approval. You don’t have to worry about paying the IGST upfront when exporting your products or services. By doing this, you can avoid having to tie up your money in tax payments.

Components of a Letter of Undertaking 

An LUT should contain the following details:

  • Exporter Information:
    • Name and address of the exporter
    • GSTIN (Goods and Services Tax Identification Number) of the exporter
  • Financial Period: The relevant financial year for which the LUT is applicable
  • Exported Goods: Description of the goods being exported
  • Export Transaction Specifications:
    • Invoice details including the date and number
    • Description of goods and services
    • Unit and quantity of goods and services
    • Value of goods and services
    • Destination of the exported goods
  • Declaration:
    • Consent to adhere to all GST regulations
    • Exemption from all reverse charges for exports
    • Authorised Signatory
    • Name and designation of the authorised person
    • Date of signing
    • Signature of the authorised person

Including these details ensures that your LUT is comprehensive and meets the requirements for GST regulations regarding exports.

Crucial Things to Remember About the LUT Bond in GST

The following things are crucial to understand when submitting an LUT for GST:

  1. Your LUT is valid for 12 months from the date you submit it. 
  1. You have the option to furnish a bond if you are not qualified to submit an LUT. This bond needs to be backed by a bank guarantee and written on non-judicial stamp paper. It ought to pay the anticipated tax obligation determined by your export evaluations.
  1. The official letterhead of your registered firm must contain your LUT. This proves that you can provide any product or service without having to pay integrated tax.
  1. To receive the benefits of filing an LUT, you must be a registered taxpayer under GST. It is also necessary for the products or services you export to be GST-registered.
  1. You must complete the GST RFD-11 form to apply for an LUT. This form may be officially signed and submitted by certain authorised personnel in your business, such as the MD, company secretary, or partners in a partnership firm.
  1. A bank guarantee for your bond shouldn’t be more than 15% of the bond’s total amount. Nevertheless, under some circumstances, the relevant GST Commissioner may waive this requirement.
  1. As an exporter, you can export goods or services from various areas:
    1. Outside India
    2. Within India
    3. Places falling under Special Economic Zones (SEZs)
  1. The ability to provide goods or services without paying IGST will be removed if you do not pay the tax within the time frame stated in the LUT. Thus, you will forfeit the advantage of not having to pay IGST while exporting if you fail to fulfill your tax responsibilities in accordance with the LUT provisions.

Determining LUT Eligibility: Who Can Apply?

Here are the main factors to consider while ascertaining your eligibility to apply for an LUT:

  • Taxpayer Status: If you are a registered taxpayer engaged in the export of goods and services, you are eligible to apply for an LUT. However, if you are being sued for tax evasion of at least Rs. 250 lakhs, you are ineligible.
  • Intent to Supply: You must plan to provide products or services within India, to other nations, or Special Economic Zones (SEZs).
  • Tax-Free Supply: Providing items without having to pay integrated tax should be your aim.
  • You are not eligible for an LUT if you are facing legal action for avoiding taxes of Rs. 2.5 crore or more under the CGST Act, 2017 or the IGST Act, 2017. This implies that the benefits associated with submitting an LUT will not be available to you.

Essential Documentation for GST LUT Registration

When filing an LUT under GST, you will need to gather several documents. Here’s what you’ll typically need:

  • PAN Card: Ensure that you are prepared with your export company PAN card.
  • GST Registration Certificate: You must present your GST registration certificate as evidence of your registration.
  • Witness Information: Please bring two witnesses and documentation of their addresses and PANs.
  • Cancelled Cheque: Submit a cancelled check from your exporter’s current account.
  • Aadhar Card: You must present your Aadhar card to prove your identity.
  • Form GST RFD-11: This form must be completed to file an LUT.
  • A copy of your GST registration should be available.
  • Authorised Person’s KYC: Please bring the necessary paperwork for the authorised person managing the LUT.
  • Authorised Letter: Prepare an authorised letter for submission.

Filing an LUT under GST: Step-by-Step Instructions

Step 1: Enter your login information to access the GST portal.

Step 2: Choose ‘user services’ from the services menu. Select ‘Furnish Letter of Undertaking (LUT)’ after that.

Step 3: Choose the financial year for which you are requesting the LUT from the drop-down list.

Step 4: Fill out the application by correctly entering all necessary information.

Step 5: Check that everything is right by going over the filled-in details in the preview.

Step 6: The form must then be signed and submitted. You can accomplish this by utilising the Electronic Verification Code (EVC) or the authorised signatory’s registered digital signature certificate. You will get OTPs for authentication from EVC on the email address and registered cell phone number you provided.

Step 7: You will get an acknowledgement on the screen upon the completion and submission of the form. Save it to your device for future use.

Addressing Common Challenges: Practical Solutions for LUT Holders

The LUT registration procedure can get tricky. However, there are ways to successfully deal with them:

  1. LUT Approval Delays:

Challenge: It may take weeks or even months for customs officials to process an LUT application, which would disrupt corporate operations and impede exports.

Solution: To prevent last-minute delays, apply for an LUT well in advance. Budget for and account for any processing time that customs officials may demand to guarantee prompt approval.

  1. Procedures for Amendment and Rectification:

Challenge: Errors or modifications in filed documents could need correction, which would add to the complexity.

Solution: To reduce mistakes, carefully proofread every document before submitting it. To assure accuracy, consult specialists or experts. If there are any errors or modifications, start the process of correction or modification right away and supply the required paperwork to speed up the procedure.

Unlocking Exporter Benefits: The Advantages of Utilising an LUT

Using an LUT in GST offers several benefits:

  • Deferred Tax Payment: By submitting an LUT, exporters can export products or services without having to pay taxes right away.
  • Avoidance of Bank Guarantees: Exporters who apply for an LUT can save administrative costs by not having to give bank guarantees to the importers.
  • Builds Trust: Serves as a legally binding commitment that cultivates confidence amongst the parties.
  • Legal Clarity: Reduces uncertainty by providing a clear legal document that outlines obligations and duties.
  • Exports are made easier by this measure, which increases competitiveness by enabling companies to export goods without having to pay GST in advance.
  • Risk reduction: Lowers financial risks by defining contractual responsibilities precisely and minimising ambiguities and conflicts.
  • Improves Business Relations: Promotes long-term collaborations by formalising agreements and pledges, which strengthens connections.

Seamless Export Solutions with ShiprocketX

With our customised cross-border solutions, you can unlock worldwide development for your business. Ship with ease to more than 220 countries, and enjoy transparent B2B delivery at no risk. Streamline your e-commerce exports with ShiprocketX and take advantage of quick customs clearance and a variety of delivery options. You will value real-time updates, quick worldwide delivery, and comprehensive analytics to make well-calculated choices for your business. By designing personalised tracking pages and guaranteeing thorough shipping security, you may increase client loyalty. Simplify returns management with the committed assistance of skilled account managers. Increase revenue through precise cost estimates and quick delivery to expand your business. 

Conclusion

For companies stepping out into foreign commerce from India, an LUT is quite important. It guards you against tax complexity, resulting in more profitable and seamless export operations. Learning the ins and outs of an LUT becomes critical for companies looking to expand internationally. By doing this, companies may take advantage of profitable opportunities in the ever-changing global market and successfully negotiate the challenges of export compliance, taking their endeavours to new heights.

Calculate Your Shipping Costs Now

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Shiprocket SHIVIR 2024

Shiprocket SHIVIR 2024: Bharat’s Biggest eCommerce Conclave

Contentshide What’s Happening at Shiprocket SHIVIR 2024 What’s the Agenda? How to Participate in Shiprocket SHIVIR 2024 How to Win...

June 19, 2024

5 min read

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

Amazon Prime Day

Amazon Prime Day 2024: Dates, Deals, Tips for Sellers

Contentshide When is Prime Day 2024? Who Can Buy Things on Amazon Prime Day? What kind of deals will Amazon...

June 19, 2024

10 min read

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

AliExpress Dropshipping

AliExpress Dropshipping: Boost Your Business Success Guide

Contentshide Defining Dropshipping Significance of AliExpress Dropshipping in the Indian Market How AliExpress Dropshipping Works? Key Benefits of AliExpress Dropshipping...

June 18, 2024

17 min read

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

Ship with confidence
using Shiprocket

cross