Letter Of Undertaking

What is LUT in GST?

A Letter of Undertaking (LUT) is a document that exporters can file to export goods or services without having to pay taxes. Under the new GST regime, all exports are subject to IGST, which can later be reclaimed via a refund against the tax paid.

In order to reduce the difficulties faced by many exporters in processing of tax refunds, alternative options has been given that seems very attractive. An LUT saves the exporters from the effort of pursuing a refund and eliminates the blocking of funds by way of tax payments. It can be filed online, that makes using this option super-easy and quick.
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:

• Intend to supply goods or services to India or overseas or to SEZs


• Are registered under GST


• Wish to supply goods without the payment of an integrated tax




 
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• Documents Required for LUT under GST:




 
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• LUT cover letter – request for acceptance – duly signed by an authorised person.


• An LUT can be submitted by anyone registered under GST, provided they have not been prosecuted for tax evasion exceeding Rs. 250 lakh, or for any other offence under the CGST Act, the IGST Act 2017, or any other prevailing statute.


• Copy of GST registration.


• Pan Card of the entity.


• KYC of authorised person/signatory.


• GST RFD 11 form.


• Copy of IEC code.


• Cancelled Cheque.


• Authorized letter.




 
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• Process for filing LUT certificate:
  
  The first step in furnishing an LUT is to log into your profile on the GST portal.




 
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• Under the ‘Services’ tab, the ‘User Services’ drop-down has the option of 'Furnish Letter of Undertaking (LUT)'.


• Once this is selected, at first select the financial year. This is where a manually furnished LUT can also be uploaded in PDF or JPEG format.




 
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• Next, a self-declaration must be filed, in which one undertakes to:




 
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• Complete the export of goods/services within three months of the date of issue of export invoice, or such further period as allowed by the Commissioner


• Adhere to the GST laws with respect to exports


• In case of failure to export, pay the IGST along with interest at the rate of 18% from the invoice date to the date of payment of IGST


• You are required to fill in the names of two independent witnesses, along with their occupations and addresses.


• In the next screen, enter the place of filing. Once this procedure is complete, you may preview the form.


• The application can be signed with a registered digital signature certificate or via electronic verification code.
  Both options appear on the form. Once signed and submitted, the form cannot be edited.




 
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• Benefits of filing LUT – for Exporters:
  
  LUT enables an exporter to 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. It saves time of intense waiting in the refund route. Since, any amount paid as the tax remains blocked until the refund is received. In the case of regular exports, it will cause perpetual blocking of incoming tax refunds. An LUT frees up this working capital, which is very important for SME exporters struggling with financing and working capital issues.
  
  The LUT is also beneficial for regular exporters. Once filed an LUT remains valid for the entire financial year. The process of filing the LUT and its acceptance by the department has been made easy; by making the whole process 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.
  
  LUT Bond in GST - Key things to remember:
  
  Let’s now look at some important information related to LUTs:




 
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• An LUT remains valid for 12 months from the date of its submission.


• The LUT is accepted subject to certain conditions. Failure in compliance of these can lead to the revocation of privileges associated with the document. In such cases, the exporter would be required to furnish a bond.


• A bond can also be furnished by entities that are not eligible to submit an LUT. It must be on non-judicial stamp paper and accompanied by a bank guarantee. The bond must cover the estimated tax liability based on the assessment of the exporter.


• An LUT is required to be filed on the letterhead of the registered person who intends to supply goods/services without the payment of integrated tax.


• The LUT must be duly applied for in the prescribed GST RFD-11 form. It can be filed by the MD, company secretary, or other authorized people. In the case of a company, the form can be filed by the partner of a partnership firm, or by the proprietor.


• The bank guarantee accompanying the bond should not exceed 15% of the bond amount, and it may be waived by the jurisdictional GST Commissioner.




 
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• Feature of Bond and LUT filing under GST
  
  There is much compliance which a company needs to follow; however, we would like to discuss few most important aspects about the bond and LUT filings :
  
  No Taxes : If LUT or bond is filed, and then no taxes are required to be paid on exports.
  
  Filings : The filing needs to be done manually and there is no online portal.
  
  Annual : You need to visit tax dept. and submit the documents at regular intervals.
  
  Advantages




 
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• No tax on exports


• Save working capital


• No headache of monthly payment


• No headache of claiming refund




 
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• What all compliances to be made after submission of bond?
  
  Once the application is accepted by the tax department, you need to submit the export documents to the tax department on regular basis. You can file the documents either on monthly, quarterly or on every shipment. This is because your application is generally valid for one year and needs to be renewed each year. Therefore, if you do not renew the bond or LUT, then you shall become ineligible to export without payment of tax.
  
  Eligibility for Export under LUT
  
  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.In such cases, where the exporter is not eligible to file LUT, they would have to furnish an export bond