Are you an exporter looking to streamline your operations and manage your working capital more effectively? If so, understanding and utilizing a Letter of Undertaking (LUT) can significantly benefit your business. Why deal with the hassle and financial burden of IGST when there's a smarter way to handle your taxes? Let's dive into what a Letter of Undertaking is, how it can save you time and money, and why it's a game-changer for exporters under the GST regime. Whether you're new to the export scene or looking to optimize current processes, this guide is tailored to help you navigate the complexities of LUT with ease.

In export trade, one of the key documents that is required before selling internationally is Letter of Undertaking (LUT). All registered exporters who are currently exporting or intend to start their export journey are required to submit Letter of Undertaking on the GST portal. This enables them to export their products without the payment of IGST (Integrated Goods and Services Tax)

What is a Letter of Undertaking (LUT)?

Under the GST regime, all exports are subject to IGST, which can later be reclaimed via a refund against the tax paid. An LUT (Letter of Undertaking) spares exporters the effort of pursuing a refund and eliminates the blocking of funds by way of tax payments.

Eligibility criteria for a Letter of Undertaking (LUT)

Under CGST Rules, 2017, any registered person can furnish LUT in form GST RFD 11 and export goods or services without payment of integrated tax. Applicant must meet the following criteria to be eligible for availing the benefits of a Letter of Undertaking (LUT) -

1. The exporter should be a registered taxpayer under the Goods and Services Tax (GST) regime.
2. 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.
3. 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.
4. Business owners must have a satisfactory compliance track record, which includes timely filing of GST returns and adherence to other tax-related requirements.

Documents required to file Letter of Undertaking (LUT) under GST

Some of the key documents required are -

1. PAN card of export business
2. IEC certificate
3. GST registration certificate
4. Two witnesses with their address proof and PAN
5. Cancelled cheque of the exporter's current account
6. GST RFD 11 form
7. KYC of the authorized person
8. Authorized letter

How to apply for Letter of Undertaking (LUT)?

Here are step-by-step instructions on how to apply for an LUT -

1. Step 1 - Log in to the GST Portal
2. Step 2 - Navigate to the 'Services' tab and click 'User Services'. From there, you can select 'Furnish Letter of Undertaking(LUT)'
3. Step 3 - Choose the financial year for which you are applying for the LUT from the 'LUT Applied for Financial Year' drop-down menu
4. Step 4 - Fill in all required fields on the Letter of Undertaking Form/GST RFD-11 displayed on your screen. Fulfil the self-declaration by ticking the box next to each option
5. Step 5 - Enter the place of filing and click on the 'Save' button. Later, click on 'Preview' to ensure the form is correct before submitting it
6. Step 6 - To complete the process, you can sign and file the form using either a Digital Signature Certificate (DSE) or an Electronic Verification Code (EVC)

After submission, a confirmation message will display. The GST Portal will send an ARN (Application Reference Number) to the registered email and mobile of the taxpayer through email and SMS. You can click on the DOWNLOAD button to download the acknowledgement.

This process is subject to change, and it is important for merchants to follow the latest instructions provided on the GST Portal.

Always refer to the official GST Portal for the most current procedures and updates.

Key things to remember

1. Letter of Undertaking (LUT) remains valid for current financial year from the date of its submission. Example- If LUT was furnished in FY23-24, then the date of expiry of the validity of such LUT is 31st March 2024. Therefore, you need to file fresh LUT for FY24-25.
2. If you fail to renew your Letter of Undertaking (LUT) before the expiry date, you will no longer be able to export the services without paying IGST.

Letter of Undertaking (LUT) is an important document required in international trade, and all eligible exporters can optimize working capital and improve their cash-flows by exporting under Letter of Undertaking (LUT).

Navigating the requirements and benefits of a Letter of Undertaking can open up a world of opportunities for your export business. By understanding and effectively utilizing LUT, you can enhance your operational efficiency and focus on growing your global footprint without the burden of unnecessary tax payments. Remember, staying ahead in the fast-paced world of international trade requires not just compliance but also strategic financial management.

Have you applied for your LUT yet? Embrace this provision today to simplify your export activities and propel your business to new heights. At PayGlocal, we support businesses with seamless solutions that simplify cross-border transactions, ensuring that your business doesn't just comply with global standards but thrives on them.

Want to know more? Get in touch with us today.