LUT stands for Letter of Undertaking, a crucial document used in India's Goods and Services Tax (GST) framework, primarily benefiting exporters.
Understanding the Letter of Undertaking (LUT) in GST
A Letter of Undertaking (LUT) is a financial guarantee or a document that enables registered exporters in India to ship goods or provide services without having to pay Integrated Goods and Services Tax (IGST) upfront. This mechanism is vital for maintaining the competitiveness of Indian exports in the international market by preventing the blockage of working capital that would otherwise occur if taxes had to be paid and then refunded.
Key Aspects of LUT
The LUT streamlines the export process for businesses by allowing them to clear their goods for export without paying GST. Instead of paying IGST and then claiming a refund, exporters can simply furnish an LUT.
- Full Form: Letter of Undertaking
- Context: Goods and Services Tax (GST) in India
- Primary Purpose: To allow Indian exporters to ship goods or provide services without paying immediate IGST.
- Benefit: Simplifies the export process and avoids the blockage of working capital.
- Validity: An LUT is typically valid for one financial year.
Who Can Apply for LUT?
Any registered person exporting goods or services can apply for an LUT, provided they have not been prosecuted for any offense under the Central Goods and Services Tax Act, 2017, or any existing law where the tax evaded exceeds ₹250 Lakhs (2.5 Crore INR) during the preceding three financial years. Businesses that do not meet these criteria typically have to furnish a bond instead of an LUT.
How LUT Simplifies Export
| Feature | Without LUT (Refund Mechanism) | With LUT (Exemption Mechanism) |
|---|---|---|
| Tax Payment | Pay IGST upfront | No IGST payment required |
| Working Capital | Blocked until refund is processed | No capital blockage |
| Process | More complex; involves filing for refunds, potential delays | Simpler; direct export without immediate tax burden |
| Compliance | Requires tracking refunds | Requires timely submission and renewal of LUT |
This direct exemption through the LUT makes exporting more efficient and financially viable for businesses, aligning with the government's objective to promote 'Make in India' and boost exports.
Online Application Process
Applying for an LUT in GST is an online process, generally done through the official GST portal. Exporters need to submit the required documents and details, and upon approval, they can proceed with their exports under the LUT.
For more detailed information on GST regulations and export procedures, you can refer to the official GST Portal or resources from the Central Board of Indirect Taxes & Customs (CBIC).
