What is Letter of Undertaking (LUT)?

What an LUT does

Exports, and supplies to SEZ units and developers, are zero-rated under section 16 of the IGST Act: no GST is finally borne on them. An exporter can achieve that in one of two ways:

1. Under a bond or LUT, without paying IGST, and then claim a refund of the input tax credit that is left unused because the exports carry no output tax.
2. On payment of IGST, and then claim a refund of the IGST paid.

The LUT is the undertaking that makes the first route available without a bank guarantee. Most registered exporters use an LUT rather than a bond.

Filing it

• The LUT is filed online in Form GST RFD-11 on the GST portal, before the first export of the financial year.
• It is valid for one financial year and must be filed again for the next.
• Any registered person may use it, except one who has been prosecuted for tax evasion above the amount set in the notification. Such a person must furnish a bond instead.

What you undertake

• To export the goods within the time the rules allow from the date of the invoice.
• To receive payment for the exports within the time the Reserve Bank of India allows, in foreign currency or in Indian rupees where the RBI permits.

If either condition is not met, the IGST that would have been payable must be paid, with interest. The CBIC has clarified (Circular No. 263/09/2026-GST) that, for goods, the time limit to realise payment is the RBI's, and that no recovery is made where the authorised dealer bank has written off the realisation requirement.

Which route suits an ecommerce exporter

• LUT suits exporters whose purchases carry little GST compared with their exports, and who want no cash tied up in tax at the time of export.
• IGST payment can suit exporters with large unused credit, because the refund for goods is processed against the shipping bill. Rule 96(10), which used to stop some exporters from taking this route, has been omitted, and the CBIC has clarified that the omission applies from 23 October 2017 (Circular No. 264/10/2026-GST).

Whichever route is used, the shipping bill and the GST return must match: the same invoice number, value and route. Mismatches are the commonest reason refunds are held back.

What goes wrong

• Forgetting to renew the LUT at the start of the financial year, so exports are made without either an LUT or IGST.
• Payments not received in time, often small cross-border orders paid through a payment aggregator, where the receipt is hard to match with each invoice.
• Claiming a refund of credit under LUT for credit not shown in GSTR-2B.