File Bond/LUT for Exports Under GST in India

What is a LUT or Bond Under GST?

There are two ways to export under GST. The first option is to export by paying GST, while the second is to export without paying GST. To choose the second option, you need to file a bond or LUT with the tax department, confirming that you will meet all the required export conditions.

When is Bond or LUT Filed Under GST? What Laws Govern Them?

The requirement to file a bond or LUT depends on the total foreign receipts received during the previous year. If you have received more than 1 Cr in foreign exchange, you are required to file an LUT instead of a bond. A bond is required in the following three situations:

#New Exporter or First Time Export: If you are exporting goods or services for the first time, you need to file a bond because you do not have export receipts from the previous year. Therefore, a first-time exporter needs to file a bond along with a bank guarantee.

#Foreign Receipts Less Than 1 Crore: If your total foreign receipts are less than 1 crore, you cannot file an LUT. Instead, you need to file a bond along with a 15% bank guarantee.

#Foreign Receipts Less Than 10%: A bond is also required if your foreign receipts are less than 10%. For example, if your total foreign exchange receipts are Rs. 2 crore and your total turnover is Rs. 50 crore, you will need to file a bond instead of an LUT.

Documents Required for LUT/Bond Filing Under GST

Related to Business

• GST Registration Certificate
• PAN Card and IEC Certificate
• VAT Returns and Export Bill
• Bank details for Bank Guarantee

Personal Documents

• PAN and Aadhaar Card of the owner
• Letter of Authorization
• ID proof of two witnesses

LUT/Bond Filing Procedure for Exports Under GST

Filing an LUT or bond is mandatory for exporting goods or services without payment of IGST. As per Rule 96A, a bond is required to be submitted along with a 15% bank guarantee. The basic filing process is as follows:

Step 1 – Arrange the Required Documents:
The first step is to collect all the necessary documents and send them to us via email. We will review the documents, and if everything is in order, you will need to pay the applicable professional fees.

Step 2 – Signing and Submission:
After receiving the required documents and payment, we will begin the process. We will prepare the necessary documentation and submit it to the tax department.

Step 3 – Letter of Acceptance:
After the application is approved, the department will issue the letter of acceptance.

Time & Cost for LUT and Bond Filing Under GST

LUT/Bond Cost in Delhi

LUT/Bond Cost Other Than Delhi

*For Delhi, we also handle document submission, so the customer does not need to visit the tax department.

Is Bond/LUT Also Required for Export of Services?

Under GST, the export of services is treated similarly to the export of goods. Therefore, if you want to export services under GST, you must either pay GST before making the export or submit a bond or LUT to the tax department to export the services without payment of GST.

In simple terms, there are two ways to export goods or services from India:

• Export without payment of GST.
• Export with payment of GST.

If a taxpayer wants to export without paying IGST, they are required to submit a bond or Letter of Undertaking (LUT) to the department. The format of the Letter of Undertaking is prescribed under Form GST RFD-11 as per Rule 96A.

In simple words, an LUT is a document through which the taxpayer declares that all applicable GST requirements relating to exports will be fulfilled.

Requirement of Bank Guarantee Under Bond

When a bond is filed, a bank guarantee equivalent to 15% of the bond amount is required. The bond amount is calculated based on the total GST liability on the overall export turnover.

Let us understand this with an example.

Mr. A establishes a company for an import-export business and expects a turnover of around Rs. 50 lakh. Calculate the bond amount and bank guarantee required to be submitted to the Central Tax Department, assuming a GST rate of 18%.

The bond amount should be equal to the GST liability on the exports. Therefore:

• Bond Amount = Rs. 9 lakh (18% of Rs. 50 lakh)
• Bank Guarantee = Rs. 1,35,000/- (15% of Rs. 9 lakh)

Is There Any Other Route Available for Exports?

Under GST, there are two methods of exporting goods or services. The first option is to export by paying GST and claim a refund afterward. The second option is to export without charging GST by filing an LUT or bond.

If you select the first option, you must pay IGST on each shipment and subsequently claim a refund of the amount paid. A GST refund can be claimed either through the return filing process or by submitting Form GST RFD-1.

Apart from these two options, there is no other method available for exporting goods or services from India under GST.

What Compliances Are Required After Submission of the Bond?

After the application is approved by the tax department, export-related documents must be submitted to the department regularly. These documents can be submitted monthly, quarterly, or for each individual shipment.

This is because the bond or LUT is generally valid for one year and must be renewed every year.

If the bond or LUT is not renewed, the taxpayer becomes ineligible to export without payment of tax.

Important Features of Bond and LUT Filing Under GST

There are several compliances that a company needs to follow. Some of the important aspects of bond and LUT filing are discussed below.

NO TAXES

Once an LUT or bond is filed, no GST needs to be paid on exports.

FILINGS

The filing process needs to be completed manually, as there is no online portal available for this process.

ANNUAL

The taxpayer needs to visit the tax department and submit the required documents at regular intervals.

Advantages & Disadvantages of LUT/Bond Filing in India

Advantages of Bond/LUT Filing

• No Tax on Exports: Export transactions can be carried out without payment of GST.
• Saves Working Capital: Exporters can avoid blocking funds in taxes paid upfront.
• No Monthly Payment Hassle: There is no need to make GST payments every month on export transactions.
• No Refund Claim Hassle: Exporters do not need to go through the process of claiming a refund of the GST paid on exports.

Disadvantages of Bond/LUT Filing

• Takes 3 to 5 Working Days: The LUT/bond filing process may take around 3 to 5 working days.
• Monthly Document Submission: Required documents need to be submitted every month.
• CA Filing Fees: Professional fees may be payable to a CA for filing the bond/LUT.
• Bureaucracy: The process involves dealing with the tax department and related administrative procedures.

Frequently Asked Questions (FAQs)

1. What is LUT under GST for exports?
A Letter of Undertaking (LUT) allows an eligible registered taxpayer to export goods or services without payment of IGST, subject to the conditions prescribed under GST law.

2. Who can file LUT for exports under GST?
A registered taxpayer who intends to supply goods or services for export without payment of IGST can generally furnish an LUT, provided the applicable eligibility conditions are satisfied.

3. What is the difference between LUT and a bond under GST?
An LUT allows eligible exporters to make zero-rated supplies without paying IGST upfront. A bond serves a similar purpose but involves a prescribed bond and may require additional conditions or security, depending on the circumstances.

4. Is filing LUT mandatory for exporters?
LUT is not mandatory for every exporter. It is required when an eligible exporter wants to make zero-rated exports without payment of IGST. An exporter may instead export with payment of IGST and claim a refund where permitted.

5. How long is an LUT valid under GST?
An LUT is generally valid for the financial year in which it is furnished and must normally be furnished again for the next financial year.

6. How can I file an LUT online?
An LUT can generally be furnished electronically through the GST portal by completing the applicable form, providing the required details, signing it electronically, and submitting it.

7. What documents are required for LUT filing?
Depending on the circumstances, the exporter may need GST registration details, details of authorized signatories, and information relating to previous exports or compliance. The specific requirements should be checked on the GST portal at the time of filing.

8. Can an exporter claim an ITC refund after filing an LUT?
Yes. An eligible exporter making zero-rated supplies under LUT may generally claim a refund of accumulated eligible input tax credit, subject to the applicable GST provisions and conditions.

9. Can an exporter file LUT after starting exports?
An exporter intending to make exports without payment of IGST should furnish the LUT as required before making the relevant supplies. The timing of filing should therefore be planned before exports are undertaken.

10. What happens if an exporter violates the conditions of an LUT?
If the conditions of the LUT are not fulfilled, the exporter may become liable for the applicable tax, interest, and other consequences under GST law.

11. Is LUT required separately for goods and services?
A registered taxpayer generally furnishes an LUT for exports under GST for the relevant financial year rather than filing a separate LUT for every export transaction.

12. What are the benefits of filing LUT for exporters?
Filing an LUT allows eligible exporters to make zero-rated supplies without paying IGST upfront, which can help preserve working capital and simplify cash-flow management.

Written by

Asha Ahuja Sethi (Head Admin at Jatin Sethi & Co., Chartered Accountants)