LUT vs IGST for Exporters: Understanding the Difference

Indian exporters must follow specific GST procedures when shipping goods or providing services to customers outside India. One important decision is whether to export under a Letter of Undertaking (LUT) without payment of IGST or export by paying IGST and subsequently claiming a refund, where eligible.

Understanding LUT vs IGST export procedures helps businesses manage working capital, GST compliance, documentation, and export transactions more efficiently.

Under the GST framework, exports are treated as zero-rated supplies. This means eligible exporters can use the prescribed refund mechanisms to avoid the final burden of domestic GST on qualifying exports, subject to applicable conditions.

1. What Is LUT in Export Under GST?

LUT stands for Letter of Undertaking. It is a declaration furnished by an eligible GST-registered exporter to export goods or services without paying IGST.

Under Rule 96A of the CGST Rules, exporters can furnish an LUT in Form GST RFD-11 before making zero-rated supplies without payment of integrated tax.

When exporting under LUT:

• The exporter does not pay IGST on the export supply.

• Eligible accumulated Input Tax Credit (ITC) can be claimed as a refund, subject to applicable rules.

• The exporter must comply with the conditions and timelines under the GST framework.

• The LUT must be furnished for the relevant financial year.

This option is commonly used by exporters who want to avoid paying IGST upfront and prefer to manage eligible input tax credit through the refund process.

2. What Is Exporting With Payment of IGST?

Under the alternative route, an exporter makes a zero-rated supply by paying applicable IGST and subsequently claims a refund of the IGST paid, subject to eligibility and prescribed procedures.

For example, an exporter may pay IGST on an export transaction and later seek a refund through the applicable GST and customs process.

For export of goods, the shipping bill generally serves as the refund application, subject to export manifest and return-related requirements. Export of services follows the applicable GST refund application procedure.

This option may be considered where the exporter is eligible and has sufficient funds to pay the tax before receiving the refund.

3. LUT vs IGST Export: Key Differences

Both routes are intended to support zero-rated exports. The better option depends on the exporter’s ITC position, cash flow, transaction type, and applicable GST restrictions.

4. How Does the LUT Export Process Work?

Exporting under LUT involves the following steps:

Step 1: Obtain GST Registration

The exporter must have the required GST registration to undertake the relevant zero-rated supply under the LUT procedure.

Step 2: File LUT in Form GST RFD-11

The exporter furnishes the Letter of Undertaking electronically through the GST portal for the relevant financial year, subject to eligibility.

Step 3: Prepare the Export Invoice

The export invoice should carry the prescribed declaration for supply meant for export without payment of integrated tax under LUT.

Step 4: Complete Export Documentation

For physical goods, the exporter coordinates the commercial invoice, packing list, shipping bill, and other applicable customs and regulatory documents.

Step 5: Complete Customs Export Formalities

The goods are presented for export clearance. The shipping bill and related customs records must contain accurate details to support export compliance and any eligible refund claim.

Step 6: Claim Eligible ITC Refund

Where eligible, the exporter can apply for a refund of accumulated unutilised ITC under the applicable GST rules and procedures.

5. How Does the IGST Refund Process Work?

When an eligible exporter chooses to pay IGST on exports, the process generally involves:

1. Preparing the export invoice with the applicable IGST details.

2. Filing the shipping bill for export of goods or following the applicable procedure for export of services.

3. Paying the applicable IGST.

4. Completing the required customs export formalities.

5. Ensuring the relevant GST returns and export details are correctly reported.

6. Applying for or completing the applicable refund process.

For goods, the shipping bill is treated as the refund application once the prescribed export manifest and return requirements are fulfilled. For services, the exporter follows the applicable refund application procedure.

6. Important GST Conditions Exporters Should Know

Choosing between LUT and IGST requires more than comparing the immediate tax payment.

Annual LUT compliance: Exporters should furnish the required LUT for the relevant financial year before making exports without payment of IGST.

Export timelines: Under Rule 96A, if goods are not exported within three months from the invoice date, or export proceeds for services are not received within the prescribed period of one year, the exporter may become liable to pay tax with applicable interest, unless an extension or other permitted treatment applies.

Accurate documentation: Invoice details, shipping bill information, GST returns, and export records should be consistent.

Refund eligibility: Refunds are subject to statutory conditions, restrictions, documentation, and verification. A refund should not be assumed to be automatic in every transaction.

Special transactions: Certain supplies, including specified procurement arrangements and transactions involving export incentives or concessional tax benefits, may have additional restrictions. Exporters should verify their eligibility before selecting the payment-of-IGST route.

7. Which Option Should Exporters Choose: LUT or IGST?

There is no single option that suits every exporter.

LUT may be preferable when:

• The exporter wants to avoid upfront IGST payment.

• The business has accumulated eligible ITC.

• Working capital preservation is important.

• The exporter can manage the applicable ITC refund process.

Payment of IGST may be considered when:

• The exporter is eligible for the IGST refund route.

• The business has sufficient working capital.

• The refund mechanism applicable to the transaction is suitable.

• The exporter has reviewed relevant restrictions and documentation requirements.

Before deciding, exporters should consult their GST practitioner or tax advisor to evaluate the transaction, available ITC, cash-flow impact, and refund eligibility.

8. How APT Logistics Supports Exporters

Selecting the correct GST option is an important part of export planning, but smooth international shipping also depends on accurate documentation, customs coordination, and timely cargo movement.

APT Logistics supports exporters with coordinated freight forwarding and export logistics services, including:

• Air freight and sea freight arrangements.

• Export documentation coordination.

• Shipping bill and customs clearance coordination.

• FCL and LCL export shipment handling.

• Port and airport cargo movement.

  • Inland transportation and warehouse coordination.

• Coordination with overseas agents for destination handling.

Our team helps exporters coordinate their shipment requirements, documentation, and cargo movement so they can focus on their business and international trade operations.

Conclusion

Understanding LUT vs IGST export procedures helps Indian exporters make informed decisions about GST compliance and working capital management.

Exporting under LUT allows eligible businesses to export without upfront IGST payment and claim a refund of eligible unutilised ITC. Exporting with payment of IGST involves paying the applicable tax and claiming a refund through the prescribed process, subject to eligibility.

Choosing the right route, maintaining accurate documentation, and following GST requirements are essential for efficient export operations.

APT Logistics supports Indian exporters with air freight, sea freight, export documentation coordination, customs clearance, and inland transportation solutions.

3. Frequently Asked Questions (FAQs)

Q1. What is the difference between LUT and IGST in exports?

Under LUT, eligible exporters can export without paying IGST and claim a refund of eligible unutilised ITC. Under the IGST payment route, exporters pay applicable IGST and claim a refund of the tax paid, subject to eligibility.

Q2. Is LUT mandatory for every exporter?

No. LUT is required when an eligible GST-registered exporter chooses to make zero-rated supplies without payment of IGST. Exporters choosing another permitted route follow the applicable requirements.

Q3. Is LUT filed every year?

Yes. LUT is generally furnished for each financial year through Form GST RFD-11 on the GST portal.

Q4. Can exporters claim an ITC refund under LUT?

Yes. Eligible exporters can claim a refund of accumulated unutilised ITC under the applicable GST provisions and refund formula.

Q5. Can exporters claim a refund after paying IGST?

Yes, subject to eligibility and compliance with the prescribed refund procedure. For goods, the shipping bill generally serves as the refund application after the required export and return conditions are fulfilled.

Q6. Which is better for exporters: LUT or IGST?

LUT is often preferred by exporters who want to avoid upfront IGST payment. The IGST payment route may suit eligible exporters who can manage the initial tax outflow. The decision depends on ITC availability, cash flow, and applicable restrictions.

Q7. What happens if export goods are not shipped within the prescribed LUT timeline?

Under Rule 96A, failure to export goods within the prescribed period may result in tax and interest liability. However, extensions and other permitted treatments may apply depending on the circumstances.