Introduction
There’s a prevailing assumption among exporters that GST does not apply to exports. While it’s true that exports are classified as “zero-rated supplies” under GST law, this does not mean that they’re exempt from compliance. In fact, exporters must fulfil specific procedural conditions to legitimately claim GST exemptions. Failing to do so could convert your zero-rated exports into taxable supplies — resulting in hefty tax demands, interest, and even penalties.
This comprehensive guide focuses on the “Export of Services” under GST, highlighting how the Letter of Undertaking (LUT) works, who should file it, and why it’s the preferred route for most exporters.
Understanding What Constitutes Export of Services
According to Section 2(6) of the IGST Act, 2017, a service qualifies as an export only if all the following conditions are satisfied:
- Supplier is based in India
- Recipient is located outside India
- Place of supply lies outside India
- Payment is received in convertible foreign currency or INR (where permitted by RBI)
- Supplier and recipient are not merely two branches of the same legal entity
Unless each of these is met, your supply might not qualify as an export and thus will not be considered zero-rated.
Export Compliance: With or Without Payment of IGST
Section 16 of the IGST Act provides two options for exporters:
- Export With Payment of IGST
- IGST is paid on the export invoice.
- Refund of the tax paid can be claimed under Rule 89 of the CGST Rules.
- Export Without IGST (Using LUT or Bond)
- No upfront payment of IGST is required.
- Exporters can claim refund of unutilized Input Tax Credit under Rule 96A.
Exporters must note that GST registration is mandatory for exports — even if they do not cross the threshold turnover — because exports are treated as inter-State supplies under Section 24 of the CGST Act.
Why LUT is the Preferred Route
Although both options are legally viable, most businesses choose to file a Letter of Undertaking (LUT) because:
- No need to pay IGST upfront, avoiding the cash crunch.
- No dependency on refund timelines, reducing paperwork and administrative delays.
- Easier to manage, especially for regular exporters and service providers to SEZs.
What is a LUT and When to File It?
A LUT (Letter of Undertaking) is a declaration filed in Form GST RFD-11 through the GST portal. It allows eligible exporters to supply goods or services without the need to pay IGST at the time of supply.
Eligibility
- Available to all GST-registered taxpayers intending to make zero-rated supplies (exports or SEZ supplies) without tax payment.
- Not allowed for those who have been prosecuted for tax evasion exceeding ₹2.5 crore.
Validity
LUTs are valid for one financial year. A fresh LUT must be submitted before the beginning of each new financial year (starting 1st April).
Mandatory Conditions Under Rule 96A
To retain the benefits of exporting under LUT, you must:
- File the LUT before executing the export.
- Export goods within 3 months of the invoice date.
- For services, realize export proceeds within 1 year from the invoice date.
- If timelines are not met, pay the applicable IGST along with 18% interest within 15 days of breach.
- Non-compliance leads to withdrawal of LUT benefits, with reinstatement allowed only after dues are cleared.
Key Details in Form GST RFD-11
The LUT form includes:
- GSTIN and legal name of exporter
- Financial year
- Declaration to abide by export rules and repay any taxes with interest in case of default
- Selection between LUT or Bond
- Details of two witnesses
- Digital signature of authorized signatory (EVC/DSC)