What Is an LUT and When Do I Need One for Exports?

You are raising the first-ever export invoice for the company. The buyer is European, the shipment is Rs 45 lakh, and the shipping instructions are with the CHA. Your CFO has just asked whether the invoice goes out with IGST at 18 per cent (Rs 8.1 lakh) or without it, on something called a Letter of Undertaking that a senior colleague vaguely remembers is filed on the GST portal once a year.

You look at the GST portal, you see a Form GST RFD-11 that says “LUT for export of goods or services without payment of integrated tax” and offers a filing button. You do not know whether to click it. What is this thing, when do you need it, and what happens if you get it wrong?

The quick answer

A Letter of Undertaking (LUT) is a filing under Rule 96A of the CGST Rules 2017 that lets a registered exporter ship goods or services under Section 16(3)(a) of the IGST Act 2017 — zero-rated, without paying integrated tax on the export invoice. The alternative under Section 16(3)(b) read with Rule 96 is to pay IGST at the shipping bill stage (Rs 8.1 lakh on your Rs 45 lakh shipment at 18 per cent) and claim it back through the automatic ICEGATE-linked refund flow, which typically takes 90 to 180 days to hit the bank account.

The LUT is filed once at the start of every financial year on Form GST RFD-11 on the GST portal, is valid for the whole FY, and must be renewed each April. Every registered exporter is eligible except those prosecuted for tax evasion above Rs 2.5 crore under the CGST Act 2017, the IGST Act 2017, or any existing tax law — the eligibility was widened by Notification 37/2017-Central Tax dated 4 October 2017. The parallel refund mechanic on the domestic-taxable side — where inputs are taxed at a higher rate than the finished output — is treated in the Rule 89(5) inverted-duty refund walkthrough, which is a sibling reading for any exporter who also runs an inverted-duty domestic supply line.

Click the button and file the LUT before you raise the first export invoice, unless a specific shipment is high-risk for non-completion in three months — in which case the pay-and-refund route is the safer election for that one shipment.

What an LUT actually is — the statute anchor

Section 16 of the IGST Act 2017 defines a zero-rated supply as an export of goods or services or a supply to a Special Economic Zone. A zero-rated supply is not the same as an exempt supply — the exporter retains the right to claim input tax credit on the inputs consumed in the export, notwithstanding that the output itself carries no IGST liability when the LUT route is used.

Section 16(3) offers the exporter two exclusive options per shipment. Option (a) — supply under bond or LUT without payment of IGST, then claim refund of the unutilised input tax credit under Rule 89(4). Option (b) — supply on payment of IGST, then claim refund of the tax paid under Rule 96 through the ICEGATE-linked automatic flow. The exporter elects one per shipment; the two routes cannot be combined on the same export invoice.

Rule 96A of the CGST Rules 2017 is the operational rule that says how option (a) is exercised. Every exporter who wants to ship without paying IGST must furnish, prior to the export, either a bond or a Letter of Undertaking in Form GST RFD-11 to the jurisdictional Commissioner. The LUT binds the exporter to pay the IGST — with Section 50 interest at 18 per cent per annum — if the export is not actually completed within three months of the invoice date for goods, or if the convertible foreign exchange payment is not received within one year of the invoice date for services.

Who is eligible — the Rs 2.5 crore bar

Before 4 October 2017, most exporters had to furnish a running bond backed by a bank guarantee typically pegged at 15 per cent of the estimated tax liability on the year’s exports. A first-time exporter with a projected Rs 20 crore annual export book at 18 per cent IGST (Rs 3.6 crore of estimated tax) would have needed a Rs 54 lakh bank guarantee to sit on the exporter’s balance sheet, with a running bank-guarantee commission of typically 1 to 2 per cent per annum. The bond mechanic was operational and legal but the bank-guarantee cost was real.

Notification 37/2017-Central Tax widened LUT eligibility to almost every registered exporter — the LUT sits inside a self-declared undertaking with no bank-guarantee requirement. The single exclusion is an exporter who has been prosecuted for any offence under the CGST Act 2017, the IGST Act 2017, or any of the existing laws in force where the amount of tax evaded exceeds Rs 2.5 crore. An excluded exporter still has the bond route available, but with the 15 per cent bank guarantee attached.

For a first-time exporter with no prior tax evasion history, the eligibility test is a routine one and the LUT is the standard route.

How to file — Form GST RFD-11 on the GST portal

The Form GST RFD-11 filing sits under Services → User Services → Furnish Letter of Undertaking on the GST portal. The form asks for the financial year of the LUT (the FY for which the undertaking is valid), the details of two independent witnesses (name, address, occupation), and the digital or e-signature of the authorised signatory. There is no fee. Filing is online; the earlier physical letter to the jurisdictional Commissioner is now the fallback route for the bond-holder exceptions.

The LUT is deemed accepted on filing — an acceptance is generated by the portal and forms the reference for every export invoice raised during the financial year. Illustrative arithmetic — the RFD-11 acknowledgement number quoted on the Rs 45 lakh export invoice binds the shipment to the LUT and to the corresponding 3-month completion clock under Rule 96A(1)(a).

The GSTR-1 Table 6A monthly export invoice register reports every export shipment with a checkbox distinguishing “with payment of tax” from “without payment of tax.” An LUT shipment is reported under the “without payment of tax” column with the LUT reference. A pay-and-refund shipment is reported under “with payment of tax” with the IGST amount, the shipping bill number, and the port of shipment, so that the CBIC end can reconcile the invoice against ICEGATE for the automatic refund.

Validity and annual renewal

The LUT is valid for the whole financial year in which it is filed. An LUT filed in April 2026 for FY 2026-27 covers every export shipment from April 2026 through March 2027. Renewal is not automatic — a fresh Form GST RFD-11 must be filed on the GST portal for FY 2027-28 in the first week of April 2027 to cover the next FY’s exports.

The single most common export-team failure mode is a first-week-of-April shipment raised against an expired LUT because the renewal filing slipped a fortnight. The invoice is technically invalid as an LUT shipment; the exporter’s options at that point are either to file the FY renewal immediately (and hope the export completion inside three months still qualifies the shipment under the fresh LUT) or to treat the shipment as a pay-and-refund case retroactively and pay the IGST with Section 50 interest. Neither is a comfortable outcome, and the fix is a hard-coded April 1 calendar reminder on the tax executive’s compliance calendar.

The alternative — Rule 96 pay-and-refund, and the working-capital arithmetic

Rule 96 of the CGST Rules is the pay-and-refund route under Section 16(3)(b). The exporter pays IGST at 18 per cent (or the applicable rate) on the export invoice at the shipping bill stage. The shipping bill filed with Customs is deemed to be an application for refund of the IGST paid. Once the person in charge of the conveyance files the Export General Manifest (EGM) covering the shipping bill number and date, and the exporter files the GSTR-3B for the period, the refund is processed automatically by the Customs system and credited to the exporter’s bank account.

The timeline in practice — the shipping bill goes with the shipment, the EGM lands 1 to 3 days later at the port, the GSTR-3B for the tax period is filed by the 20th of the following month, and the refund credit typically lands 60 to 90 days after that. Where the ICEGATE data does not reconcile cleanly with the GSTR-1 Table 6A entry (a mismatched port code, a wrong invoice date, a shipping bill without an EGM), the refund is held and the exporter has to raise a query with the customs system to resolve the mismatch — the 60-to-90-day median can stretch to 180 days.

Illustrative arithmetic on the Rs 45 lakh export. Under the LUT route, no IGST is paid on the invoice. Under the pay-and-refund route, Rs 8.1 lakh of IGST is paid at the shipping bill stage. That Rs 8.1 lakh sits in the exporter’s working-capital cycle for the 90-to-180-day refund window before it lands back in the bank. For a first-year exporter with a projected Rs 5 crore annual export book, the working-capital lock under the pay-and-refund route is roughly Rs 90 lakh in IGST outflow revolving through the year — the tax and interest arithmetic of the LUT versus the pay-and-refund route is not a marginal difference. The chemical exporter Bill of Entry to IGST refund reconciliation walkthrough treats this refund reconciliation cycle end-to-end for a specialty-chemicals fact pattern where the Rule 89 unutilised-ITC route and the Rule 96 IGST-paid route are compared side by side.

The one to escalate first — the three-month export completion clock

Under Rule 96A(1)(a) of the CGST Rules, the LUT binds the exporter to pay IGST with Section 50 interest at 18 per cent per annum if the export is not actually completed within three months of the invoice date for a goods export. The extension route — a written application to the jurisdictional Commissioner explaining the reason for the delay — is available on merits, but it is a written application, not a routine notification. A shipment held up in port for six weeks because of a documentation issue is the routine extension case; a shipment cancelled outright is the failure case where the IGST and interest crystallise.

The escalation ladder therefore reverse-calculates from the invoice date. Day 60 from invoice — tax executive checks with the export documentation team whether the shipment has left the port. Day 75 — if the shipment has not left, an extension application is drafted for filing by Day 80. Day 90 — the extension either has been granted or the exporter has 15 days to pay IGST with Section 50 interest on the invoice value. For a Rs 45 lakh shipment with Rs 8.1 lakh in IGST, the Day-90 crystallisation is Rs 8.1 lakh in IGST plus Rs 40,000 in interest for the three-month plus 15-day window.

For services exports, the corresponding Rule 96A(1)(b) trigger is 15 days after the expiry of one year from the invoice date if the convertible foreign exchange payment has not been received. The clock is longer, but the exposure is identical.

The FEMA claw-back — Rule 96B and the nine-month window

Rule 96B of the CGST Rules is the linkage between the LUT regime and the Foreign Exchange Management Act 1999. Where any refund of unutilised ITC on account of export of goods, or of IGST paid on export of goods, has been paid to the exporter, but the sale proceeds in respect of those export goods have not been realised in convertible foreign exchange within the FEMA-permitted window (typically nine months from shipment for goods exports, extendable by the RBI), the refunded amount to the extent of non-realisation must be deposited back with applicable interest within 30 days of the expiry of the FEMA window.

Failure to deposit triggers a Section 73 or Section 74 recovery proceeding at the department end. The LUT itself remains valid for the FY, but the specific shipment against which the foreign exchange did not land is treated retrospectively as a taxable supply — the IGST and interest that would have been payable at the invoice date become payable now, three quarters after the shipment.

For an exporter dealing with a foreign buyer who defaults on payment, this is the second-order exposure to plan for at the treasury and credit-insurance level, not just the export-team level. The Rule 89(5) inverted-duty refund treatment for specialty chemicals touches the parallel refund mechanic on the domestic-taxable side; the export-side Rule 96B claw-back sits alongside as a second exposure that a treasury dashboard has to track invoice-by-invoice.

When the manual LUT tracking outgrows itself

For a first-year exporter shipping five to ten export invoices a year, the LUT tracking fits in a single Excel column against the master export invoice register — the LUT filing acknowledgement number, the invoice date, the 3-month completion deadline, the shipping bill number, the EGM date, and the foreign-exchange-realisation date. One tax executive can hold the register alongside the monthly GSTR-1 Table 6A filing, and the annual LUT renewal is a first-week-of-April calendar reminder.

Above 50 export invoices a year across two or three destination geographies with different shipping cycles, the manual tracking starts to leak — a Rule 96A(1)(a) 3-month clock missed on an invoice held up in port, a Rule 96B FEMA claw-back exposure invisible until the ninth month, an LUT-versus-pay-and-refund election taken by default rather than by shipment-specific risk analysis. Each miss compounds — a single Rule 96A(1)(a) miss on a Rs 45 lakh shipment is Rs 8.5 lakh in IGST plus interest; a Rule 96B claw-back sequence on an unpaid Rs 2 crore invoice is a Rs 36 lakh IGST plus a running Section 50 interest exposure.

At that scale, moving the LUT tracking and the export refund reconciliation onto continuously refreshed detection — where Terra Insight’s GST reconciliation software treats the 3-month Rule 96A(1)(a) clock and the FEMA-linked Rule 96B window as first-class monthly outputs on the export-invoice register — is what keeps the export team’s compliance calendar inside a routine monthly review rather than a quarter-end firefight. Below that scale, the Excel register is the right tool.

Go deeper

• Chemical exporter Bill of Entry to IGST refund reconciliation under Section 16 — the full end-to-end walkthrough of the Rule 89 and Rule 96 refund routes for a specialty chemicals exporter
• How do I claim a refund under Rule 89(5) for inverted duty structure — the sibling refund mechanic on the domestic inverted-duty side
• Rule 89(5) inverted-duty refund for specialty chemicals — the technical treatment of the Chapter 27 blockage arithmetic
• GSTR-2B versus purchase register reconciliation — the pillar treatment
• GST reconciliation software for India

Frequently Asked Questions

Do I have to file an LUT if I only export occasionally?

Yes, if you want to ship without paying IGST upfront on the export invoice. Rule 96A is not a threshold-based provision — a single Rs 5 lakh export shipment against an LUT filed in Form GST RFD-11 sits under the same Section 16(3)(a) zero-rated route as a Rs 5 crore export shipment. The alternative is Rule 96 — pay IGST at the shipping bill stage and claim refund through the ICEGATE-linked automatic refund flow — which locks the equivalent of the IGST outflow (18 per cent on most goods exports) into a 90-day to 180-day refund cycle before the credit lands in your bank account. For a small-value occasional exporter, the pay-and-refund route may seem administratively simpler because it skips the annual RFD-11 filing on the portal, but the working-capital lock is real and compounds across a year of shipments. Most exporters who plan to ship more than once in the FY file the LUT.

What happens if I do not complete the export within 3 months of the invoice date?

The IGST that would have been payable on the export invoice becomes payable, along with interest at 18 per cent per annum under Section 50(1) of the CGST Act computed from the invoice date. Rule 96A(1)(a) is explicit — 15 days after the expiry of three months from the date of the export invoice, if the goods have not been exported out of India, the tax with interest is payable. For services exports, the corresponding trigger under Rule 96A(1)(b) is 15 days after the expiry of one year from the invoice date, if the convertible foreign exchange payment has not been received. An extension of the three-month window is available under Rule 96A(1)(a) on a written application to the jurisdictional Commissioner explaining the reason for the delay — the extension is granted on merits, not as a right. A shipment held up in port for six weeks because of a documentation issue is the routine extension case; a shipment cancelled outright is the failure case where the IGST and interest crystallise.

Can I switch between LUT and pay-and-refund shipment-by-shipment?

Yes. Section 16(3) of the IGST Act 2017 offers the two options as alternatives per zero-rated supply. An exporter with an LUT filed and accepted for the current financial year can still elect to pay IGST on a specific shipment and claim refund under Rule 96 rather than shipping under the LUT — this is sometimes done deliberately for a shipment where the export completion is uncertain (a complex first-time consignment to a new geography where the shipping cycle exceeds three months) so that the exporter does not have to worry about the Rule 96A(1)(a) trigger. Conversely, an exporter without an LUT can only use the Rule 96 pay-and-refund route until the LUT is filed. The GSTR-1 Table 6A export invoice reporting separates the two — shipments under LUT are reported with the LUT reference; shipments with IGST paid are reported with the IGST amount and shipping bill details for the ICEGATE reconciliation.

My export sale proceeds have not landed within nine months. What happens to my LUT status?

Rule 96B triggers. Where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid, and the sale proceeds have not been realised in convertible foreign exchange within the FEMA 1999 window (typically nine months from the date of shipment, extendable by the RBI), the refunded amount to the extent of non-realisation must be deposited back with applicable interest within 30 days of the expiry of the FEMA window. Failure to deposit triggers a Section 73 or Section 74 recovery proceeding. The LUT itself remains valid for the FY, but the specific shipment against which the sale proceeds did not land is treated as a taxable supply retrospectively — the IGST and interest that would have been payable at the invoice date become payable now. For an exporter dealing with a foreign buyer who defaults on payment, this is the second-order exposure to plan for at the treasury and credit-insurance level, not just the export-team level.

I am not eligible for LUT because of an old prosecution matter. What do I do?

The alternative under Rule 96A is a bond — a written undertaking backed by a bank guarantee, typically pegged at 15 per cent of the estimated tax liability on the exports expected during the financial year. The bond mechanism was the standard route for all exporters before Notification 37/2017-Central Tax dated 4 October 2017 widened LUT eligibility; the bond continues to exist for exporters excluded from LUT eligibility (typically those prosecuted for tax evasion above Rs 2.5 crore under the CGST Act 2017, the IGST Act 2017, or any of the existing laws in force). The bond binds the exporter to the same three-month export-completion undertaking as the LUT, but the bank guarantee creates a real financial cost — 15 per cent of an estimated Rs 20 crore annual export IGST at 18 per cent (Rs 3.6 crore of estimated tax) is a Rs 54 lakh bank guarantee with the running bank guarantee commission at typically 1 to 2 per cent per annum. The Rule 96 pay-and-refund route is the practical alternative for a small or mid-size exporter for whom the bank guarantee cost outweighs the working-capital benefit of the LUT.

Terra Insight Editorial Team Reconciliation Infrastructure

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