Exports Under GST: How to Use Bond or LUT?
Updated: 5 days ago
Exports are an essential aspect of international trade, contributing significantly to a nation's economy. Under the Goods and Services Tax (GST) regime, exports are treated as "zero-rated supplies," meaning that no tax is payable on exports. However, exporters have two key options to ensure tax compliance under GST: they can either export goods and services under a Letter of Undertaking (LUT) or a Bond, or they can export with payment of IGST and claim refunds.
This article will walk you through the process of using LUT or bonds for exports under GST, ensuring you're compliant with tax laws while avoiding unnecessary delays.
Table of content
Understanding Exports Under GST
Exports of goods and services are treated as zero-rated supplies under GST, meaning no GST is levied on the export transaction itself. Exporters have two options for handling GST compliance:
Export under Bond or LUT: Exporters can export goods or services without paying Integrated GST (IGST) by furnishing a Bond or a Letter of Undertaking (LUT) to the GST authorities.
Export with Payment of IGST: In this case, exporters pay IGST at the time of export and can claim a refund later.
Both options have their advantages, but for businesses looking to avoid cash flow blockages, exporting under Bond or LUT is generally more favorable. Let's dive into the details of how this process works and who is eligible to use it.
Refund of IGST Paid on Exports
If an exporter opts to pay IGST while exporting, they can claim a refund of the tax paid on exports. The IGST refund process is streamlined, provided that the exporter complies with the documentation requirements and follows the correct filing procedures.
Key Steps for Claiming Refund of IGST on Exports
Issue a Compliant Export Invoice: The first step is to ensure that the export invoice is compliant with GST rules. It must contain all the necessary details such as the GSTIN, invoice number, description of goods/services, quantity, value, and the IGST amount paid. You may also need to mention the shipping bill number on the invoice.
File Shipping Bill and GSTR-1: Exporters must ensure that the shipping bill details match with the entries made in GSTR-1. The shipping bill acts as proof of export, and its reconciliation with the details provided in GSTR-1 is essential for a smooth refund process.
File GSTR-3B: The IGST paid on export must be reflected in the GSTR-3B return. This is where the payment of tax on the outward supplies is reported, and the IGST refund is claimed.
Track Refund Status: Once the return and shipping bills are filed, the refund is processed automatically. However, exporters should regularly check the refund status on the GST portal or through the ICEGATE (Indian Customs EDI Gateway) system.
Common Pitfalls to Avoid in the Refund Process
Mismatches between shipping bill and GSTR-1 data: This is one of the most common reasons for delays or denials in refunds. Make sure that all details are accurately matched.
Not filing the correct documents on time: Refunds may be delayed if invoices, shipping bills, or GSTR forms are not filed correctly or on time.
Letter of Undertaking (LUT) and Bonds Explained
When exporting goods or services without payment of IGST, exporters need to furnish a Bond or LUT to the tax authorities. A Letter of Undertaking (LUT) is a document filed by exporters with the GST department to declare that they will meet all GST regulations and ensure that their exports are compliant. The LUT full form in export is “Letter of Undertaking,” and it provides a guarantee to the government that the exporter will adhere to the export provisions under GST.
Who Can Use LUT or Bonds for Exports?
Not every exporter can use an LUT. The option to export under an LUT without payment of IGST is available only to:
Exporters who have not been prosecuted for tax evasion for an amount exceeding Rs. 250 lakh under any existing law.
Regular exporters or suppliers of goods and services to SEZs (Special Economic Zones) are generally eligible for filing LUT.
Exporters who do not meet the above criteria must execute a Bond with a bank guarantee before exporting their goods or services.
LUT vs. Bond: Key Differences
LUT: Easier to file, does not require a bank guarantee, and is generally preferred by exporters.
Bond: Requires a bank guarantee equivalent to a certain percentage of the export turnover. This option is generally used by new exporters or those ineligible for LUT.
Filing a Letter of Undertaking (LUT) or Bond for Exports
The process of filing LUT or Bond is straightforward and can be done online through the GST portal.
Steps to File LUT in GST for Exports
Login to the GST Portal: Exporters need to log in to their account on the GST portal (www.gst.gov.in).
Navigate to LUT Filing Section: Under the "Services" tab, select "User Services" and then "Furnishing of LUT."
Fill out Form GST RFD-11: Fill in the required details such as GSTIN, name, and address of the taxpayer. The form also requires the signature of two independent witnesses.
Submit the LUT Form: Once completed, submit the form electronically. The LUT number will be generated and sent to the registered email of the exporter.
Format of LUT and Bonds in Form RFD-11
The Letter of Undertaking (LUT) is filed in Form GST RFD-11. Exporters must ensure that they submit this form before starting any zero-rated export supplies. If a Bond is required, it must be in the prescribed format and backed by a bank guarantee, generally 15% of the bond value.
Consequences of Non-Compliance: What Happens if Goods or Services Are Not Exported?
If the goods or services are not exported within three months from the date of the issue of the export invoice, the LUT/Bond may be revoked, and the exporter may be liable to pay IGST, interest, and penalties. It’s essential to keep accurate records of all export transactions and comply with GST timelines to avoid these consequences.
Is It Mandatory to Mention LUT Number on the Invoice?
Yes, when exporting under an LUT, it is mandatory to mention the LUT number on the export invoice. This is a crucial requirement to ensure that the transaction is recognized as zero-rated under GST. Failure to mention the LUT number can result in the transaction being treated as taxable, leading to unnecessary complications.
TaxBuddy: Your Trusted Partner for GST and Export Compliance
Overcoming the complexities of GST compliance can be challenging, especially for exporters. TaxBuddy provides expert services to help businesses comply with GST regulations, including assistance with filing LUT/Bonds, claiming IGST refunds, and ensuring accurate documentation.
FAQ
Q1. What is LUT in GST for exports?
A Letter of Undertaking (LUT) in GST is a declaration filed by an exporter, allowing them to export goods or services without paying IGST.
Q2. Who can file LUT for exports under GST?
Exporters who have not been prosecuted for tax evasion exceeding Rs. 250 lakh and who regularly export goods or services can file an LUT.
Q3. What is the difference between LUT and Bond in GST?
An LUT is a simple document filed online without the need for a bank guarantee, while a Bond requires a bank guarantee and is typically used by new exporters or those not eligible for LUT.
Q4. Is it mandatory to mention the LUT number on the export invoice?
Yes, mentioning the LUT number on the export invoice is mandatory when exporting under LUT, as it ensures the transaction is zero-rated under GST.
Q5. How do I file a LUT on the GST portal?
You can file a LUT online by logging into the GST portal, navigating to "User Services," and filling out Form GST RFD-11.
Q6. Can I export without paying GST if I don't have an LUT?
If you're not eligible for an LUT, you can still export without paying GST by furnishing a Bond with a bank guarantee.
Q7. How can I claim a refund of IGST paid on exports?
Exporters who pay IGST on exports can claim a refund by filing the correct export invoices and returns (GSTR-1 and GSTR-3B) and ensuring their shipping bills match the invoices.
Q8. What happens if I don't export goods within three months after issuing an invoice?
If goods or services are not exported within three months, the exporter may need to pay the applicable IGST along with interest and penalties.
Q9. Do I need to renew my LUT every year?
Yes, an LUT needs to be filed and renewed annually before starting any zero-rated exports in the new financial year.
Q10. Is it possible to export with payment of tax under GST?
Yes, exporters can opt to pay IGST on their exports and later claim a refund of the tax paid.
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