Letter of Undertaking (LUT) in India
In the dynamic landscape of international trade and commerce, a Letter of Undertaking (LUT) holds significant importance, particularly in a country as vast and economically diverse as India. This formal document is pivotal in enabling businesses and exporters to engage in cross-border transactions while adhering to the nation’s tax regulations.
What is a Letter of Undertaking?
A Letter of Undertaking often called an undertaking letter, is a formal written assurance provided by one party to another, assuring the fulfilment of an obligation or requirement mandated by the law. Importantly, it’s essential to distinguish that a Letter of Undertaking is not equivalent to a contractual agreement. Instead, a legally recognized commitment carries the weight of adherence to statutory obligations.
Primarily, this document is deployed from a business perspective, primarily to fulfil specific tasks or duties mandated under the law for commercial entities. In the context of the Indian tax landscape, a Letter of Undertaking (LUT) becomes particularly crucial.
The Role of LUT in India
Under the Central Goods and Service Tax (CGST) Act of 2017, any exporter in India seeking to export goods or services without incurring the Integrated Goods and Services Tax (IGST) must furnish a Letter of Undertaking (LUT). In a conventional scenario, when an entity exports services or goods, it must pay taxes on these exports. However, India’s Goods and Services Tax (GST) law allows entities to claim a refund of taxes paid by applying for an LUT or an export bond with the GST department.
The crux of this mechanism is that exporters, by submitting a LUT, formally declare their intent to fulfil all GST-related requirements without making an IGST payment at the time of export. When the GST department accepts this LUT, it effectively exempts the entity from paying taxes on their exports, avoiding the blockage of funds through upfront tax payments.
The LUT Checklist
To obtain a Letter of Undertaking in India, certain prerequisites must be met:
- Export Location: The exporter must operate from within or outside India or the Special Economic Zones (SEZs).
- GST Registration: The exporter should be a registered taxpayer, and the exported goods or services must also be registered under the GST.
- Tax Evasion: Exporters who have been prosecuted under the CGST Act, 2017, or IGST Act, 2017, for tax evasion amounting to Rs. 2.5 crores or more are not eligible to apply for an LUT.
- Letterhead: The LUT must be provided on the exporter’s letterhead, which should be registered under the GST.
- Authorization: In the case of a company, the LUT must be digitally signed by the partner, company secretary, managing director, or any person duly authorized by the company.
- Timely Tax Payments: Failure to pay taxes within the stipulated time mentioned in the LUT could lead to the revocation of the facility to supply without IGST payment.
- Validity: An LUT is valid for one financial year, necessitating the generation of a fresh LUT every fiscal year.
The LUT Filing Procedure
Filing a GST LUT in India involves several steps:
- GST Portal Login: Begin by logging in to the GST Portal.
- Access the ‘SERVICES’ Tab: Navigate to the ‘SERVICES’ tab, select ‘User Services,’ and then ‘Furnish Letter of Undertaking (LUT).’
- Select the Financial Year: Choose the relevant financial year from the ‘LUT Applied for Financial Year’ dropdown list.
- Form Completion: Enter the required details in the ‘Letter of Undertaking Form/GST RFD-11.’
- Verify the Form: After entering the details, specify the ‘Place of filing,’ click ‘Save,’ and then ‘Preview’ to verify the accuracy of the form.
- Submission: Sign and submit the form using a Digital Signature Certificate (DSC) or the Electronic Verification Code (EVC).
- Acknowledgement: Once submitted successfully, click the ‘Download’ button to obtain the acknowledgement.
Essential Documents
For a Letter of Undertaking, the following documents are typically required:
- Previous LUT Certificate: A copy of the previous LUT certificate, if applicable.
- DSC of Authorized Signatory: In the case of a company, the Digital Signature Certificate (DSC) of the authorized signatory.
Conclusion
In conclusion, a Letter of Undertaking in India is vital for exporters to navigate the complex tax regulations while engaging in international trade. It ensures compliance with the GST law while providing flexibility for businesses to operate efficiently globally. By understanding the intricacies of the LUT and adhering to the stipulated procedures, exporters can unlock their full potential and contribute to the growth of India’s export sector.
