LUT Renewal

Overview of LUT Renewal

A Letter of Undertaking (LUT) is basically a declaration that is furnished by the registered exporters under the Goods and Services Tax (GST) law, enabling them to export goods or any services without the payment of Integrated Goods and Services Tax (IGST). This facility is granted in accordance with Section 16 of the IGST Act, 2017, read with Rule 96A of the CGST Rules, 2017, which treats exports as zero-rated supplies.

The LUT is required to be furnished in Form GST RFD-11 and is valid only for a single financial year. Therefore, exporters must renew their LUT at the beginning of every financial year to continue availing zero-rated export benefits. The LUT renewal process is completely online and does not involve the submission of physical documents or bank guarantees for eligible exporters.

LUT renewal plays a crucial role in ensuring smooth international trade operations. Without a valid LUT, exporters are required to pay the IGST on exports and subsequently claim required refunds, which may lead to several delays, working capital blockage and increased compliance burden. Timely LUT renewal ensures an uninterrupted and smooth flow of export activities, simplified and smooth tax compliance and better financial planning for businesses engaged in global trade.

Importance of LUT Renewal

The renewal of LUT is not just a procedural formality, but it is an essential compliance requirement under the GST. Its importance can be understood through the following aspects: -

• Continuity of Zero-Rated Export Supplies: A valid LUT allows exporters to supply goods or services outside India without charging IGST. If the LUT expires and is not renewed, the exporter loses the benefit of zero-rated supplies and must pay tax on the exports.
• Protection of Cash Flow: Payment of IGST on exports leads to blockage of funds until refunds are received. LUT renewal eliminates the need for upfront tax payments, thereby improving liquidity and cash flow management.
• Compliance with GST Law: LUT renewal is a mandatory requirement under the various GST regulations. Failure to renew may result in non-compliance, scrutiny by tax authorities and possible issuance of notices.
• Avoidance of Refund-Related Delays: Refund claims under GST often involve procedural checks and time delays. By renewing LUT, exporters can avoid refund applications altogether.
• Smooth Customs and Export Procedures: A valid LUT assist in smooth and easy coordination between the GST compliance and customs clearance, ensuring the timely movement of goods and services across borders.

Pre-requisites for Applying for Renewal of LUT

Before applying for the process of LUT renewal, exporters must ensure that they satisfy and fulfil the prescribed eligibility terms and conditions. The key pre-requisites include: -

• Valid GST Registration: The applicant must be registered under GST and possess an active GST Identification Number (GSTIN). Businesses that have completed register GST online must ensure their GSTIN is active before applying for revocation.
• Exporter Status: The applicant should be engaged in the export of goods, services or both. LUT is applicable to physical exports, digital service exports and cross-border service transactions.
• No Major Prosecution History: The exporter should not have been prosecuted for tax evasion exceeding the limit of ₹2.5 crore under the GST law or under earlier indirect tax laws such as Excise or Service Tax.
• Filing of GST Returns: All applicable GST returns, including GSTR-1 and GSTR-3B, should be filed up to date. Exporters must consistently file a GST return on time to avoid restrictions while applying for LUT renewal on the portal.
• Authorised Signatory: The LUT application must be filed and verified by an authorised signatory registered on the GST portal using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).