GST Letter of Undertaking (LUT)

A registered exporter of goods or services — or a supplier to an SEZ unit / SEZ developer — has two paths to making zero-rated supplies under Section 16 of the IGST Act. Path one: export with payment of IGST and claim refund of the tax paid under Rule 96 of the CGST Rules — fast, automatic on shipping bill matching, but parks working capital in tax for 30-60 days. Path two: export under a Letter of Undertaking (LUT) without payment of IGST under Rule 96A — preserves working capital, but the unutilised input tax credit is then refunded quarterly under Rule 89, on application. The LUT route is the default for most exporters because the cash-flow saving on every consignment is immediate and structural.

The LUT is filed on the GST portal in Form GST RFD-11, valid for the financial year. By 2026, filing is fully online — no notarisation, no physical bond, no surety in the typical case. But the eligibility test, the timing, and the consequences of default are all sharper than they look.

We handle the full LUT lifecycle — eligibility validation, RFD-11 filing for the FY, integration with shipping-bill / e-invoice flow, quarterly Rule 89 ITC refund cycle, and reinstatement where the LUT is withdrawn on default — so zero-rated supply continues uninterrupted and refunds reach the bank on time.

Rule 96A vs Rule 96 — Which Route, When

Rule 96A — Export under LUT (Without IGST Payment):
File RFD-11 once for the FY; export under LUT; no IGST charged on invoice; ITC accumulates; claim ITC refund quarterly under Rule 89. Cash-flow positive — no money parked in tax. Default to most exporters.

• Rule 96 — Export with IGST Payment & Refund:: Charge IGST on export invoice; pay IGST in GSTR-3B; claim automatic refund on shipping-bill match. Faster refund (30-60 days) but working capital parked in tax until refund. Used where ITC is structurally insufficient or buyer demands tax-paid invoice.

Decision Rule: If ITC accumulation comfortably covers IGST liability on exports, LUT route saves cash flow. If ITC is thin (services exporter with low input credits) or buyer requires tax-paid invoice, Rule 96 may work better. We model both for the FY and pick on facts.

Eligibility for LUT — Who Can File RFD-11

Under Notification 37/2017-CT and subsequent amendments, all registered persons exporting goods / services or supplying to SEZ are eligible — except those prosecuted for any offence under CGST / IGST / earlier laws involving tax evasion of ₹2.5 crore or more. The earlier requirement of mandatory bank guarantee / surety / minimum export turnover has been substantially relaxed; for the eligible class, RFD-11 is a self-certified undertaking.

Eligibility also fails on past defaults — non-realisation of export proceeds within the FEMA timeline (typically 9 months from export date), shipping-bill / GSTR-1 mismatch, or a previously withdrawn LUT that has not been reinstated. We pre-validate against AD-bank BRC / eBRC records, FEMA realisation timelines, and the earlier year's GSTR-1 / 3B before filing.

The FY Cycle — Annual Filing, Not Per-Consignment

RFD-11 is filed once for each financial year and covers all zero-rated supplies during that FY. Best practice is to file before 1 April so the LUT is in force from day one of the FY; late filing means exports in the gap period must either be invoiced with IGST (Rule 96 route, retrospectively) or held back until the LUT is in force. Each FY's LUT references two witnesses (typically internal — director / partner / authorised signatory plus one other), the prescribed undertaking text, and the exporter's GSTIN profile. No separate notarisation; DSC / EVC sufficient.

Withdrawal of LUT on Default — Rule 96A(3)

The LUT is automatically withdrawn if either of two conditions is breached: (i) export proceeds are not realised in convertible foreign exchange within the FEMA-prescribed period (typically 9 months from export date, with possible AD-bank extension), or (ii) the goods are not exported within 3 months from the date of invoice. On withdrawal, the exporter must pay IGST plus interest (18% per annum) on the relevant supplies as if Rule 96 had applied from the start.

We track every export-cycle realisation against the FEMA timeline through eBRC reconciliation; flag at-risk consignments 30 days before the deadline; coordinate AD-bank extension applications where realisation is genuinely delayed; and reinstate the LUT after default cure (payment of IGST + interest, fresh RFD-11 filing) so future zero-rated supply resumes.

Rule 89 ITC Refund — The Quarterly Cycle for the LUT Route

Under the LUT route, accumulated ITC on inputs and input services used for zero-rated supplies is refunded under Rule 89 of the CGST Rules. Refund is claimed in Form GST RFD-01, computed using the formula: Maximum Refund = (Turnover of Zero-Rated Supply × Net ITC) ÷ Adjusted Total Turnover. Filed quarterly (or for any tax period within 2 years from the relevant date), processed within 60 days, with a 90% provisional refund within 7 days of acknowledgement. We file RFD-01 quarterly aligned with the LUT cycle, so the cash that would have sat in IGST under Rule 96 returns as ITC refund under Rule 89 — net cash-flow neutral, but on the exporter's preferred timing.

Why Self-Filed LUT Cycles Run Into Trouble

Filed mid-year, leaving Q1 exports in IGST limbo. Witness details inconsistent with prior year's filing. Past tax-evasion prosecution not disclosed — LUT vulnerable to reversal. Realisation default not tracked — IGST + 18% interest accumulating silently. Rule 89 refund not filed quarterly — cash sits as ITC for 12+ months. We close all of these at the start of the FY and run the cycle to closure.