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Letter of Undertaking
A Letter of Undertaking (LoU) is a document issued by a bank to allow its customers to engage in international trade without the need for upfront payment. Essentially, it is a guarantee provided by the bank to the beneficiary of the LoU, assuring that the customer will fulfill the obligations of the trade transaction.An LoU is generally issued for import transactions and can be used as a substitute for a bank guarantee or collateral. It enables the importer to obtain goods from a foreign supplier without having to pay upfront for the transaction.
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Overview of Letter of Undertaking
The exporter certifies in the Letter of Undertaking (LUT), which must be submitted in Form GST RFD 11 in accordance with Rule 96A, that they will comply with all GST-related regulations when exporting without paying IGST. Any individual who has registered for GST is only eligible to submit a LUT if they have not already been charged with tax evasion that totaled more than Rs. 2.5 Crore, any other offence under the CGST Act, the IGST Act 2017, or any other applicable law. Exporter rights may be cancelled and a deposit is required if they do not meet the LUT standards. Please be aware that before exporting any goods or services, this Letter of Undertaking (LUT) must be submitted online. You can apply for Letter of Undertaking, or LUT if you meet the following conditions:
- Wish to supply goods or services overseas or to India without paying GST
- Registered business under GST
- Do not have a tax evasion case of more than Rs 2.5 crore
Advantages of Letter of Undertaking
| Exports without tax payment | An exporter can export products or services without paying taxes by filing a LUT under GST. To take advantage of zero-rated exports if LUT is not filed, the exporter must first pay the necessary tax while making exports and then file a refund claim |
| Saves Working Capital | Regular exporters greatly benefit from reporting LUT online as the refund process via an alternate channel is laborious. when a due refund is used to obstruct the large amount of capital |
| An Entire Financial Year Validity | Once submitted, the letter of undertaking is valid for the entire fiscal year for which it was submitted. So, unlike the reimbursement process, an exporter does not have to follow the formalities each time an export consignment is made |
| Simple and online process | Since April 2018, LUT submission and acceptance are both done online. For approval, the applicant is not required to appear before the officers. A few necessary documents can be submitted online to finish the process |
Registration Process
Step 1: The application for Letter of Undertaking can be filed online by logging in to the GST portal.
Step 2: Next, go to the “Services” tab and click on “User Services.” From the drop-down menu, you need to select “Furnish Letter of Undertaking (LUT)”.
Step 3: A form will open up. Choose the financial year for LUT filing and upload the last financial year’s LUT (if you had filed it last year).
Step 4: Next, you need to name two witnesses along with their full address and occupation. Mention the place of LUT filing.
Step 5: You also need to get the form signed by an authorised person or the exporter. The authorised person includes the managing director, company secretary, or anyone authorised by these people to sign.
Step 6: The signature can be done digitally or via Electronic Verification Code. In the case of the latter, you will receive an OTP, which you need to punch in.
Step 7: Preview the form for any errors. If there is nothing to change, sign the form or verify it via an OTP and click on the “Proceed” button.
Step 8: Once this is done, you will receive an Application Reference Number (ARN). Note it down for future reference.
Step 9: You can download the acknowledgement copy of LUT by clicking on the “Download” button.
Required Documents
1. Entity’s PAN Card:A Copy of PAN card of the exporter entity
2. KYC of Authorised Signatory :A Copy of PAN card and Aadhar card of partners/directors
3. Witnesses:Information of at least two witnesses along with the address proof and PAN
4. GST Registration :GST Registration Certificate of the exporter is required
5. IEC Certificate: The IEC certificate must be submitted
6. Cancelled cheque :A Copy of cancelled cheque of current account of exporter
FAQ's Letter of Undertaking :-
After applying, you will also be given an Application Reference Number (ARN) and notified through SMS and email if your application was successful. The acknowledgement is also available for download as a PDF on the GST portal.
LUT processing for the Model-2 States is done online. There are 27 Model-2 States, including Jharkhand, Uttarakhand, Assam, Mizoram, and Odisha. Depending on the facility available at the backend of such States, tax officials for the Model-1 States may process LUT manually or online.
For filing LUT under GST, previously stipulated requirements of turnover and inbound receipts were required. Anyone who wants to export without paying taxes can now submit a Letter of Undertaking under GST online.
For the whole financial year in which it is submitted, the letter of undertaking will be valid. However, LUT is regarded to be revoked until the conditions are met if the export-related conditions are not met.
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1. Application
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3. Process
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4. Confirmation
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