GST Letter of Undertaking: Export Without Paying Tax in 2026

Exporting goods or services from India is a major growth driver for SMBs, yet a recurring cash flow problem trips up even experienced exporters: paying IGST upfront on zero-rated supplies and then waiting months for a refund. If your business exports goods worth ₹50 lakh with an 18% IGST rate, that means ₹9 lakh locked up with the government while your working capital runs dry. The Letter of Undertaking (LUT) under GST eliminates this problem entirely — you export without paying any IGST and skip the refund process altogether.

Yet many exporters, and even some CAs advising them, overlook the LUT or treat it as an afterthought. An un-filed LUT means you must either pay IGST on every export invoice (tying up working capital) or scramble to file the LUT mid-year while explaining the lapse to clients. Here is everything your business needs to know to file, maintain, and use the LUT correctly for FY 2026-27.

What Is a Letter of Undertaking Under GST?

A Letter of Undertaking is a legal declaration that a registered exporter files with the GST department, undertaking to:

• Export goods or services within a specified time without payment of IGST, or
• Alternatively, pay the IGST with interest if the export conditions are not fulfilled.

The legal foundation is Section 16(3) of the IGST Act, 2017, read with Rule 96A of the CGST Rules, 2017. These provisions allow zero-rated supplies — exports and supplies to SEZs — to be made either:

1. 1Under a bond or LUT, without payment of IGST, with the right to claim ITC refund; or
2. 2With payment of integrated tax, with the right to claim a refund under Section 54 of the CGST Act.

The LUT option is far more capital-efficient. You do not lock up funds in IGST payment, and you are not waiting 30–60+ days for a GST refund credit.

Zero-Rated Supply: Not the Same as Exempt

One important clarification: zero-rated supply under GST means the supply is taxable at 0% for the purpose of claiming ITC. This is different from an exempt supply (where ITC must be reversed). As an exporter using LUT, you can claim full ITC on inputs used for export production — there is no Rule 42/43 reversal required on export-related inputs. This is a significant benefit that exporters operating without LUT also enjoy, but only with LUT do you avoid any cash flow disruption on the tax front.

Who Is Eligible to File an LUT in 2026?

Any GST-registered person exporting goods or services (including supplies to Special Economic Zones) is eligible to file an LUT — there is no minimum turnover requirement.

The one disqualification: if your business, or any of its directors, partners, or proprietors, has been prosecuted for any offence under the CGST Act or IGST Act involving tax evasion exceeding ₹2.5 crore in the preceding five financial years, you cannot use the LUT route. You must instead execute a bond with a security deposit (typically a bank guarantee for 15% of the bond amount) and pay IGST upfront.

In practice, the vast majority of exporters qualify for LUT. If your CA firm deals with export-oriented businesses, assume LUT eligibility unless there is a specific prosecution history on record.

Deemed Exports and SEZ Supplies

LUT is available not just for physical overseas exports. It covers:

• Export of goods — shipped out of India through customs
• Export of services — recipient is outside India, payment received in foreign exchange
• Supplies to SEZ developers and SEZ units — treated as zero-rated under the IGST Act

If your software company bills a US client in USD, that qualifies as export of services under GST and is eligible for LUT treatment. Similarly, if you supply raw materials to a unit in an SEZ, you can do so under LUT without charging IGST on the invoice.

LUT vs. Bond: Key Differences

The bond route is genuinely burdensome. A bank guarantee ties up a portion of your credit limit — for a business with a ₹1 crore overdraft facility, issuing a ₹15 lakh bank guarantee reduces available borrowing capacity immediately. The LUT eliminates this friction entirely.

How to File Your LUT on the GST Portal: Step-by-Step

Filing the LUT is entirely online through the GST portal using Form RFD-11. Here is the exact procedure:

Step 1: Log In and Navigate

Log in to the GST portal with your GSTIN credentials. Go to Services → User Services → Furnish LUT. The menu link is labelled "Furnish Letter of Undertaking (LUT)."

Step 2: Select the Financial Year

Select FY 2026-27 from the dropdown. If you have filed an LUT in prior years, the portal shows your submission history. If this is your first LUT filing, check the box confirming it.

Step 3: Fill in Form RFD-11

The form requires:

• GSTIN and legal name (auto-populated from your GST registration)
• The financial year for which the LUT is being filed
• Declaration checkboxes confirming you will export within 3 months for goods (or 1 year for services) or pay IGST with 18% per annum interest if exports are not completed in time
• Details of two independent witnesses (name, address, and occupation) — a step many filers skip, which leads to rejected submissions

Step 4: Upload Supporting Documents

Documents are not mandatory for renewal filings. For a first-time LUT, it is advisable to attach:

• A copy of a prior export invoice or shipping bill (establishes your export track record)
• A CA certificate confirming no pending prosecution under the CGST or IGST Act

Step 5: Submit with DSC or EVC

• Companies and LLPs: submit using a Digital Signature Certificate (DSC)
• Proprietorships and partnerships: submit using Electronic Verification Code (EVC) via Aadhaar OTP or net banking

After submission, the LUT is processed immediately and you receive an Application Reference Number (ARN). Download and save the filed LUT — the ARN must appear on your shipping bills and export invoices for customs and GST matching.

File Before Your First Export

The LUT must be in place before your first zero-rated supply of the financial year. If your client exported on April 5, 2026 without a valid LUT for FY 2026-27, that transaction is not covered by LUT. The exporter would need to pay IGST on it or seek retrospective treatment from the jurisdictional officer. For CA firms managing exporter clients, make LUT filing the first task of every April — it takes under 15 minutes online.

The Cash Flow Case: LUT vs. IGST Payment Route

Here is a concrete example. Your client is a Surat-based textile exporter with an export order of ₹40 lakh for shipment to a buyer in Dubai. The applicable GST rate on the goods is 12%.

Without LUT — paying IGST upfront:

• IGST payable when filing GSTR-3B: ₹4.8 lakh (12% × ₹40 lakh)
• Refund application filed under Section 54 of CGST Act
• Typical processing time: 30–60 days for clean cases; 60–90 days if the officer raises a query
• Cash flow impact: ₹4.8 lakh blocked for 2–3 months

With LUT — zero IGST on the export invoice:

• IGST payable: ₹0
• ITC accumulated on export-related inputs is refundable via Form GST RFD-01 (the ITC refund route)
• Cash flow impact: nil

For a business exporting ₹5 crore annually at a blended 12% GST rate, the LUT route keeps ₹60 lakh out of the tax queue at all times. That is working capital your business can deploy in procurement, payroll, and growth instead of waiting 2–3 months for a government refund.

Common Mistakes That Get Exporters in Trouble

Forgetting to Renew for the New Financial Year

The LUT for FY 2025-26 expired on March 31, 2026. Any export from April 1, 2026 onwards required a fresh LUT for FY 2026-27. If your client exported in April without renewing, those transactions need to be regularised: file the FY 2026-27 LUT now, and for invoices raised without a valid LUT, pay the IGST due with interest at 18% per annum from the respective invoice dates.

Not Quoting the LUT ARN on Shipping Bills

Every shipping bill filed with customs must reference the LUT ARN. If the ARN is missing or incorrect, the shipping bill cannot be linked to your LUT and the GST department may raise an IGST demand. Cross-check this with your customs house agent before filing each shipment.

Confusing Zero-Rated Exports with Domestic Exempt Supplies

Selling goods to a registered buyer in Chennai is not a zero-rated supply, even if that buyer later exports the goods. Zero-rating applies to your direct export or your direct supply to an SEZ unit. Domestic inter-state or intra-state supplies remain taxable at standard rates, and LUT does not apply to them.

Missing the Export Time Limit

Under Rule 96A of CGST Rules:

• Goods: must be exported within 3 months from the date of the export invoice
• Services: payment must be received in convertible foreign exchange within 1 year from the invoice date

Breaching these windows triggers IGST liability on the supply, plus interest at 18% per annum from the invoice date. If logistics issues or buyer delays are pushing you toward the 3-month limit, file a written request with your jurisdictional GST officer for an extension before the limit expires. Extensions are routinely granted for genuine cases with documentary evidence.

Applying LUT to Domestic Supplies in Error

If your exporter client also makes domestic taxable supplies, those are outside the LUT's scope entirely. Incorrect application of LUT treatment to domestic invoices will surface as a mismatch in GSTR-2B reconciliation and invite scrutiny. Segregate export and domestic billing clearly in your accounting system from day one.

Key Takeaways

• File LUT before your first export each year: Form RFD-11 is online, free, and processed immediately — no reason to delay beyond April 1.
• Eligibility is broad: Any registered exporter qualifies unless there is a ₹2.5 crore+ tax prosecution in the last 5 years.
• LUT covers SEZ supplies too: Do not limit LUT thinking to overseas shipments — supplies to SEZ developers and units are also zero-rated and eligible.
• 3 months for goods, 1 year for services: Missing the export window triggers IGST plus 18% per annum interest from the invoice date.
• Annual April renewal is non-negotiable: Build this into your firm's financial year-start checklist for every exporter client.
• ITC refund remains available under LUT: Claim accumulated ITC on export inputs via Form GST RFD-01 even when paying zero IGST on exports.

How corpus Helps

corpus handles zero-rated export invoicing natively. When you create an export invoice for a client with a valid LUT on file, corpus automatically applies ₹0 IGST and classifies the supply under GSTR-1 Table 6A (exports without payment of integrated tax). For CA firms managing multiple exporter clients, corpus tracks LUT validity dates and sends renewal reminders in late March so no client heads into April with an expired LUT. The platform's automated GSTR-1 preparation links each export invoice to the correct ARN, reducing the risk of shipping bill mismatches at customs.

Explore how corpus can take the manual LUT tracking burden off your team — so every exporter client starts FY 2026-27 with clean, compliant, zero-rated export records from day one.