Under Section 16 of the IGST Act, zero-rated supplies include:

• Export of goods outside India
• Export of services — where the recipient is outside India, payment is received in foreign currency, and the supplier and recipient are not simply different establishments of the same entity
• Supply to SEZ developers and units for authorised operations

When making zero-rated supplies, you have two options:

1. Pay IGST on the export invoice, then claim a refund through Form GST RFD-01 — typically takes 2–6 months, blocks working capital
2. File an LUT or Bond first, then export with zero IGST — claim accumulated ITC refund separately

The vast majority of regular exporters choose Option 2. The question is whether they can access it via an LUT (simpler) or must use a Bond (more complex).

An LUT is a self-declaration filed in Form GST RFD-11 on the GST portal. By filing it, the exporter gives three undertakings to the government:

• Goods will be exported within the prescribed timeline from the invoice date
• Foreign exchange payment for services will be realised within the allowed period
• If these conditions are not met, the IGST that should have been paid (plus 18% interest) will be paid on demand

In return, the government allows you to export without paying any IGST upfront. No security deposit, no bank guarantee, no collateral. Just a digital self-declaration.

Validity: One financial year — April 1 to March 31. A fresh LUT must be filed every year, ideally before the financial year begins so the first export of the year is covered from day one.

An Export Bond is a formal legal instrument where the exporter provides security to the government — typically through a bank guarantee — as assurance that export obligations will be met. If they are not, the government can recover the IGST liability from the bond/guarantee amount.

Key characteristics of a Bond:

• A bank guarantee or a solvent surety (guarantor) is mandatory — unlike LUT which requires neither
• The bond amount equals the estimated IGST that would have been payable on the exports
• Bank guarantees typically require 15–30% margin money to be blocked with the bank
• Involves manual paperwork and departmental approval — not an instant online process
• Carries an annual cost in the form of bank guarantee charges (typically 0.5–1%+ per annum)

The Bond route exists as a fallback for those who cannot access the LUT route. It serves the same function — allowing zero-IGST exports — but with significantly more friction and cost.

Under Rule 96A of the CGST Rules, any GST-registered person intending to make zero-rated supplies can file an LUT — with one disqualifying condition:

Filing an LUT is not a formality — it is a legal commitment. The specific time-bound obligations are:

For Goods Exports

Goods must actually be exported within 3 months from the date of the export invoice. If goods are not exported within this period, the IGST that should have been paid (plus 18% interest from the invoice date) becomes immediately payable. The Commissioner can extend this period in genuine cases — Circular 37/11/2018-GST provides for this.

For Services Exports

Foreign exchange payment must be realised within 1 year from the invoice date or the FEMA-permitted period (currently 15 months as per RBI guidelines) — whichever is later. This is an important distinction from the original 1-year-only rule — the FEMA period extension provides exporters more flexibility for delayed payments from foreign clients.

• 1Login to GST Portal
  Go to gst.gov.in → Login → Services → User Services → Furnish Letter of Undertaking (LUT)
• 2Select Financial Year
  Choose the financial year for which the LUT is being filed. File for FY 2026-27 before March 31, 2026 to ensure your first April export is covered.
• 3Fill Form RFD-11
  Most details are auto-populated from your GST registration. Tick all three declaration checkboxes — confirming you will export within timelines and pay IGST + interest if you fail to do so.
• 4Add Witness Details
  Provide name, address, and occupation of two independent witnesses. These can be employees or other authorised persons — not family members.
• 5Sign and Submit
  Companies and LLPs must sign using a DSC (Digital Signature Certificate). Proprietors and partnerships can use EVC (OTP-based e-verification).
• 6Download ARN and Acknowledgement
  Submission is instant — no officer-level approval required. An ARN is generated immediately. Download and save the LUT acknowledgement — this is what you reference on all zero-rated invoices for that year.

Filing an LUT and exporting without IGST does not mean you lose the GST paid on your inputs. You can claim a refund of accumulated ITC through Form GST RFD-01 on the GST portal.

• Claim within 2 years from the relevant date (date of export)
• Refund of ITC on inputs and input services used in making the zero-rated supply
• Documents needed: Export invoices, shipping bills (for goods), bank realisation certificates or FIRC (for services), GSTR-1 Table 6A filing
• Processing time: Typically 30–60 days for complete applications

GST ITC Reconciliation — GSTR-2B vs GSTR-3B Guide

The LUT mechanism applies equally to supplies made to SEZ developers and units for their authorised operations — not just overseas exports. The process and form (RFD-11) are the same. Key documentation differences:

• The SEZ unit or developer’s letter of approval must be maintained on file
• Bill of entry filed by the SEZ serves as export evidence
• Supply must be for authorised operations — general procurement does not qualify

Example 1: IT Services Exporter — LUT Saves ₹18 Lakh

Prism Technologies, a Bengaluru-based software firm, invoices US clients ₹1.2 crore per quarter. Without an LUT, they would pay 18% IGST (₹21.6 lakh per quarter) upfront and wait 2–3 months for a refund. Annual working capital blocked: approximately ₹43 lakh (assuming refunds come quarterly).

With LUT: Zero IGST outflow on invoices. ITC on office expenses, cloud services, software — refunded separately. The LUT takes 10 minutes to file online and costs nothing.

Example 2: Goods Exporter — Timing Obligation Matters

Raj Textiles, a Delhi garment exporter, files LUT on April 5, 2026. On April 20, they ship a consignment to a UAE buyer with an invoice dated April 20. The 3-month export obligation runs from April 20 — goods must clear customs by July 20. The shipping bill date (not the invoice date) is the evidence of actual export. Raj’s compliance team tracks this for every LUT-based invoice.

Example 3: Prosecution History — Bond Required

XYZ Trading has an ongoing prosecution for GST evasion of ₹3.5 crore — above the ₹2.5 crore threshold. LUT is unavailable. XYZ must furnish an Export Bond with a bank guarantee equivalent to the estimated IGST on exports. Their bank charges 0.75% per annum on the guarantee amount — a direct cost of doing business that genuine exporters avoid entirely through the LUT route.

Mistake 1 — Not renewing LUT before the new financial year begins:
An LUT filed in April for the new FY leaves the first few export invoices in a gap. File the renewal in March — before March 31 — so April 1 exports are covered from the start.

Mistake 2 — Raising LUT-based invoices but not reporting them correctly in GSTR-1:
Export invoices under LUT must be reported in Table 6A of GSTR-1 with the LUT ARN and shipping bill details. Incorrect reporting delays ITC refunds and creates reconciliation issues with ICEGATE customs data.

Mistake 3 — Missing the services payment realisation deadline:
For service exports, payment must come in within 1 year from invoice date or the FEMA period (15 months) — whichever is later. If a foreign client delays, follow up proactively. Bank Realisation Certificates (BRC/FIRC) are the proof — without them, the LUT condition is deemed unmet.
GST Compliance for Exporters and MSMEs — Complete Guide

Mistake 4 — Not claiming ITC refund at all:
Some exporters file the LUT and export correctly but never file the ITC refund. This accumulated credit sits unused in their GST ledger. File Form GST RFD-01 regularly — monthly or quarterly — to convert this into cash.