LUT under GST for Export of Services - Complete Guide to Zero-Rated Supply Compliance, Rule 96A Conditions & RFD-11 Filing

Exporters often operate under the misconception that exports of goods or services are completely exempt from GST, and therefore no compliance is required. This belief is incorrect. While exports are considered "zero-rated" under GST, certain statutory conditions must be fulfilled in order to avail of the exemption from tax. Non-compliance with these conditions may result in the export being treated as a taxable supply, thereby inviting tax liability along with interest and penalties under the law.

This article provides a comprehensive overview of "Export of Services" under the GST regime, with a focus on the legal definition, compliance requirements, and the mechanism of filing Letter of Undertaking (LUT) for exporting without payment of IGST.

1. Legal Definition of Export of Services

Under Section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017, a supply of services qualifies as an "export of services" only when all the following conditions are satisfied:

1. The supplier of service is located in India;
2. The recipient of service is located outside India;
3. The place of supply of service is outside India (as per Section 13 of the IGST Act);
4. The payment for such service is received in convertible foreign exchange or in Indian Rupees where permitted by the RBI, such as through a Special INR Vostro Account;
5. The supplier and recipient are not merely establishments of a distinct person, as defined under Explanation 1 to Section 8 of the IGST Act.

2. Tax Treatment of Export of Services

As per Section 16 of the IGST Act, all exports have two options for compliance:

Option 1: Export with Payment of IGST

• IGST is paid at the time of export;
• A refund can be claimed under Section 54 of the CGST Act through Rule 89.

Option 2: Export under LUT/Bond without Payment of IGST

• No upfront tax is paid;
• Refund of unutilized Input Tax Credit (ITC) can be claimed under Rule 96A.

Important: GST registration is compulsory for exporters even if turnover is below threshold limits, since exports are inter-State supplies under Section 7 of the IGST Act and thereby covered under Section 24 of the CGST Act, 2017 (mandatory registration).

3. LUT vs IGST Refund - A Practical Opinion

In practice, executing exports under Letter of Undertaking (LUT) is simpler and more cost-effective than paying IGST and subsequently claiming a refund. Refund claims often involve documentation, departmental scrutiny, and time delays. LUT eliminates these challenges by allowing zero-rated supplies without tax payment.

4. Understanding LUT under GST

What is LUT?

A Letter of Undertaking (LUT) is a declaration filed in Form GST RFD-11 by a registered person, undertaking that the export of goods/services will be conducted without payment of IGST, and that the person shall comply with all conditions laid out under:

• Rule 96A of the CGST Rules, 2017, and
• Section 16(3) of the IGST Act, 2017.

5. Eligibility & Validity of LUT

6. Conditions & Timeline under Rule 96A

Exporters availing LUT must comply with the following conditions:

• Filing of LUT (Form GST RFD-11) is mandatory prior to export;
• Export of goods must occur within 3 months of the date of invoice;
  • Otherwise, IGST with interest @18% (as per Section 50) must be paid within 15 days of expiry;
• Realization of export proceeds (services) must occur within 1 year of invoice date;
  • Else, the same liability applies;
• Failure to comply leads to withdrawal of LUT privileges and recovery under Section 79 (recovery proceedings);
• Upon payment of tax and interest, LUT status is restored, and exports can continue under LUT.

7. Contents of Form GST RFD-11

The form includes:

• GSTIN and legal details of the exporter;
• Financial year for which LUT is filed;
• Selection between LUT or bond (with bond details if applicable);
• Declaration to comply with export rules and pay tax + interest in case of default;
• Details of two witnesses (name, address, occupation);
• Authorized signatory (digitally signed via DSC/EVC).

8. Post-LUT Filing Compliance Requirements

9. Key Advantages of LUT

• Cash flow efficiency - No upfront IGST payment;
• Ease of compliance - Avoid refund delays and associated paperwork;
• Operational continuity - Suitable for frequent exporters or SEZ suppliers;
• Legal protection - Ensures adherence to Rule 96A and avoids litigation.

Conclusion

Exporters must understand that exemption from IGST on exports is conditional, and non-compliance can attract substantial liabilities. Filing a Letter of Undertaking (LUT) is the most efficient mechanism to execute export transactions without tax payment, while ensuring eligibility to claim unutilized ITC.

Careful adherence to Rule 96A, timely realization of proceeds, and annual LUT renewal are critical to safeguard the zero-rated status of exports under GST.

If you still have any queries or require professional assistance in relation to LUT filing, GST compliance for export of services, or any zero-rated supply matters, feel free to contact us at: varunmukeshgupta96@gmail.com