Goods and Service Tax

What Is A Letter Of Undertaking?

calendar31 Mar, 2023
timeReading Time: 6 Minutes
What Is A Letter Of Undertaking?

LUT stands for Letter of Undertaking. In order for the exporter to be exempt from paying taxes on the exported products or services, they are required to get a Letter of Undertaking. The exporter may export by paying IGST and then apply for a refund of the tax paid if the LUT is not lodged. When the exporter does not want to deal with the headache of reimbursements and wants to limit their cash flow, filing LUT is easier than obtaining a refund. The requirements for applying for LUT are far laxer than they were under the previous system. Form GST RFD 11 is used to submit the Letter of Undertaking online. The exporter makes a commitment to follow all route rules by submitting a LUT.

Advantages of Registering a Letter of Undertaking under GST

Following are the advantages of registering a Letter of Undertaking under GST:

  1. Exports Exempt From Taxation: An exporter may be able to avoid paying GST on goods and services by creating a LUT under GST. If LUT is not available, the exporter is required to first pay the applicable tax while exporting and then apply for a refund in order to benefit from zero rated exports.
  2. Conserves Working Capital: Regular exporters stand to gain significantly by submitting LUT online, despite the fact that getting a refund via the traditional process might take a significant length of time. At this point, the cash accumulation is paused until a refund is processed; this process may take some time. With this plan, the money may be put to use for things that are more vital. It also lowers the cost of exporting.
  3. Valid for The Whole Financial Year: The Letter of Undertaking is effective for the duration of the fiscal year after it has been submitted. Because of this, in contrast to the process of returning an item, an exporter is not needed to perform the relevant processes each time a shipment of cargo is exported.
  4. Simple And Online Process: From April 1st, LUT submission and acceptance have both been conducted online. It is not necessary for the petitioner to make a personal appearance before the relevant authorities. To complete the procedure, a few necessary papers may be provided online.

What Does LUT Imply In The Context Of GST?

A Letter of Undertaking is the official name for a GST Undertaking (LUT). Form GST RFD 11 must be filled out by the exporter in accordance with rule 96 A, which states that they would comply with all GST export rules without being obliged to pay IGST.

Who Is Required To Provide LUT On GST RFD Form 11 – LUT?

  • A GST LUT must be filed by any exporter of goods and services who is registered for GST. If the exporter has been convicted of a crime or has evaded taxes totaling more than Rs 250 lakhs under the CGST Act, the Integrated Goods and Services Act, 2017[1], or any other applicable legislation, they are unable to register the rated LUT. In this scenario, they would be required to provide an Export bond.
  • By reducing export tariffs, the government hoped to increase exports.
  • Each registered person may, in accordance with the CGST Rules, LUT, submit an Export bond or LUT in GST 11 RFD 2017 without being obliged to pay the integrated tax. LUT is suited for them if:
  • They are interested in exporting their products or services to India as well as to other countries or SEZs.
  • Registration of GST: They want to sell things without having to pay the integrated rated tax.
  • The Assistant or Deputy Commissioner with jurisdiction over the location where the exporter does business must approve the LUT. Until a designated administrative officer is appointed, the Exporter may give the LUT to any federal or state body.

Required Documents

The following documents are required in order to provide a guarantee for LUT under GST to a government agency:

  • Form for requesting permission of RFD 11. The official request must be put in writing and signed by the requestor before it can be accepted by any authorized organization.
  • Fill out Form GST RFD11 on paper, then stamp it and seal it.
  • Statement of commitment on letterhead (in duplicate), duly notarized.
  • Banker Realization Certificate or Category Bearer Certificate attesting that the manufacturer has received at least 1 percent of the entire export value (less than 1 crore) throughout the course of the preceding fiscal year (BRC).
  • Take oath on paper since he has not yet been subjected to any legal consequences for violating the Central Goods and Services Tax (CGST) in the amount of more than 250 lakhs.
  • Evidence of the Goods and Services Tax in the form of a photocopy
  • Duplication of IEC Standards (not applicable in case of services)
  • Documentation of the GST returns for each season or other relevant sources for each of the ninety days. The money from a taxable service is sufficient for upkeep.

Witness statements are verified, and PAN and signature identities are verified.

Submission of LUT for GST

The steps that need to be taken in order to submit a Letter of Undertaking (LUT) and provide bonds for tax-free exports are detailed in the following paragraphs.

Verify the necessary paperwork and your legal standing. If a bond is to be submitted, further paperwork regarding the bank guarantee is necessary.

Compile the relevant documents for Bonds

Bonds need the following paperwork:

  • Form 11 of the RFD
  • Bond on paper using postal stamps
  • Bank guarantee
  • Letter of authorization
  • Further Materials in Support of the Argument

There is no need for a separate bond for each shipment. He could also provide a running bond. The exporter might save time and work by using a running bond. This kind of bond ensures that the terms and conditions of the bond remain the same for each subsequent shipment.

Together with an official document, a copy should also be created.

The next thing that has to be done is to hand in the documents to the department and ask for someone qualified to look them through so that they don’t get rejected.

It is necessary to include a letter with the officer’s signature that acknowledges receipt of the document.

GST Requirements LUT Filing

Who may utilize the Letter of Undertaking (LUT)?

The Letter of Undertaking may be used by any taxpayer who is involved in the export of goods or services. Every applicant who has ever been found guilty of tax evasion in a case involving Rs. 250 lakh or more is disqualified.

Since these LUTs are only good for one year, an exporter is required to generate a new LUT at the beginning of each new fiscal year. If the terms outlined in the LUTs are not completed within the allotted amount of time, the rights will be cancelled, and the exporter will be required to post bonds as a condition of continuing to exercise those rights.

Other assessors are required to provide bonds if the export is carried out without first paying the IGST.

LUT And Bond Applications Include:

  • Zero-rated supplies to SEZ are free from IGST.
  • It is possible to export goods from India without having to pay IGST.
  • It offers its services to customers located outside of India, therefore avoiding the need to pay IGST.

Submission of a Letter of Undertaking (FORM GST RFD-11)

The following is how Form RFD – 11 is submitted:

  • Enrollment Title
  • Address
  • GST No.
  • Time and date of completion
  • Signature, date, and place
  • Witness information (Name, address, and occupation)

GST Export Bond

If a company does not meet the conditions for filing a Letter of Undertaking, they will be forced to submit an export bond in addition to a bank guarantee in its place. The applicant is responsible for paying the whole amount of tax that is associated with the export based on their own personal assessment of their tax due.

The offering of export bonds must take place on non-judicial stamp paper in the number required by the state to whom they are being delivered.

The exporter may alternatively provide a running bond, so obviating the need that an export bond be executed for each individual export transaction. If at any point the total amount owed for export taxes exceeds the amount of the bond, the exporter is required to post an additional bond to cover the difference.

In addition to an export bond, it is possible that a bank guarantee may be required. Bank guarantees typically shouldn’t be more than 1 percent of the total bond amount. The competent GST Commissioner may, however, decide not to require the exporter to provide the bank guarantee that is normally required along with the export bond. This decision is based on the exporter’s historical performance.

Bond Form:

  • Enrollment Title
  • Address
  • The amount of the bond is provided.
  • Time and date of completion
  • The size of the bank guarantee that was provided.
  • Signature, date, and place
  • Witness information (Name, address, and occupation)

Conclusion

The Letter of Undertaking Bond (LUT Bond) is an acronym for the Letter of Undertaking, which is a statement made by a producer in order to avoid paying The GST on exports. The government has provided exporters with the option of registering a LUT under GST, which enables them to export while paying IGST. This is part of an effort to encourage exports. To solve this problem, the government has introduced the possibility of filing a LUT bond, which enables small businesses to engage in exports with zero I GST as long as they declare that their goal is to expand their operations all over the globe.

Customers’ GST INs and IDs are automatically filled in when they log in to the official website. The taxpayers must next choose the calendar year in which the LUT was filed and supply the names, homes, and professions of two credible eyewitnesses. The assessee is required to choose all of the personality qualities while filling out the GST LUT.

Also Read:
Step By Step Guide To Change GST Registration Details

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