Letter of Undertaking

LUT stands for “Letter of Undertaking.” It is a document used in the context of the Goods and Services Tax (GST) in India. An LUT is a declaration or undertaking provided by a registered person to the authorities to avail of the benefit of exporting goods or services without paying the Goods and Services Tax (GST) upfront. With “India’s BEST TAX CONSULTANT.” Connect with our Experts.

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Why Should I Use Auriga Accounting For Letter of Undertaking ?

Auriga Accounting has a team of registration experts who can provide complete guidance to Letter of Undertaking.

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Our team of experts will get in touch with you and collect all necessary documents and details

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We fill out and file your application for registration

Complete your Letter of Undertaking.

Your Letter of Undertaking.

Why Should I Use Auriga Accounting For Letter of Undertaking ?

Auriga Accounting has a team of registration experts who can provide complete guidance to Letter of Undertaking.

book appointment

Our team of experts will get in touch with you and collect all necessary documents and details

Resolve all your queries

We fill out and file your application for registration

Complete your Letter of Undertaking.

Your Letter of Undertaking.

OVERVIEW – Letter of Undertaking

ELIGIBILITY for Letter of Undertaking

Registered GST Taxpayer: The entity or individual must be a registered taxpayer under the Goods and Services Tax (GST) regime. GST registration is mandatory for those who wish to export goods or services.

Export of Goods or Services: An LUT is primarily meant for those engaged in the export of goods or services. The entity or individual should have a track record of exporting goods or services to qualify for an LUT.

Positive GST Compliance History: Entities applying for an LUT should have a satisfactory GST compliance history. This means that they should not have a history of non-compliance, tax evasion, or fraudulent activities related to GST.

No Pending GST Dues: There should be no pending GST dues, including tax payments, penalties, or interest, before applying for an LUT.

Clean Record: The entity or individual should not have any history of involvement in cases of fraud or tax evasion under GST or other applicable laws.

Proper Documentation: Exporters must maintain proper documentation of their export transactions, including invoices, shipping bills, export invoices, and evidence of foreign exchange receipts.

Financial Soundness: It’s important for the entity or individual to demonstrate financial stability and the capacity to fulfill their GST obligations.

Consistency in Exports: Those applying for an LUT should have a consistent track record of export activities. An LUT may not be granted to entities or individuals who do not have a history of exports.

Renewal: If the LUT is valid for a specific period (usually one financial year), it must be renewed before its expiration if the exporter intends to continue availing the benefit of zero-rated supplies.

No Risk to Revenue: Authorities granting LUTs assess the applicant’s risk to revenue. If they believe that granting an LUT may pose a risk to revenue collection, they may deny the application.

ADVATNAGES OF Letter of Undertaking (LUT)

A Letter of Undertaking (LUT) for the export of goods or services in India offers several advantages to eligible exporters. Here are some of the key advantages:

Zero-Rated Exports: Perhaps the most significant advantage of an LUT is that it allows exporters to make zero-rated supplies, meaning they do not have to pay Goods and Services Tax (GST) on the export value of goods or services. This eliminates the need to pay GST upfront and then claim a refund, simplifying the tax process.

Cash Flow Improvement: Exporters can maintain better cash flow because they are not required to pay GST on their exports. This can free up working capital for other business needs.

Reduced Administrative Burden: By availing of an LUT, exporters avoid the administrative burden of applying for and processing GST refunds. This simplifies the compliance process and reduces paperwork.

Competitive Advantage: Zero-rated exports can make Indian goods and services more competitive in international markets, as they do not carry the burden of GST. This can help Indian exporters price their products competitively.

Streamlined Export Process: Exporters can streamline their export processes, making them more efficient and cost-effective, as they do not need to manage the GST payment and refund process.

Global Reach: The benefit of zero-rated supplies extends to international markets, helping exporters expand their global reach and competitiveness.

Timely Compliance: Exporters can comply with GST regulations more effectively and avoid potential delays associated with GST refund processing.

Reduced Compliance Costs: By not having to claim refunds, exporters reduce compliance costs related to document filing and processing.

Better Record Keeping: Maintaining proper documentation for export transactions is essential for LUTs. This encourages better record-keeping practices, which can be valuable for overall financial management.

Renewable Benefit: In most cases, an LUT is valid for a specific period, such as a financial year. Exporters can renew their LUTs, allowing them to continue enjoying the benefit of zero-rated supplies.

Faster Export Transactions: The absence of GST payments and refund claims can result in faster export transactions, which can be crucial in competitive international markets.

Ease of Compliance: LUTs simplify compliance for eligible exporters, allowing them to focus on their core export activities without the complexity of GST refunds.

Documents for Letter of Undertaking (LUT)

LUT Application Form: Most GST authorities provide a specific LUT application form that you need to fill out. You can obtain this form from the GST department’s website or office.

GST Registration Certificate: A copy of your GST registration certificate is typically required as proof of your GST registration.

GST Return Filing Acknowledgment: Providing evidence that you have been regularly filing GST returns is important. This may include copies of GST returns filed for the previous financial year or any applicable returns.

Bank Guarantee or Bond: In some cases, you may be required to furnish a bank guarantee or bond as security to the GST authorities. The bank guarantee or bond serves as a financial guarantee to cover any potential GST liabilities in case of non-compliance.

Self-Attested Copy of PAN Card: A self-attested copy of your Permanent Account Number (PAN) card is usually required.

Proof of Export Orders: You may need to provide copies of export orders, contracts, or agreements as evidence of your export activities.

Foreign Inward Remittance Certificates (FIRC): FIRC is a document issued by the bank confirming the receipt of foreign exchange in India. It serves as proof of foreign exchange earnings from export transactions.

Board Resolution or Authorization Letter: If you are applying for an LUT on behalf of a company or organization, you may need to submit a board resolution or an authorization letter from the company’s authorized signatory.

Copy of Legal Undertaking: The LUT itself is a legal undertaking. You will need to provide a signed copy of the LUT in the prescribed format.

Identity and Address Proof: Copies of identity and address proofs of the authorized signatory who is signing the LUT may be required.

Letter of Request: A letter requesting the issuance of an LUT, addressed to the GST authorities, should accompany the application.

Any Additional Documents: Depending on the specific requirements of the GST authorities in your state, you may be asked to provide additional documents to support your LUT application.

PROCESS OF Letter of Undertaking

GST on Exports: Under the GST regime in India, the export of goods or services is considered a “zero-rated supply.” This means that GST is not levied on the export value, but exporters are eligible to claim a refund of the GST paid on input goods and services used in the production of the exported goods or services.

LUT Requirement: To avoid the upfront payment of GST on inputs and then seeking a refund, exporters can furnish an LUT to the GST authorities. This letter serves as a declaration or undertaking by the exporter that they will fulfill all the requirements for zero-rating their supplies.

Conditions for LUT: To be eligible for an LUT, the exporter must meet certain conditions, including having a valid GST registration, a satisfactory track record of compliance, and a clean record regarding any tax evasion or fraud. Importantly, the exporter must have a positive GST compliance history.

LUT Submission: Exporters are required to submit the LUT to the GST authorities. Once accepted and approved, they can export goods or services without paying GST on the export value.

Export Documentation: Exporters must maintain proper records and documentation of their exports to support their LUT claims. This includes invoices, shipping bills, export invoices, and proof of receipt of foreign exchange.

Refund Claim: Even though exporters are not required to pay GST on their exports, they can still claim a refund of the GST paid on input goods and services used in the production of the exported goods or services. The refund claim process involves submitting relevant documents and forms to the GST authorities.

COMPLIANCES FOR Letter of Undertaking

Compliance with a Letter of Undertaking (LUT) for the export of goods or services in India is essential to ensure that you continue to enjoy the benefits of zero-rated supplies without having to pay Goods and Services Tax (GST) on the export value. Here are the key compliance requirements regarding LUT:

Timely Renewal: LUTs are typically valid for a specific period, often one financial year. To continue availing the benefit of zero-rated supplies, you must renew your LUT before its expiration. Failing to renew it can lead to GST liability on your exports.

Accurate Records: Maintain accurate and complete records of your export transactions. This includes invoices, shipping bills, export invoices, and evidence of foreign exchange receipts. These records may be required for audit or verification by tax authorities.

Submission of LUT: Ensure that you have submitted the LUT to the GST authorities before commencing your export activities. This is typically done by filing the LUT application with the relevant GST department.

Compliance with GST Laws: Abide by all GST laws and regulations applicable to your export activities. This includes timely filing of GST returns, payment of GST on any inward supplies (if applicable), and adherence to GST procedures.

Foreign Inward Remittances: Ensure that all foreign exchange earnings from export transactions are received through authorized banking channels and are properly documented. Maintain records of Foreign Inward Remittance Certificates (FIRCs) as proof of foreign exchange earnings.

No Misuse of LUT: Do not misuse the LUT by using it for transactions that are not eligible for zero-rated supplies. If found to be misusing the LUT, you may face penalties and legal consequences.

GST Returns: Continue to file your GST returns accurately and on time, even though you are not paying GST on exports. This includes filing GSTR-3B and GSTR-1 returns, as applicable.

Compliance with LUT Conditions: Adhere to any specific conditions or requirements mentioned in your LUT. These conditions may vary depending on the state and authorities that issue the LUT.

Cooperation with Audits: In the event of an audit or scrutiny by tax authorities, cooperate fully and provide all necessary documentation and records to support your LUT claims and GST compliance.

Bank Guarantees or Bonds: If you have furnished a bank guarantee or bond as security while obtaining the LUT, ensure that it remains valid and covers any potential GST liabilities.

Changes in Circumstances: If there are any changes in your circumstances, such as a change in your export activities or financial status, promptly inform the GST authorities and make necessary amendments to your LUT.

Regular Monitoring: Continuously monitor your compliance with GST laws and the conditions of your LUT to avoid any inadvertent lapses.

WHY AURIGA ACCOUNTING ?

Auriga Accounting, like other professional financial and advisory firms, can provide valuable assistance to individuals and businesses seeking to obtain a Letter of Undertaking (LUT) for the export of goods or services in India. Here’s how Auriga Accounting can help with LUT registration:

Assessment of Eligibility: Auriga Accounting can assess your eligibility for LUT registration based on your export activities, GST compliance history, and other relevant factors. They can help determine whether applying for an LUT is the right choice for your business.

Documentation Preparation: Auriga Accounting can assist in preparing and organizing the necessary documentation required for LUT registration, such as your GST registration certificate, GST return filings, bank guarantees (if applicable), and other supporting documents.

Application Submission: Auriga Accounting can help you complete the LUT application form accurately and ensure that it meets the format and requirements specified by the GST authorities. They can submit the application on your behalf to the relevant GST department.

Bank Guarantees and Bonds: If your LUT application requires the submission of a bank guarantee or bond, Auriga Accounting can guide you through the process of obtaining and submitting these financial instruments.

Compliance Advice: Auriga Accounting can provide guidance on maintaining compliance with GST laws and regulations, including regular GST return filing, foreign exchange remittances, and other compliance requirements to uphold your LUT.

Record Keeping: Auriga Accounting Maintaining accurate records is crucial for LUT compliance. Auriga Accounting can help you establish record-keeping practices to track your export transactions, invoices, shipping bills, and other essential documents.

Renewal Assistance: Auriga Accounting can remind you of the need to renew your LUT before its expiration, ensuring uninterrupted benefits of zero-rated supplies.

Audit Support: If your business undergoes a GST audit or scrutiny by tax authorities, they can assist you in preparing the necessary documentation and records to support your LUT claims and overall GST compliance.

Customized Guidance: Auriga Accounting The specific needs of businesses and individuals can vary widely. Auriga Accounting can provide customized advice and support tailored to your unique circumstances and export activities.

Updates on Regulatory Changes: GST laws and regulations can change over time. Auriga Accounting can keep you informed about any changes that may impact your LUT registration or compliance requirements.

Professional Representation: In some cases, Auriga Accounting may be able to represent you before GST authorities, addressing any queries or concerns on your behalf.

Timely Communication: Auriga Accounting Effective communication with GST authorities is crucial. Auriga Accounting can facilitate timely communication to resolve any issues or queries related to your LUT.

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