What Is a Letter of Undertaking?
A Letter of Undertaking (LUT) is a self-declared undertaking that a GST-registered exporter files with the tax department, promising to export the goods or services covered by an invoice within a fixed time, and to pay the tax due, with interest, if it does not. Filing an LUT lets the exporter supply goods or services — including to a Special Economic Zone (SEZ) developer or unit — without paying integrated tax (IGST) upfront on the export invoice. The alternative, without an LUT, is to execute a bond accompanied by a bank guarantee of 15% of the bond amount, or to pay IGST on every export invoice and then claim it back as a refund — both of which tie up working capital that an LUT frees.
The LUT is filed in FORM GST RFD-11, and the facility rests on three documents: section 16(3) of the IGST Act, 2017, which is the statutory entitlement to supply without paying integrated tax under an LUT; rule 96A of the CGST Rules, 2017, which creates the bond-or-LUT mechanism and its time limits; and Notification No. 37/2017-Central Tax, dated 4 October 2017, which tells a registered person whether they qualify to use an LUT instead of a bond.
Legal Basis
Section 16 of the IGST Act, 2017
Section 16(1) defines a zero-rated supply as the export of goods or services, or a supply to an SEZ developer or SEZ unit for authorised operations. Section 16(3), as substituted by section 123 of the Finance Act, 2021 and brought into force on 1 October 2023, is the provision the LUT hangs from: a registered person making a zero-rated supply is entitled to claim a refund of unutilised input tax credit on a supply made without payment of integrated tax, under bond or Letter of Undertaking, subject to the prescribed conditions, safeguards and procedure. A proviso to section 16(3) bites on goods only — where sale proceeds are not realised, the exporter must deposit the refund received, with interest under section 50 of the CGST Act, 2017, within thirty days after the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of the remittance expires.
Rule 96A of the CGST Rules, 2017
Rule 96A(1) requires any registered person who opts to supply goods or services for export without paying integrated tax to furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner. Filing it binds the exporter to pay the tax due, along with interest under section 50(1) of the CGST Act, 2017, within:
- fifteen days after the expiry of three months, or such further period as the Commissioner allows, from the date of the export invoice, if the goods are not exported out of India; or
- fifteen days after the expiry of one year, or the period allowed under the Foreign Exchange Management Act, 1999 including any extension the Reserve Bank of India permits, whichever is later — or such further period as the Commissioner allows — from the date of the export invoice, if payment for the services is not received by the exporter in convertible foreign exchange, or in Indian rupees wherever the Reserve Bank of India permits it.
The services limb above is the current one: it was substituted by Notification No. 12/2024-Central Tax, dated 10 July 2024. Guidance written before that date states a flat one-year deadline in convertible foreign exchange, and is out of date on both the FEMA-linked outer limit and the rupee option.
If the registered person fails to pay within that window, rule 96A(3) withdraws the export-without-payment facility forthwith where the goods have not been exported, and the amount is recovered under section 79 of the CGST Act, 2017; clause (iii) of Notification No. 37/2017-Central Tax applies the same deemed withdrawal to a failure under either limb. Rule 96A(4) restores the facility immediately once the amount due is paid. Rule 96A(6) extends the same mechanism, with the necessary changes, to zero-rated supplies made to an SEZ developer or SEZ unit without payment of integrated tax.
Rule 96A(5) is the delegating provision: it lets the Board specify, by notification, the conditions and safeguards under which an LUT may be furnished in place of a bond. Notification No. 37/2017-Central Tax is that notification.
Notification No. 37/2017-Central Tax — Who Is Eligible
Issued under section 54 of the CGST Act, 2017, section 20 of the IGST Act, 2017, and rule 96A(5), this notification supersedes Notification No. 16/2017-Central Tax, dated 7 July 2017 — which had confined the LUT to status holders and to exporters receiving foreign inward remittance of at least 10% of export turnover, that turnover being not less than ₹1 crore — and states the current rule: all registered persons who intend to supply goods or services for export without payment of integrated tax are eligible to furnish an LUT in place of a bond, with one exclusion — a person who has been prosecuted for an offence under the CGST Act, 2017, the IGST Act, 2017, or any existing law, in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees (₹2.5 crore), is not eligible and must furnish a bond instead.
The same notification fixes three further points that matter in practice:
- the LUT must be furnished on the registered person's letterhead, in duplicate, for a financial year, as an annexure to FORM GST RFD-11 — wording that predates online filing, which replaced it in 2018 (see below);
- it must be executed by the working partner, the Managing Director, the Company Secretary, the proprietor, or a person duly authorised by the working partner, board of directors, or proprietor;
- if the registered person fails to pay the tax and interest within the rule 96A(1) time limit, the export-without-payment facility is deemed withdrawn, and it is restored once the amount is paid.
Circular No. 8/8/2017-GST puts the validity point plainly: the LUT is valid for the whole financial year in which it is tendered. That is easy to miss: an LUT filed for FY 2025-26 stops covering fresh export invoices from 1 April 2026 unless a new one is filed before that date, even though nothing else about the exporter's eligibility has changed.
LUT vs. Bond
Every eligible exporter should prefer the LUT: it needs no bank guarantee and no case-by-case approval, and it is filed once for the whole financial year rather than transaction by transaction. A bond is the fallback for the small minority of registered persons the notification excludes — those prosecuted for CGST, IGST, or existing-law offences involving tax evasion above ₹2.5 crore. For almost every newly incorporated foreign-invested exporter, that exclusion simply does not apply, so the LUT route is available from the first export invoice. Where a bond is required, Circular No. 8/8/2017-GST provides that it must in all cases be accompanied by a bank guarantee of 15% of the bond amount, and that it is furnished as a running bond covering the exporter's self-assessed estimated tax liability on exports, to be topped up with a fresh bond whenever that amount no longer covers the liability. The hard copy of the bond and the bank guarantee still go to the jurisdictional officer.
Filing FORM GST RFD-11
An LUT is filed online. Circular No. 40/14/2018-GST, dated 6 April 2018, replaced sub-paragraphs (c), (d) and (e) of paragraph 2 of Circular No. 8/8/2017-GST: the exporter fills and submits FORM GST RFD-11 on the common portal, no document has to be physically submitted to the jurisdictional office, and the LUT is deemed accepted as soon as the acknowledgement bearing the Application Reference Number (ARN) is generated online. If it later emerges that the exporter was ineligible to use an LUT under Notification No. 37/2017-Central Tax, the LUT is liable for rejection, and that rejection takes effect ab initio.
FORM GST RFD-11 itself, in the annexure used for a Letter of Undertaking, has the exporter undertake to (a) export the goods or services within the time specified in rule 96A(1), (b) observe all the provisions of GST law relating to export, and (c) pay the integrated tax due, in the event of a failure to export, along with interest at eighteen per cent per annum on the unpaid tax, calculated from the date of the invoice to the date of payment. That 18% figure is the same rate rule 96A(1) points to under section 50(1) of the CGST Act, 2017, and it is the number that turns a missed export deadline into a real cost rather than a paperwork lapse.
Why It Matters for Foreign-Invested Exporters
For a foreign-owned Indian subsidiary or LLP exporting GST-able goods or IT, consulting, or back-office services, the LUT is usually the difference between exporting with IGST parked in cash on every invoice — recoverable only after filing a refund claim — and exporting with no IGST outflow at all. Because Notification No. 37/2017-Central Tax opened the LUT route to essentially every exporter rather than only those meeting an export-turnover threshold, a newly registered exporting entity can normally file an LUT and start invoicing without IGST from its very first shipment, so long as it is not caught by the prosecution exclusion above. This matters most for businesses that export continuously — SaaS and BPO subsidiaries, contract manufacturers supplying overseas parents, and units supplying an SEZ for its authorised operations — because the working-capital saved compounds with every invoice, while the alternative of claiming monthly IGST refunds depends on the department's processing time and on input tax credit records being clean.
The trade-off is discipline, not paperwork: an LUT-holder still has to actually export within three months of invoicing goods, or realise service payment within a year or the period the Foreign Exchange Management Act, 1999 and the Reserve Bank of India allow, whichever runs later, and still has to refile before each financial year ends. A foreign investor that lets an LUT lapse, or that misses a shipment or a remittance deadline, does not lose the underlying export benefit — it simply falls back, for the invoices affected, to paying IGST plus 18% per annum interest until the amount is settled, at which point the facility is restored.
Practical Example
An Indian private limited company wholly owned by a US parent, registered for GST and holding a valid Import Export Code (IEC), exports software support services to its US parent. It has never been prosecuted under the CGST Act, the IGST Act, or any existing law, so it is eligible for an LUT. Before 1 April, its Company Secretary executes FORM GST RFD-11 for the new financial year, and the company invoices its parent without charging IGST from that date. If, on one invoice, payment is not received in convertible foreign exchange within a year of the invoice date — or within the longer period the Foreign Exchange Management Act, 1999 and the Reserve Bank of India allow, where that runs later — the company must pay the IGST on that invoice, plus interest at 18% per annum from the invoice date, within fifteen days after that period expires, otherwise its export-without-payment facility is deemed withdrawn until it does.
Common Mistakes
- Treating the LUT as a one-time filing. It covers a single financial year; exporters who forget to refile before 1 April fall back to paying IGST (or need a bond) on invoices raised after the old LUT's year ends.
- Assuming the ₹2.5 crore exclusion is about turnover. It is not a turnover or export-value threshold — it applies only to a registered person actually prosecuted for a CGST, IGST, or existing-law offence involving tax evasion above that amount.
- Missing the realisation deadline for services. The clock runs from the invoice date, not from the date the contract was signed or the service was delivered, and since Notification No. 12/2024-Central Tax it ends at one year or the period allowed under FEMA including any Reserve Bank of India extension, whichever is later.
- Having the wrong signatory execute the form. Notification No. 37/2017-Central Tax names who may sign — the working partner, Managing Director, Company Secretary, proprietor, or a person they have duly authorised — and an LUT signed by anyone else is not properly executed.
Frequently Asked Questions
Who is eligible to furnish a Letter of Undertaking instead of a bond?
Under Notification No. 37/2017-Central Tax, every registered person intending to export goods or services without paying integrated tax is eligible for an LUT, with one exception: a person prosecuted for an offence under the CGST Act, 2017, the IGST Act, 2017, or any existing law, where the tax evaded exceeds ₹2.5 crore, must furnish a bond instead.
How long does a Letter of Undertaking stay valid?
An LUT is furnished for a financial year, as stated in Notification No. 37/2017-Central Tax. It covers export invoices raised during that financial year only, so a registered person must execute and file a fresh FORM GST RFD-11 before the start of each new financial year to keep exporting without paying integrated tax.
What happens if the exporter misses the export or realisation deadline?
Under rule 96A(1) of the CGST Rules, 2017, if goods are not exported within three months of the invoice, or service payment is not realised within one year or the period allowed under the Foreign Exchange Management Act, 1999 including any Reserve Bank of India extension, whichever is later, the exporter must pay the tax due with interest within fifteen days after that period expires. The Commissioner may allow a further period in either case. If the exporter does not pay, the export-without-payment facility is deemed withdrawn under clause (iii) of Notification No. 37/2017-Central Tax, and rule 96A(4) restores it once the amount is paid.
Does a Letter of Undertaking cover supplies to a Special Economic Zone?
Yes. Rule 96A(6) of the CGST Rules, 2017, and paragraph 2 of Notification No. 37/2017-Central Tax both apply the LUT mechanism, with the necessary changes, to zero-rated supplies of goods or services made to an SEZ developer or SEZ unit without payment of integrated tax, in addition to ordinary exports out of India.
Who can sign FORM GST RFD-11 on behalf of a company?
Notification No. 37/2017-Central Tax names the eligible signatories: the working partner, the Managing Director, the Company Secretary, the proprietor, or a person duly authorised by the working partner, the company's board of directors, or the proprietor. An LUT executed by anyone outside that list is not properly furnished.
See also: Goods and Services Tax (GST), Input Tax Credit, and Import Export Code (IEC).
Setting up an export-focused entity in India and need the GST registration and LUT filed correctly from day one? Beacon Filing helps foreign companies register for GST and file export documentation such as the Letter of Undertaking.