Exploring the world of international trade can be difficult for Indian exporters, with many rules to follow. One important document that can make things simpler is the Letter of Undertaking (LUT).
This document allows exporters to deliver goods and services out of the country without paying the Integrated Goods and Services Tax (IGST). Thus decreasing their financial burden and assisting them to compete globally.
It is a guarantee from the exporter to abide by GST rules while exporting. By giving this declaration, exporters assure the government that they will abide by all the required conditions, ensuring smooth and clear operations. This not only saves cash but also eases administrative procedures.
In this post, we will explain the importance of LUT, how to apply for it, the eligibility criteria, and its benefits for exporters. By knowing about this document, exporters can make their global business operations flawless and more advantageous.
Table of Contents
What is a Letter of Undertaking (LUT)?
An official document called an undertaking letter, or letter of undertaking (LUT), is an explicit declaration made by a party to another saying that they have furnished or will furnish a legal liability. It is normally used for commercial purposes to accomplish certain legal requirements. It is needed when exporting products or services out of India. This is an important document that will assist you to save on taxes such as IGST.
According to the CGST or Central Goods and Service Tax Act of 2017, an LUT is necessary in India if you want to export products without paying IGST. Think of it as a regular commitment to the authorities that you will stand by all rules and regulations while exporting your goods or services. In place of reimbursing taxes upfront, you plan to follow all GST norms by putting forward this document. (1)
Importance of Letter of Undertaking
A Letter of Undertaking is a significant document for Indian exporters. It eases the export procedure under the GST system. It lets exporters ship products and services abroad without the quick burden of paying the IGST or Integrated Goods and Services Tax.
Having this document reduces the financial burden and promotes competitiveness in the international market. By submitting this undertaking document, exporters ensure compliance with all GST rules, making sure export operations are clear and effective. (2)
How to Apply for LUT?
1: Fill out your login details to look into the GST portal.
2: Select the ‘user services’ tab from the services section. After that, choose ‘Furnish Letter of Undertaking’.
3: Select the financial year for which you need the LUT from the drop-down menu.
4: Finish the application by properly entering all essential details.
5:Check that everything is correct by scrolling through the filled-in information in the preview pane.
6: The form should then be signed properly and submitted. You can do this by using the Electronic Verification Code (EVC) or the designated signatory’s registered digital signature certificate. You will get one-time passwords for verification from EVC using the email ID and registered mobile phone number you provided.
7: You will get an acknowledgement slip on the screen after finishing and submitting the form.
What are the Eligibility Criteria When Applying for a Letter of Undertaking?
When an exporter applies for a Letter of Undertaking, he needs to follow an eligibility criterion. Here is a checklist that must be followed:
1. Clear Purpose
Ensure your need for this document follows clear purposes for export, payment, or banking.
2. Appropriate Format
Use the standard letter format like PDF or Word. Keeping a proper format shows expertise and attention to detail.
3. Financial Strength
Showing financial strength is important for contexts like a letter under GST or a loan. This offers a financial surety and a necessary obligation to accomplish the needs discussed in the letter.
4. Legal Compliance
The letter should comply with legal requirements. It must be considered a Legal document and a formal agreement. This document is important in situations like a letter for a school or a business undertaking.
5. Documentation
Get ready with all required documents, like a sample document for responsibility or required documents for banking. This depicts readiness and Legal surety.
6. Fair Terms
The Letter of Undertaking must fairly draft the terms and conditions. Therefore authorising legal accountability and a formal commitment.
7. Authority of Applicant
If you are creating a letter for a student or for a business, make sure that the individual signing has the power to make such promises.
8. Preparedness to Submit Documents
Be ready to submit documents as needed by the entity asking for the Letter of Undertaking.
By following these eligibility criteria, you improve your possibilities of making an effective undertaking letter. This letter is ideal for purposes like education, banking, or business transactions.
Benefits for Indian Exporters
Utilising an LUT in GST provides several benefits:
1. Delayed Tax Payment: By putting forward an LUT, exporters can ship products or services without paying taxes immediately.
2. Avoidance of Bank Guarantees: Exporters who apply for an LUT can save administrative charges by not needing to give bank assurances to the importers.
3. Develop Trust: Provides a legally necessary guarantee that increases confidence among different parties.
4. Legal Accuracy: Decreases mistrust by providing a transparent legal document that drafts duties and accountabilities.
Exports are made effortless by this measure, which enhances competitiveness by allowing businesses to export products without needing to pay GST beforehand.
5. Risk Reduction: Reduces financial risks by detailing agreement liabilities accurately and reducing uncertainties and conflicts.
6. Enhances Business Relations: Promotes never-ending partnerships by describing contracts and pledges, which strengthens connections. (1)
Final Words
The Letter of Undertaking is an important tool for exporters running international business. It eases tax procedures, saves time, and optimises resources. With its straightforward application process and lasting validity, the LUT authorises exporters to operate international trade with ease and efficiency. By attaining its benefits, exporters can improve their competitiveness and bring in growth in the international marketplace.
If you are also looking to do well in export trade or want to know more about LUT, then you can check Amazon Global Selling. It is an e-commerce export program that provides support at every step of your business and simplifies the process of international shipping.