Neither export route is best for every Indian exporter. Exporting under a Letter of Undertaking (LUT) avoids paying IGST upfront, but a refund depends on eligible unutilized input tax credit (ITC). Paying IGST means funding that tax first and seeking a refund under the applicable process. The right choice turns on your ITC position, cash flow, documentation and eligibility for the particular transaction.
How the two export routes work
Exports are zero-rated under India’s GST framework. Section 16(3) of the IGST Act, 2017, as reproduced by the CBIC, provides two routes, subject to prescribed conditions, safeguards and procedures:
- Supply under bond or LUT without paying IGST and claim a refund of eligible unutilized ITC.
- Supply on payment of IGST and claim a refund of the tax paid.
Zero-rated status does not mean the two routes have the same cash-flow effect or refund basis. Applicable conditions and procedures matter for either option.
Compare the routes before choosing
| Question | Export under LUT | Export on payment of IGST |
|---|---|---|
| What is paid at export? | No IGST on the export at the outset, if the required bond or LUT process is followed. | IGST is paid on the zero-rated supply. |
| What refund is sought? | Refund of eligible unutilized ITC. The refund rules prescribe a maximum-refund formula tied to zero-rated turnover and net ITC. | Refund of the IGST paid, subject to applicable conditions and procedure. |
| Cash-flow question | Do you have eligible accumulated ITC, and can you manage the timing of an ITC refund? | Can you fund the IGST payment while the refund is processed? |
| Key process checks | Timely RFD-11 bond/LUT, export evidence, refund application and current eligibility. | Eligibility for the payment route, export evidence, return status, refund mechanism and any current restriction. |
| Invoice endorsement | “SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF IGST”. | “SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST”. |
The cash-flow comparison follows from the payment and refund sequence; it is not a claim that either route is always faster or cheaper. No reliable general refund-time comparison is established here, so do not base the choice on an assumed number of days.
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When the LUT route may fit
The LUT route can avoid tying up cash in IGST paid on the export. It may suit an exporter with eligible accumulated ITC who can support a refund claim under the applicable rules. The amount is not simply the entire ITC balance: Rule 89 sets a formula for the maximum refund linked to zero-rated turnover and net ITC. Eligibility and the amount depend on the rules and the exporter’s records.
File the LUT and meet Rule 96A conditions
Under Rule 96A, a registered person using this route furnishes a bond or LUT in FORM GST RFD-11 before export. The rule also sets time-related conditions: tax and interest may become payable if goods are not exported within the prescribed period after the invoice, or if payment for exported services is not received within the prescribed period, subject to any further time allowed by the Commissioner. Check the current rule text and the transaction facts for the applicable deadline.
CBIC’s refund rules describe electronic refund applications and the ITC-refund method for exports without payment of tax. Keep the records and evidence needed to establish the export and support the refund claim.
If the LUT was filed late
Circular No. 37/11/2018-GST says the substantive benefit may not be denied where export is established, and that delay may be condoned case by case. This is a fact-dependent clarification, not a routine grace period. See the CBIC circular and get advice on the facts rather than assuming a late filing will be accepted.
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When paying IGST may fit
This route requires the exporter to fund IGST on the zero-rated supply and then seek a refund of that tax, subject to applicable conditions and safeguards. It may be practical where the exporter can fund the initial payment and the payment-and-refund process is available for the transaction. Eligibility and current restrictions should be checked before relying on it.
Goods and services use different refund mechanics
For goods exported out of India, CBIC describes the shipping bill as the refund application once the required export manifest or report and a valid return are in place. That goods mechanism should not be assumed to apply to services. Service-export refund procedures differ, and the applicable process depends on the supply type. CBIC’s Sectoral FAQs distinguish export routes; verify the procedure for your specific supply.
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- Confirm the supply and eligibility. Establish whether the transaction is an export of goods or services and check the current conditions, restrictions and procedure for the route you are considering.
- Review your ITC position. For the LUT route, check eligible unutilized ITC, supporting records and the Rule 89 refund calculation rather than assuming the full ledger balance is refundable.
- Map the cash-flow sequence. Compare an ITC-based refund after export under LUT with paying IGST first and then seeking its refund. Use your own funding needs; no general refund-speed advantage is established.
- Check timing and documents. For LUT, confirm RFD-11 is furnished before export and track Rule 96A requirements. For either route, keep export and return records needed for the relevant refund process.
- Use the correct invoice endorsement. CBIC’s invoice rules specify “SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST” for the payment route and “SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF IGST” for LUT exports.
Before filing, check current CBIC rules, notifications and portal instructions; the applicable requirements can depend on the transaction and exporter’s circumstances. A qualified Indian GST practitioner can review eligibility and records for a particular case.
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