Refunds
LUT and Exports Under GST, Explained
Exports are zero-rated under GST — but you must choose how: supply under an LUT without paying tax, or pay IGST and claim it back. This guide explains both routes.
Exports are zero-rated
Exports of goods and services are “zero-rated” under GST — meaning no GST is ultimately borne on them, and you can still claim input tax credit on your related purchases. This is deliberate: the government doesn’t want to export domestic taxes. But zero-rated doesn’t mean “ignore GST” — you have to choose one of two compliant routes.
Route 1: supply under LUT (no tax upfront)
The cleaner route for most exporters is to file a Letter of Undertaking (LUT) for the financial year. With an LUT in place, you export without charging IGST at all, and claim a refund of the input tax credit accumulated on your purchases. No tax is blocked in the transaction — only the input credit refund to pursue.
Route 2: pay IGST, claim refund
Alternatively, you can pay IGST on the export and then claim a refund of that IGST. This blocks working capital until the refund comes through, so it’s generally less attractive than the LUT route unless there’s a specific reason. Either way, the export itself bears no net tax.
Export of services and Gujarat exporters
For service exporters — freelancers, IT firms, consultants — the same logic applies: with an LUT, overseas work invoiced in foreign currency is zero-rated. For Gujarat’s goods exporters in textiles, ceramics, chemicals and engineering, the LUT plus input-credit refund is often where significant working capital is recovered. The LUT must be filed before you export, and renewed each year.
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