Letter of Undertaking (LUT)

LUT (Letter of Undertaking) is a self-declaration filed annually with GST authorities that permits a GST-registered exporter to supply goods or services to foreign clients (or SEZ units) without charging GST, while retaining the right to claim refunds of input GST paid on business expenses. It is the mechanism that makes exports effectively zero-rated from a cash flow perspective — without it, exporters must pay IGST on every invoice and seek a refund, tying up working capital.

For SaaS startups, IT services firms, and any business earning foreign currency revenue, the LUT is the primary GST tool that keeps the export supply chain tax-clean.

Who it applies to

• GST-registered businesses exporting services (SaaS, consulting, IT services, design, legal) to foreign clients
• Companies supplying goods or services to Special Economic Zone (SEZ) units or SEZ developers
• Any startup billing international B2B clients in foreign currency

An LUT is not available to exporters who have been prosecuted for tax evasion exceeding ₹2.5 crore in the preceding five years. Those exporters must supply under a bond with a bank guarantee instead.

What you get

Both paths lead to the same economic outcome — exports are zero-rated under GST. But the LUT path eliminates the working capital cost of collecting and then recovering output IGST.

Input GST refund: Even with an LUT, the startup can claim a refund of GST paid on its own purchases — cloud infrastructure costs, software subscriptions, professional services — because those inputs were used to produce a zero-rated (exported) supply. This refund is a meaningful benefit for SaaS and services exporters whose major costs carry GST.

How to file

1. Log in to the GST portal and navigate to Services → User Services → Furnish Letter of Undertaking (LUT)
2. Select the financial year and complete the self-declaration
3. Submit — no bond or bank guarantee is required for eligible exporters
4. The acknowledgement is issued immediately; the LUT is valid from the date of filing through 31 March of the financial year
5. Renew at the start of each financial year — file on 1 April or before the first export invoice of the new year

What most founders miss

Renew before the first April invoice. The LUT is year-specific. A company that filed for FY 2024-25 must file a fresh LUT for FY 2025-26 before issuing any export invoices in April. Export invoices issued before the renewal is in place are technically not covered — either file on 1 April each year or charge IGST on early-April invoices until the LUT is filed.

One LUT covers all export transactions for the year. A single LUT covers all export invoices across all foreign clients for the financial year. There is no per-client or per-project filing — file once, apply everywhere.

Input GST refund claims require invoice matching. The input GST refund application must be supported by matching input tax credits on the GSTR-2B statement and the export invoices declared in GSTR-1. Errors in invoice reporting — wrong GSTIN, wrong invoice date — delay or reduce refunds. Companies with significant export volumes should work with a GST practitioner to manage the refund cycle consistently.

Ignoring the LUT means leaving refund money on the table. A startup that neither files an LUT nor claims refunds on its input GST is effectively paying an indirect tax cost on all its exports. For a startup spending ₹50 lakh per year on GST-bearing costs, the unrecovered input GST can be ₹9 lakh or more.

See also

• GST Registration — LUT requires an active GSTIN; GST registration is the prerequisite
• FEMA (Foreign Exchange Management Act) — foreign currency receipts from exports also trigger FEMA reporting obligations; both apply to the same transactions
• DPIIT Recognition — DPIIT-recognised exporters are among the eligible categories for LUT filing