What is LUT? (Letter of Undertaking)
Hi! My name is Nipun Bansal and m running my Export Import Business from Delhi, India. I am going to share my knowledge about Exim business. I will continue posting more guidance and that will help you to start your own Exim Business with a very low investment.
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Welcome to New topic of my blogs under the series of Learn Import and Export Methods in simple language.
Hi! Friends, today I am sharing a knowledge about LUT in very simple words. This is very important topic for all merchandise exporters.
Do you know the difference between both purchase and what is LUT (Letter of Undertaking).
There are two methods to export under GST, one is to do with the payment of GST and the second is without payment of GST. if you choose 2nd, you need to file the bond or LUT with the tax department declaring that you shall meet all the export’s requirements.
You should know what is beneficial whether to purchase under GST or under LUT. I will explain you in a very easy language. Under LUT bond, you can purchase without paying GST. LUT Bond can be issued out by government by applying on GST portal. You must have GST no. and documents like Adhar Card, PAN card, Two witnessess Adhar Cards. Witness can be your family members also.
Its very easily free of cost you can get it from GST portal. The application no. Itself is LUT number.
Next step start purchasing export material from vendor. For example you want to purchase spare parts on which 18% GST is to be paid. Now you have LUT, so inform vendor that I am purchasing it for Export purpose under LUT and give him LUT no. Supplier will charge only 0.1% GST.
There are Advantages and Disadvantages for LUT.
Advantages:
- No tax on exports
- Save working capital
- No headache of monthly payment
- No headache of claiming GST refund
Disadvantages:
- In the export shipping bill you will have to mention supplier name and GST no.
- Sharing invoice and shipping bill copy with supplier.
- Disclose buyer details with supplier is a major drawback.
- Supplier can contact directly with you buyer which will be your business loss.
In transparent deal, it is good to export with LUT no. For example you are a manufacturer and exporting also then it is win-win to export with LUT.
Otherwise purchasing by paying GST is always beneficial.
All confidential trade details will be with you.
Government will refund Export GST after filing returns. For example you are purchasing material of Rs. 1 lac and paying 18 thousand GST on it. Once the export is done you can file GST return and claim for Export GST refund. Local GST is always set off. If you know about filing returns then it is good otherwise your CA will help you in this regard.
So, if you do not want to share your buyer details then it is good to export with GST rather than with LUT (Letter of undertaking). Even big exporters prefer exporting with GST.
I hope you have understood advantages and disadvantages of export with LUT.
Please share your feedbacks and comments and let me know a topic you want to cover in my next blog.