For a service that qualifies as an export under India’s GST law, the LUT route avoids paying IGST at export and allows a refund claim for eligible unutilized input tax credit (ITC). The alternative is to pay IGST and claim a refund of that tax. Neither route is automatically better: compare cash flow, eligible ITC, records and payment timing. First confirm that the supply is legally an export; serving a foreign customer alone is not enough.
First check whether the service qualifies as an export
The two routes in section 16 of the IGST Act apply to zero-rated supplies. A service supplied to a customer abroad is not automatically an export of services. The statutory tests include the locations of the supplier and recipient, place of supply, whether the parties are establishments of the same person, and receipt of consideration in the prescribed manner. Check the actual contract and service arrangement against those conditions before choosing how to report the supply. See section 16 of the IGST Act and the CBIC sectoral FAQs.
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Paying IGST does not make a transaction an export if it fails the export tests, nor does it guarantee a refund. CBIC examples show that intermediary services and some services between establishments of the same person can fail those tests. Their outcome depends on the facts and the applicable place-of-supply rules, so do not assume that every cross-border service qualifies.
How the two routes compare
| Decision point | LUT or bond, without IGST | Pay IGST and claim refund |
|---|---|---|
| Tax paid at export | No IGST is paid on the qualifying zero-rated supply. | IGST is paid on the supply. |
| Refund sought | Refund of eligible unutilized ITC, subject to applicable law and procedure. | Refund of IGST paid, subject to applicable law and procedure. |
| Cash flow | Avoids funding IGST upfront. Any ITC refund still depends on eligibility, records and processing. | Requires funding the IGST while the refund claim is processed. |
| Key action | Furnish Form GST RFD-11 before export and retain invoice and payment evidence. | Report the export, pay tax and make the applicable refund claim with supporting documents. |
| Service payment condition | Rule 96A specifies receipt in convertible foreign exchange within one year of the export invoice, or within further time allowed by the Commissioner. Failure to meet the applicable period triggers tax and interest consequences under the rule. | The cited official materials do not establish a universal refund-processing timeline for this route. |
Section 16(3) sets out the choices: supply under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilized ITC, or pay integrated tax and claim its refund. The official Act describes the first option as supply “under bond or Letter of Undertaking” without payment of integrated tax, followed by a claim for refund of unutilized ITC.
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When the LUT route may fit
The LUT route can suit an exporter seeking to avoid tying up cash in IGST at the time of export, particularly when the business has eligible ITC to claim. It does not mean there is no compliance work or that every credit balance is refundable. Eligibility and the refund calculation remain subject to the applicable rules.
File the undertaking and track receipts
- Before export: Furnish a bond or Letter of Undertaking in Form GST RFD-11, as Rule 96A requires. Confirm the current filing procedure and applicable requirements.
- Keep the evidence together: Retain export invoices and records of payment. Reconcile receipts to the relevant invoices and return reporting.
- Monitor the payment deadline: For services exported under bond or LUT, Rule 96A specifies receipt in convertible foreign exchange within one year from the invoice date, unless the Commissioner allows further time. If payment is not received within the applicable period, the rule requires payment of tax due with applicable interest.
That one-year period is a Rule 96A condition, not a general promise about refund timing. Check the rule and any applicable extension against the transaction. The official rule text is in the CGST Rules.
If the LUT was not furnished on time
CBIC Circular No. 125/44/2019-GST says delay in furnishing an LUT may be condoned where exports are established, allowing the LUT facility ex post facto based on the facts and circumstances. Treat this as a possible administrative remedy, not a routine substitute for filing before export. Review the circular alongside any later instructions that may apply.
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The payment route may be worth considering when the exporter prefers to claim a refund of the IGST paid rather than seek a refund of eligible unutilized ITC. Its immediate trade-off is cash: the exporter must fund IGST and then follow the applicable refund procedure. The available official materials do not establish that this route is always faster, simpler or more likely to result in a refund.
In either route, verify export eligibility and maintain records that support the supply, tax reporting and refund claim. A choice between refund bases cannot fix an ineligible transaction or replace the required evidence.
Records and return reporting to plan for
Refund evidence for exported services
CBIC’s refund rules identify export-of-services invoice details and relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates as supporting information for refund claims. Keep invoice numbers and dates reconciled with the records of actual receipts and the refund statement. The specific documents and procedure depend on the claim being made; consult the CBIC refund rules.
GSTR-1 export invoice details
GST Portal guidance says export invoice details can be filed without shipping bill number and date if those details are not yet available, then amended in the return period when received. Confirm the current fields and portal procedure for your filing; the guidance is available in the GSTR-1 user guide.
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- Establish export status. Check the statutory export conditions, including place of supply, party relationship and receipt of consideration.
- Compare the refund bases. Estimate the eligible unutilized ITC relevant to the LUT route and the IGST that would need to be paid under the alternative. Do not assume all ITC is refundable.
- Assess cash-flow capacity. Consider whether funding IGST while a refund is processed is workable, versus managing an eligible ITC refund claim.
- Check documentation and timing. Factor in the RFD-11 filing for LUT, invoice and remittance evidence, return reconciliation, and the Rule 96A receipt condition where it applies.
- Confirm the current procedure. Rules, notifications and portal instructions can change. For uncertain export classification, intermediary treatment, place of supply or refund eligibility, obtain advice from a qualified Indian GST professional.
The sound choice follows from the transaction’s eligibility, the exporter’s ITC position, available working capital and ability to meet the relevant documentation and payment conditions—not from a universal claim that one route is faster or better.
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