What is Letter of Undertaking: Meaning, Process, Format

A letter of undertaking or undertaking letter is a formal document where one party provides assurance to another that he/she has fulfilled or will fulfill an obligation or requirement under law. However, the letter of undertaking does not amount to a contract. It is usually used from a business perspective to fulfill some work or duty required under the law for the business. 

In India, a Letter of Undertaking (LUT) is required for businesses or exporters to export without paying Integrated Goods and Services Tax (IGST). 

What is a Letter of Undertaking (LUT)?

Under the Central Goods and Service Tax (CGST) Act, 2017, if an exporter wants to export services or goods, it is mandatory to enclose the Letter of Undertaking (LUT) to undertake exports without paying the IGST. 

Usually, when an entity exports services or goods, it must pay taxes on such exports. However, in India, the GST law allows the entity to claim a refund of the taxes paid by applying for a LUT or export bond with the GST department. 

The exporters should furnish the LUT mentioned in the annexure of Form GST RFD 11, where they declare that they will fulfill all the requirements under GST while exporting without making an IGST payment. If the GST department accepts the LUT, the entity exporting goods and services need not pay any taxes on the export, thus avoiding blockage of funds through tax payment.

Checklist for obtaining the letter of undertaking

• The exporter should export from the following areas:
  • Outside or within India.
  • Places falling under the Special Economic Zones (SEZs).
• The exporter must be a registered taxpayer, and the exporting goods or services should be registered under GST.
• If the exporters are prosecuted under the CGST Act, 2017 or IGST Act, 2017 for tax evasion of Rs.2.5 crore or above, they are not eligible for enclosing the LUT.
• The LUT should be provided under the exporter’s letterhead registered under the GST.
• If the exporting entity is a company, it must be signed digitally by the partner, company secretary, managing director, or any person duly signed by the company.
• If an exporter has failed to pay the tax within the time prescribed in the LUT, the facility of supplying without IGST payment will be revoked.
• The LUT will be valid for one financial year. Thus, a fresh LUT should be generated every financial year.

Procedure for filing the letter of undertaking

Below are the steps to furnish LUT: 

Step 1: Log in to the GST Portal.

Step 2: Go to the ‘SERVICES’ tab, click ‘User Services’ and select ‘Furnish Letter of Undertaking (LUT)’.

Step 3: Select the financial year from the ‘LUT Applied for Financial Year’ drop-down list. 

Step 4: Enter the details on the ‘Letter of Undertaking Form/GST RFD-11’.

Step 5: Enter the ‘Place of filing’, click ‘Save’ and then ‘Preview’ to verify the correctness of the form.

Step 6: Sign and submit the form using DSC or EVC.

Step 7: Click the ‘Download’ button to download the acknowledgement.

Undertaking letter format

Below is the format of LUT to be applied on the GST portal:

Documents required for a letter of undertaking

• Previous LUT certificate.
• DSC of the authorised signatory in the case of a company.