Bond or LUT to Export under GST – Complete Procedure Step by Step

With the introduction of Goods and Service Tax (GST), there has been a lot of speculation with respect to using Bond/ LUT in terms of export.

Latest Update: Easy & Changed Procedure for Submission of LU/Bond of Export by circular No.8/2017 dated 4th October 2017

Export will be treated as interstate sale/supply as per IGST act.

There are two ways to export goods and services in India as follows:

  • As an exporter, one can move ahead to carry on regular business without payment of tax provided a bond or LUT has been filed. (Export of Goods and Services without payment of IGST)
  • The export business comes under the purview of GST and the operation is carried out by simply paying IGST while exporting and then claiming a refund later on. (Export of Goods and Services by paying of IGST)

However, this results in blockage of working capital for the exporters.

Export of Goods and Service Without Payment of IGST

So if you want to export without payment of IGST then you need to submit a bond or Letter of Undertaking (LUT) in the department or at GST common portal.

So lets discuss in brief what is bond and letter of undertaking and what is the importance of it in GST for doing export business.

What is Bond or LUT?

LUT –  The terms LUT defines Letter of Undertaking. According to GST Tax Rules 2017, any registered exporter who exports goods without paying the required tax is required to furnish a LUT (FORM GST RFD-11).

Bond or LUT is a document where exporter declare that he is liable to pay any liability and follow the rules and regulation under IGST act.

This LUT will be valid for the next 12 months from the date on which it was submitted. Needless to say, if the exporter has breached any of the terms of LUT, the privileges will no longer available.

Who is required to file a Bond/ LUT?

All exporters who does not wants to pay IGST during exporting of goods and service must file Bond or LUT as the case may be along with required documents.

Now the questions is whether I should file Bond or LUT?

Not all exporters are required to file a LUT under the GST Act 2017. Filing of Letter of undertaking is necessary for exporters belonging to the following categories:

  • Status of an exporter as mentioned in FTP (Foreign Trade Policy):
  • Entities who are well established as business leaders in the realm of international trade. An exclusive example of such entity is TATA Steel. The organization has been playing a noticeable role in contributing towards India’s foreign trade. With the aid of LUT, TATA Steel would be able to get the privilege of reducing its tax complications and maintain a simpler reform to handle its tax liability under GST.
  • Export Houses, classified as under:
Status FOB (figures in USD million)
Five-star export house 2000
Four-star export house 500
Three-star export house 100
Two-star export house 25
One-star export house 3
  • Self-certified manufacturers who belong to any of the two above-mentioned categories. The consideration would be made on the basis of their IEM (Industrial Entrepreneur Memorandum), IL (Industrial License) or LOI (Letter of Intent).
  • An assessee whose income from foreign currency is at least 10% of the total export turnover. If the value of such exceeds INR 1 crore in the preceding FY.

NOTE: If an applicant has an amount exceeding INR 250 lakhs, then he/she will not come under the purview of CGST Act 2017.

A few illustrations are as follows who will submit Letter of Undertaking

  • An exporter had a turnover of ₹ 15 crore in the previous financial year. He would be eligible for LUT facility if remittance received against this export is ₹ 1.5 crore or more (10% of export turnover is more than ₹ 1 crore)
  • An exporter had a turnover of ₹ 5 crore in the previous financial year. He would be eligible for LUT facility if remittance received against this export is ₹ 1.0 crore or more (10% of export turnover is less than ₹ 1 crore)
  • An exporter has an export turnover of ₹ 2 crore. He has received ₹ 80 lacs as foreign inward remittances in FY 2016-17 which is 40% of the export turnover. He will not be eligible for LUT facility as remittance received is less than ₹ 1 crore.
  • An exporter has export turnover of ₹ 40crore. He has received ₹ 2 Crores as foreign inward remittances in FY 2016-17 which is 5% of the export turnover. He will not be eligible for LUT facility as remittance received is less than 10% of export turnover, even though it is in excess of ₹ 1 crore.
  • An exporter has received ₹ 1 Crore 10 lacs as foreign inward remittances in FY 2016-17 which is 20% of the export turnover. In this scenario, he will be eligible for LUT facility.
  • It may however be noted that a status holder as specified in paragraphs 3.20 and 3.21 of the Foreign Trade Policy 2015-2020 is eligible for LUT facility regardless of whether he satisfies the above conditions.

Further clarification has issued on 11-08-2017 by Government for Furnishing of Bond/LUT under Export – Check here

Who will submit Bond?

Any registered person other than above doing export without the payment of IGST must submit bond not LUT. The bond format prescribed under GST RFD-11 form.

Calculation of Bond Amount for Exports

You can submit running bond or one time bond.

In the case of one time bond: The bond amount should be equal to the tax amount on the previous year turnover or expected turnover of current year.

For example: If your expected turnover is Rs.1 crore and tax rate on your item is 12%, then the bond amount should be Rs. of 12 lakh.

In the case of running bond: The amount of bond should be the equal amount of tax which you are doing export.

Calculation of Bank Guarantee Amount for Bond Filing for Export under GST

The amount of bank gurantee should not less than 15% of the bond amount. Suppose you have a bond amount of Rs. 50 lakh, then your bank guratee amount should not less 15% of 50 lakh i.e. 7,50,000/-.

Procedure to file Bond/LUT for Export under GST?

  • Find your Jurisdiction/concerned officers your ward/area in which your business situated. Download here
  • Be ready with your required documents along with LUT or Bond (as the case may be)
  • You must prepare duplicate set of LUT or bond.
  • Visit your GST department and submit your documents to the concerned officers.
  • Get acknowledgement and ask when you will come to get the final signed authority letter.

Documents Required for Bond under GST

The following documents are required to submit for doing export under GST in the case of bond.

  1. Form RFD 11 on letter head
  2. Bond on stamp paper
  3. Bank Gurantee
  4. Authority Letter
  5. Any other supporting documents (as demanded by concerned officer)

Documents Required for LUT under GST

The following documents are required to submit for doing expurt under GST in the case of letter of undertaking.

  • Form RFD 11 on letter head
  • UT 1 bond on stamp paper
  • Authority letter
  • Any other supporting documents (as demanded by concerned officer)

What to Mention in Export Invoice?

  • In the case of without payment of IGST – Write “Supply meant for export under bond without payment of IGST”
  • In the case of with payment of IGST – Write ” Supply meant for export on payment of IGST”

Letter of Undertaking Format for Export under GST

Download format of LUT Export under GSTGST-Letter-of-Undertaking-FormatBond Format for Export under GST

Download Format of Submission of Bond (Export under GST)GST-Export-Bond-Format

 

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1 Comment

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  1. HELLO SIR, I HOPE IN THE NEW REVISED RULE, BOND IS NOT REQUIRED UNLESS THE EXPORTERS ARE NOT PENALISED OR PROSECUTTED BY ANY OF THE DEPT. iFSO, THE BOND IS REQUIRED.
    THANKS

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