A Letter of Undertaking (LUT): What is it?

To export products or services without having to pay the import duty on items, an exporter must submit a Letter of Undertaking (LUT) by the Central Products and Service Tax (CGST) Act, 2017.

Generally, an organization that exports products or services is required to pay taxes on those exports. Nonetheless, by requesting an export bond or LUT from the GST department, the firm may ask for a reimbursement of the taxes paid in India under the terms of the GST statute.

Exporters must provide the LUT listed in the Form GST RFD 11 annexure, stating that they would export without paying IGST and that they will comply with all applicable GST regulations. The party exporting the goods and services will not be required to pay any taxes on the export if the GST department approves the LUT, preventing the blocking of cash due to tax payment.

A guide to acquiring the undertaking letter

• The following areas are where the exporter should export from:

• both inside and outside of India.

• regions covered by Special Economic Zones (SEZs).

• Both the exporting products or services and the exporter must be registered taxpayers under GST.

• The exporters are not permitted to enclose the LUT if they are under prosecution under the CGST Act, 2017, or the IGST Act, 2017 for tax evasion of at least Rs. 2.5 crore.

• The LUT must be submitted on the exporter’s letterhead that is GST-registered.

• If the exporting entity is a business, the managing director, partner, company secretary, or any other individual properly authorized by the business must digitally sign it.

• The ability for an exporter to supply without paying IGST will be terminated if they do not pay the tax within the time frame specified in the LUT.

• The LUT is good for a single fiscal year. Thus, each financial year should see the creation of a new LUT.

Advantages of Filing LUT: For Exporters

An exporter can export goods or services without having to pay taxes if they choose to use the LUT. If the exporter chooses not to choose this option, they will be required to pay taxes on their exports and then request a refund for the shipments that were rated zero.

Planning for Exports in FY 2024-25

On August 27, export industry representatives and other interested parties convened under the direction of Union Minister of Commerce and Industry Suresh Prabhu to deliberate on a plan aimed at tripling the nation’s export earnings by 2025. The meeting’s main objective was to address issues that stand in the way of expanding exports, including uncertainties in international trade, credit availability issues, high logistics costs, and standards and attributes of productivity. As a result of the Indian government’s attempts to ease these worries and increase exports, merchandise shipments increased by more than 14% year over year to US$82.5 billion in the first quarter of the 2018–19 fiscal year. In May 2018, India’s service exports increased by 8% to reach US$16.2 billion. India’s growing proficiency in establishing global value chains has contributed to this rise.

In addition to contributing to economic expansion, increasing exports has strengthened the country’s foreign exchange reserves and created jobs. Not to add, the government’s “Make in India” campaign, which has enticed foreign businesses to establish operations in India to serve international markets, accounts for an increasing share of India’s exports. The government will appoint a mission to periodically assess the output of various export promotion councils and Ministry of Commerce divisions to maintain this pace. To prepare sector-specific export strategies that are now being completed, Mr. Prabhu has already met twice with important Ministries. In a survey, the Federation of Indian Export Organizations (FIEO) identified 100 billion in exports from new and conventional products and markets.

In the meantime, the Union Cabinet has approved the Department of Commerce’s plan to concentrate on 12 Champion Services Sectors to establish India as a service hub beyond the country’s prowess in IT-ITeS services. A plan tailored to specific commodities and territories is also being developed for products including jewelry and gems, leather, textiles and clothing, electronics, petrochemicals, pharma, agri-allied products, electronics, engineering, and the marine sector. A draft export strategy is also being produced, and market research has been done by the Export-Import Bank of India (EXIM Bank). The government is also tackling export initiatives tailored to certain regions, including rising economies in Africa as well as NAFTA, Europe, the CIS, China, and ASEAN.

Strategies for boosting exports

As part of his duties, C R Chaudhary, the minister of state for trade and industry, would now evaluate export promotion councils in addition to drafting a comprehensive plan to increase exports to this level.

It is believed that the services industry, as opposed to the existing dominant IT sector, will be able to rise to the occasion and fulfill this ambitious goal.

Exports of goods increased by $303 billion (about 10%) in 2017–18, while exports of services increased by $195 billion (18.8%).

Mr. Prabhu stated that in addition to signing accords with Europe, North East Asia, ASEAN, South Asia, Latin America, Africa, Australia, and New Zealand, India needed to consider increasing trade with smaller nations.

It also believes that, given China’s ongoing economic struggles with the US Trump administration, a sizable amount of its future trade may come from China’s consumer market.

India has already compiled a list of products it could send to China in place of those that it would have otherwise imported from America but that has recently increased in price due to tit-for-tat tariffs.

About 40 products, such as fresh grapes and cotton linters, are on the list; an unidentified person who spoke with Bloomberg said that there could be another 80 items added. Because of this, the government is trying to boost output in these areas to capitalize on the circumstances and maybe close the $63 billion trade gap with China.

This might work, according to a senior research researcher at the National University of Singapore Amitendu Palit, who spoke with the news provider: “One of the main effects of the trade war would be that there would be a lot of supply chain reorganization and reconfiguration. India may join some manufacturing chains.”

India’s exports are predicted to reach $1 billion by 2024–2025.

We are happy to inform you that an examination of the growth dynamics of India’s exports was done by the PHD Research Bureau. India’s services exports will increase by double digits, the government’s dynamic policy environment and its efforts to connect with global value chains (GVCs) will enable it to achieve US $1 trillion by 2024–25 and US $2 trillion by 2029–30. 

Chart: India’s total trade (merchandise + exports) from 2010-11

Based on an analysis of the top 25 export destinations and top 25 exported goods throughout the fiscal years 2018–19 to 2022–23, the export destinations and commodities were categorized as having high, strong, moderate, or weak growth. 

Over the last five years (average from FY 2019 to FY 2023), all ten of the top export destinations—Togo (73%), the Netherlands (36%), Brazil (28%), Israel (27%), Indonesia (24%), Turkey (22%), Australia (20%), South Africa (19%), Saudi Arabia (16%), and Belgium (13%—have shown consistent growth. Despite the worldwide economic downturn, exports to these countries have surged quickly.  While the volumes need to increase shortly, these nations are emerging as important growth destinations for India’s exports. 

Over the last five years (average from FY 2019 to FY 2023), the top ten fastest-growing export commodities have demonstrated a consistently high growth rate. These commodities include sugar and confectionary (43%), mineral fuel and oils (36%), electrical machinery and parts (27%), aluminum and articles (18%), inorganic chemicals, precious and rare-earth metals (16%), miscellaneous chemical products (16%), cereals (14%), iron and steel (12%), ships, boats, and floating structures (11%), rubber and articles (11%), and optical, photographic, and medical apparatus (10%). India’s export growth could reach all-time highs thanks to the high growth, and high volume of export goods. 

With the introduction of India’s new Foreign Trading Policy 2023, which includes the five essential components of Duration, Dynamism, Decentralization, Direction, and Disaster Proofing, the trading environment in the country is further improved. Its goal is to increase India’s exports by fostering an environment that supports exporters, encouraging and deepening state-by-state integration with the GVCs, and strengthening India’s trade with the United States.