Exporters in India registered under GST can take advantage of tax-free exports by submitting either an Export Bond or a Letter of Undertaking (LUT) in Form GST RFD-11. This mechanism facilitates exporters by avoiding the payment of Integrated Goods and Services Tax (IGST) upfront, thereby preventing working capital from being blocked. Let’s explore these provisions in detail.
What is an Export Bond for GST?
An Export Bond is a legal guarantee submitted by exporters who do not meet the eligibility criteria for filing an LUT. This bond ensures compliance with GST regulations while enabling tax-free exports.
Key Features of an Export Bond:
- Purpose: The Export Bond must cover the estimated tax liability on goods or services to be exported, as assessed by the exporter.
- Stamp Paper Requirement: The bond must be executed on non-judicial stamp paper, with the value determined by the applicable state regulations.
- Running Bond Option: Exporters can file a running bond to cover multiple transactions. However, if the tax liability exceeds the bond value at any point, a fresh bond must be submitted to cover the additional liability.
- Submission Process: Export Bonds can be submitted to the jurisdictional Deputy Commissioner or Assistant Commissioner. Once Form GST RFD-11 is live on the GST portal, the process can be completed online.
Bank Guarantee for Export Bonds:
Exporters submitting an Export Bond are also required to file a bank guarantee equivalent to 15% of the bond amount.
Example Calculation:
- Estimated Turnover: ₹40 lakhs
- Applicable GST Rate: 18%
- Bond Amount: ₹7,20,000 (18% of ₹40 lakhs)
- Bank Guarantee: ₹1,08,000 (15% of ₹7,20,000)
What is a Letter of Undertaking (LUT) for GST?
A Letter of Undertaking (LUT) is a declaration filed by eligible exporters, allowing them to export goods or services without paying IGST. It simplifies compliance for qualified businesses.
Who Can File an LUT?
The following entities are eligible to file an LUT:
- Status Holders: Exporters recognized as status holders under the Foreign Trade Policy.
- Foreign Currency Earners: Registered persons who:
- Receive at least 10% of their export turnover in foreign currency.
- Earn over ₹1 crore in foreign currency in the preceding financial year.
- Have no prosecution record under the CGST Act.
Validity of an LUT:
- LUTs remain valid for 12 months from the date of submission.
- Non-compliance with LUT rules may result in privileges being rescinded, requiring the exporter to submit an Export Bond instead.
Submission Process for Export Bond and LUT:
Both Export Bonds and LUTs must be filed in Form GST RFD-11. Initially, these documents are submitted to the jurisdictional officer, but they can now be uploaded online via the GST portal once the system is operational.
Benefits of Export Bonds and LUTs:
- Tax-Free Exports: Avoids upfront IGST payments on export supplies.
- Preserves Working Capital: Ensures businesses don’t face financial strain due to blocked funds.
- Simplified Compliance: Reduces paperwork and streamlines export operations.
- Operational Flexibility: Running bonds and online submission options make the process efficient.
Key Differences Between Export Bond and LUT:
| Feature | Export Bond | Letter of Undertaking (LUT) |
|---|---|---|
| Eligibility | Non-eligible exporters | Eligible exporters |
| Requirement | Bond with a bank guarantee | Declaration in Form GST RFD-11 |
| Tax Liability Coverage | Based on estimated liability | Not applicable |
| Validity | Until liabilities are covered | 12 months |
| Bank Guarantee | Required (15% of bond value) | Not required |
Conclusion
The Export Bond and LUT mechanisms under GST provide much-needed relief to exporters, enabling them to continue global trade without financial hindrances. By adhering to the eligibility criteria and submission guidelines, businesses can streamline their operations, maintain liquidity, and ensure GST compliance. Exporters are encouraged to leverage these facilities to optimize their export strategies effectively.