Your Startup's Guide to Exporting with LUT
A Step-by-Step Approach to Hassle-Free Exports and Improved Cash Flow
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Introduction
Are you a startup planning to export or currently exporting services, goods, or software in the financial year 2024-25? Here's something crucial that you need to know about—Letter of Undertaking (LUT) under GST. LUT is not just a compliance requirement; it's a strategic tool that can significantly impact your cash flow and operational ease. Let's dive into what LUT is, why it's essential, and how you can leverage it to your advantage.
Understanding LUT
LUT stands for Letter of Undertaking. It's a commitment made to the GST authorities, ensuring that you'll fulfil your IGST liabilities without paying them upfront for your exported goods or services. This provision is a boon for exporters, as it allows you to export without the financial burden of IGST payments and waiting for the GST refund, enhancing your liquidity and enabling you to channel funds into growth and operational needs.
The Significance of a Timely LUT Application
For startups eyeing the global market, the timeline for LUT application is critical. The LUT is valid for a single financial year, and to ensure a smooth export process, you should apply or renew your LUT preferably before the 1st of April each year. This preemptive step secures your ability to export without the IGST payment for the entire financial year, keeping bureaucratic hurdles to a minimum.
Navigating the LUT Filing Process
Pre-Requisites
The process starts with a set of pre-requisites:
Valid GST Registration
No history of major tax evasion cases exceeding Rs. 2.5 Crore under GST/Central GST Act
Required Documents:
GST Registration Certificate copy
IEC (Importer-Exporter Code) copy (if applicable)
Cancelled cheque for verification of bank account details
Details of two independent witnesses (Name, Address, Occupation)
Filing for LUT has been made straightforward by the GST portal. Here’s a step-by-step guide for your reference:
Steps to File LUT
Visit the official GST portal.
Use your valid GST login credentials to access the portal.
Visit "Services" tab >> "User Services" >> "Furnish Letter of Undertaking (LUT)".
Fill Out the LUT Form (Form GST RFD-11): The online form will be displayed.
Here's what you need to fill out:
Select Financial Year for which LUT is being applied
Previous LUT (Optional): If you filed an LUT for the previous year, you can upload a scanned copy (PDF or JPEG format, maximum 2 MB) here.
Declarations: Carefully read and tick the declaration checkboxes confirming your understanding of LUT obligations.
Witness Details: Enter the complete name, address, and occupation of two independent and reliable witnesses.
Authorized Signatory: Select the name of the authorized signatory from the dropdown list who will be signing the LUT.
Place of Filing LUT: Enter the place where the LUT is being filed.
Save or Submit: You can choose to:
Save: Click the "SAVE" button to save the partially filled form for later completion.
Submit: Once all details are filled, click "SUBMIT" to electronically file the LUT.
Confirmation and Download: Upon successful submission, you'll receive a confirmation message with an Application Reference Number (ARN). The GST portal will also send an email and SMS notification with the ARN. You can download a copy of the submitted LUT for your records.
For startups that might find the process daunting, professional help from your Chartered Accountant or leveraging platforms like Effortless can provide comprehensive support. Effortless, for instance, is designed to streamline and simplify financial operations, including compliance requirements like LUT, making it an invaluable resource for startups navigating the complexities of GST.
Key Takeaways
Maximizing Benefits & Mitigating Risks
While LUT presents a significant advantage by freeing up working capital, it comes with obligations. Ensuring timely export returns filing and being prepared to meet IGST payments if export proceeds are not realized within the stipulated timeframe (for Goods it is 3 Months and for Services it is 1 Year from the date of Invoice) are critical. Additionally, meticulous record-keeping will facilitate compliance and help leverage the full benefits of LUT.
For startups, integrating your financial operations with platforms like Effortless can offer a seamless way to manage LUT alongside other financial and compliance tasks. Effortless not only simplifies invoicing, including export invoicing with or without LUT, but also offers comprehensive features for tracking collections, managing payables, and ensuring compliance with GST and TDS regulations.
Conclusion
LUT under GST is a powerful instrument for exporters, significantly easing the export process by enhancing cash flow and reducing compliance burdens. By understanding its implications, applying timely, and leveraging technological solutions like Effortless, startups can navigate the complexities of GST with confidence, focusing on growth and global expansion.
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