Exports of goods and services are zero-rated under GST. That means the export itself bears no tax, and you are entitled to recover the GST embedded in your inputs. But “zero-rated” is delivered through one of two mechanisms, and the one you choose has a direct effect on your cash flow.
The two routes
Route 1 — Export under LUT (without payment of IGST)
You furnish a Letter of Undertaking (LUT) in Form RFD-11 and export without charging IGST on the export invoice. You then claim a refund of the unutilised input tax credit (ITC) accumulated on your inputs and input services.
Route 2 — Pay IGST and claim a refund
You charge IGST on the export invoice, pay it, and then claim a refund of that IGST. For exports of goods, this refund is often processed largely automatically through the shipping bill, which acts as the refund application.
The real difference: working capital
Both routes get you to “no net tax on exports.” The difference is when your money is tied up:
- LUT route: you never pay IGST out of pocket on the export, so you don’t block that cash. You wait to recover accumulated input credit. Best when you don’t want to fund IGST and your input credit is the main thing to recover.
- IGST-paid route: you fund IGST first, then get it back. The refund (especially on goods) can be faster and more automatic, but you’ve parked the cash in the meantime.
| Factor | LUT (no IGST) | Pay IGST + refund |
|---|---|---|
| Cash funded upfront | None on the export | IGST on every export invoice |
| What you reclaim | Unutilised input ITC | The IGST you paid |
| Typical speed (goods) | Refund application route | Often faster / shipping-bill driven |
| Paperwork | One-time LUT per year + refund claims | Refund largely system-driven |
Practical guidance
- If exports are a large share of turnover and you want to protect cash, the LUT route usually wins — you simply don’t fund IGST.
- If your exports are occasional and you value a faster, more automatic refund, the IGST-paid route can be simpler.
- Whichever you pick, keep FIRC/BRC and shipping documentation clean — refunds stall on mismatched export and banking evidence far more often than on the choice of route.
Don’t forget the LUT renewal
An LUT is valid for a financial year. If you use the LUT route, file a fresh RFD-11 at the start of each year. Exporting without a valid LUT and without paying IGST is a common, avoidable error that converts a zero-rated supply into a compliance problem.
The right route depends on your margins, input-credit position and how quickly you need cash back. We’re happy to model both for your numbers before you commit.