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Letter of Undertaking in Shipping: What It Is and When to Use It?
Imagine being an exporter, ready to send your products to global markets, only to find yourself tangled in tax payments and blocked funds. The good news? There’s a simple solution, one that saves you time, money, and a lot of headaches: the Letter of Undertaking (LUT). This legal document is a lifeline that enables companies to export products and services without having to pay the Integrated GST (IGST) upfront. It is more than just a compliance form. LUTs increase cash flow, streamline operations, and maintain a company's competitiveness in global markets by doing away with the requirement for tax refunds. This blog covers all the essentials you need to know about LUTs – from what they are and how they’re used to their benefits and the step-by-step filing process. You’ll also learn how to steer clear of common mistakes and find expert guidance to ensure hassle-free export operations. Whether you’re new to exporting or a seasoned professional, this guide will help you unlock the advantages of GST-free exports with ease. What Is a Letter of Undertaking (LUT)? A Letter of Undertaking is a formal declaration by a business or individual to fulfil certain obligations or adhere to legal requirements under GST law. Think of it as a legally binding promise sealed with accountability. Under the Central Goods and Services Tax (CGST) Act, 2017, LUTs allow businesses to export goods or services without paying IGST upfront. Instead of blocking working capital in tax payments, exporters can use that liquidity to grow their operations. Why Is a Letter of Undertaking Important? For Indian exporters, a Letter of Undertaking (LUT) becomes crucial because it automates processes and saves expenses. Here's why it's so important: Export Without Upfront IGST: An LUT allows businesses to ship goods or provide services to international markets or Special Economic Zones (SEZs) without having to pay IGST upfront, reducing immediate financial strain. Improved Capital Circulation: Businesses can guarantee smoother cash flow and maintain unrestricted, well-funded operations by removing funds between tax payments and return expectations. Reduced Compliance: By filing a LUT, the export procedure has been greatly simplified and less time, energy, and paperwork are required for tax administration. Expanded Global Competence: By avoiding delays and tax-related challenges, exporters can provide their goods at lower rates to overseas customers and make their products more popular in global markets. Letter of Undertaking: Meaning and Legal Framework The meaning of the letter of undertaking lies in its legal assurance. It’s a pledge made by exporters to the GST department, stating they will comply with all GST regulations while exporting goods without making upfront IGST payments. Essentially, it’s a trust-building mechanism between the government and businesses. Is a Letter of Undertaking Legally Binding? Yes! While an LUT isn’t a traditional contract, it is legally enforceable under GST law. Failing to meet the terms of an LUT—such as fulfilling export obligations or submitting required documents—can result in penalties or revocation of LUT privileges. When to Use a Letter of Undertaking The shipping and logistics industry relies heavily on LUTs for seamless global trade. Here are some scenarios where an LUT is indispensable: Export of Goods or Services Without IGST Payment:Businesses shipping products outside India or to SEZs require an LUT to avoid upfront tax payments. Zero-Rated Supplies Under GST:A LUT allows exporters to make zero-rated supplies, meaning goods or services are taxed at 0%. E-Commerce Exports:Small businesses and e-commerce exporters benefit significantly from LUTs, as they reduce tax compliance burdens and free up working capital. Freight Forwarding and Logistics Companies:LUTs streamline operations for logistics firms involved in international shipping, reducing operational costs. Benefits of Filing a Letter of Undertaking in GST If you’re still wondering whether filing an LUT is worth the effort, here’s why it’s a no-brainer: No IGST Payments:Filing an LUT eliminates the need for upfront IGST payments, freeing up funds for other business operations. Enhanced Cash Flow:Exporters don’t need to wait for GST refunds, ensuring better liquidity and smoother operations. Simplified Processes:The LUT filing process under GST is straightforward, reducing administrative burdens. Competitive Advantage:Avoiding tax-related delays helps exporters maintain competitive pricing in global markets. Operational Focus:Exporters can spend less time on tax refunds and more on scaling their business. Related - How to export from India How to File a Letter of Undertaking in GST: Step-by-Step Guide Filing an LUT might sound intimidating, but it’s actually a simple and straightforward process: Log in to the GST Portal:Visit the GST portal and log in with your credentials. Navigate to User Services:Go to the “Services” tab, select “User Services,” and click on “Furnish Letter of Undertaking (LUT).” Select Financial Year:Choose the financial year for which you’re filing the LUT. Upload Previous LUTs (If Applicable):If you’ve filed an LUT in prior years, upload the previous certificate as part of the application process. Fill in the Form:Enter the required details, including GSTIN, business name, and the names and addresses of two witnesses. Preview and Verify:Review the application form to ensure accuracy. Sign and Submit:Use a Digital Signature Certificate (DSC) for private companies or an Electronic Verification Code (EVC) for proprietorships. Download Acknowledgment:Once submitted, download the acknowledgement form for your records. Documents Required for Filing a Letter of Undertaking To file an LUT, the following documents are typically required: GST registration certificate PAN card of the business IEC (Import Export Code) certificate The Aadhaar card of the authorised signatory Cancelled cheque of the exporter’s account Previous LUT certificate (if applicable) Power of attorney or authorisation letter for the signatory Difference Between a Letter of Credit and a Letter of Undertaking People often confuse an LUT with a Letter of Credit (LC). Here’s a quick comparison: AspectLetter of Undertaking (LUT)Letter of Credit (LC)PurposeAvoid IGST payment for exportsGuarantee payment to sellersIssued ByExporterBankLegally BindingYesYesUse CaseGST compliance for exportsTrade transactions between buyer/seller Common Mistakes to Avoid When Filing a LUT Even a small oversight can lead to complications. Here are some mistakes to steer clear of: Submitting Incorrect Information: Double-check details like GSTIN, names, and witness information. Missed Deadlines: LUTs are valid for one financial year. Make sure to file a fresh LUT on time. Failure to Comply: Not fulfilling the obligations under an LUT can lead to revocation of privileges. Pro Tips for Smooth Filing Always maintain a digital copy of LUT acknowledgement forms for audits and future reference. Update the authorised signatories annually to avoid delays in approvals. Work with GST experts for error-free applications and compliance. Optimise Your E-Commerce Exports with WareIQ’s Tech-Driven Fulfillment Solutions As an exporter or e-commerce seller, managing logistics, inventory, and compliance alongside navigating GST regulations like filing a Letter of Undertaking (LUT) can feel overwhelming. That’s where WareIQ, a Y-Combinator-backed e-commerce fulfilment platform, steps in to streamline your operations and help you focus on scaling your business. WareIQ offers a tech-enabled, full-stack fulfilment solution tailored to meet the unique needs of e-commerce brands. Whether you sell through D2C platforms like Shopify and WooCommerce or on marketplaces like Amazon, Flipkart, or Myntra, WareIQ’s multi-channel fulfilment platform seamlessly integrates with your storefronts, ERP, or WMS systems, enabling centralised management of orders and inventory. Key features include: Pan-India Fulfillment Network: Operate through WareIQ’s fulfilment centres in 12+ cities, providing Seller Flex and FAssured compliance for faster delivery across 27,000+ pin codes. AI-Driven Inventory Management: Use WareIQ’s Inventory LogIQ to minimise stockouts, automate replenishment, and optimise inventory placement closest to your customers. Tech-Enabled Returns Management: Handle returns seamlessly with HD media evidence of returned goods, ensuring marketplace claims are not rejected. Seller Enablement Services: Get support for GST registrations, catalogue listings, APOB/PPOB registrations, and more, enabling effortless compliance and hassle-free operations. With WareIQ, you don’t just ensure smooth logistics—you gain the competitive advantage of faster deliveries, optimised inventory management, and compliance support so you can scale your export business and stay ahead in the global market. For exporters leveraging LUTs to save on IGST, WareIQ ensures the backend logistics match your financial efficiency. Conclusion The Letter of Undertaking (LUT) is a game-changer for exporters, enabling seamless global trade without the financial burden of upfront IGST payments. By streamlining tax compliance and freeing up cash flow, LUTs empower businesses to focus on growth, competitiveness, and operational efficiency. Whether you're an experienced exporter or just starting, understanding and utilising LUTs is crucial to maximising your potential in the global market. Combined with smart logistics solutions like WareIQ, exporters can ensure smooth operations, faster deliveries, and compliance, setting the stage for long-term success in international trade. Suggested - Bill of Entry Status: How to Check and What It Means in Customs? FAQs About Letter of Undertaking What is the validity of an LUT?An LUT is valid for one financial year. A fresh LUT must be filed every year.Can LUT filing be done offline?No, the process is entirely online through the GST portal.What happens if I fail to comply with an LUT?Non-compliance can lead to penalties and revocation of privileges for tax-free exports.
June 19, 2025