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Why Do Countries Slap Tariffs on Each Other?

Ever wondered why countries put taxes on stuff coming from other places? Yeah, it’s a bit confusing, but it actually makes sense when you look at it from their perspective. Tariffs are basically taxes that governments slap on goods coming from other countries. The reasons behind it aren’t as random as they seem—there’s a whole logic to it! Protecting Local Businesses One big reason countries use tariffs is to protect their own industries. Imagine local businesses trying to sell their stuff while cheaper products are flooding in from abroad. It’s tough to compete! By adding a tariff, the government makes imported goods more expensive, so people are more likely to buy local. Take the U.S. putting tariffs on imported steel and aluminum—they did it to keep their own steel industry from getting buried by cheaper alternatives. Fixing Trade Deficits Sometimes countries are buying way more than they’re selling to other places, which messes up their trade balance. To fix that, they might a...

How to Export Goods and Services Without Paying GST Legally

How to Export Goods and Services Without Paying GST Legally

Exporting goods or services to other countries can be challenging due to various compliance requirements, including Goods and Services Tax (GST). When exporting from India, GST can increase the invoice value, making your products more expensive for buyers. Additionally, buyers in some countries may have to pay import duties, making the total cost significantly higher.

However, there are legal ways to avoid paying GST while exporting, thereby reducing costs and making your goods or services more competitive. One of the best ways is using a Letter of Undertaking (LUT), and another is exporting with GST payment and later claiming a refund. This article explains both processes in detail.

Is GST Applicable on Exports?

No, exports are classified as "zero-rated supplies" under GST. This means that even though the GST rate

 for domestic sales applies, the tax is effectively not charged on exports. Exporters can either:

  1. Export without paying GST by using a Letter of Undertaking (LUT).
  2. Pay GST on exports and claim a refund later.

Using an LUT is usually the better option because it eliminates the need to pay GST upfront, reducing financial strain.

Method 1: Export Without Paying GST Using LUT

A Letter of Undertaking (LUT) allows exporters to ship goods or provide services internationally without paying GST upfront. This method is preferred by most exporters as it simplifies cash flow and avoids refund delays.

How to Get an LUT for GST-Free Exports

The LUT must be filed online through the GST portal and is valid for one financial year.

Steps to Apply for LUT Online:

  1. Login to the GST Portal – Go to https://www.gst.gov.in/ and log in with your credentials.

    GST Portal Login

  2. Go to 'Services' > 'User Services' > 'Furnish Letter of Undertaking (LUT)'

    Locating the option for furnishing letter of undertaking in GST

  3. Fill in the LUT Form (Form GST RFD-11) – Provide all required details, including business details and previous export details (if any).

    Letter of undertaking filing step 1Letter of undertaking filing step 2Letter of undertaking filing step 3
  4. Sign and Submit – Use DSC (Digital Signature Certificate) or EVC (Electronic Verification Code) to complete the submission

    Sign and Submit the Letter of Undertaking form
  5. Download and Keep a Copy – The approved LUT can be downloaded from the portal. Keep it for records and future use.

Benefits of LUT for Exporters and Importers

  • For Exporters:
    • No upfront GST payment, preserving cash flow.
    • No need to apply for GST refunds, avoiding administrative hassle and delays.
    • Simplifies compliance, as LUT is filed once per financial year.
  • For Importers:
    • Lower invoice value since GST is not added.
    • Reduced burden on the importer, making the product more cost-effective.
    • Helps in competitive pricing, improving business relationships and increasing sales.
    • Lower Import Duty: Since import duties are often calculated based on the invoice value, removing GST from the invoice reduces the import duty payable in the destination country.

Why Using an LUT is Better Than GST Refunds?

  • No upfront GST payment – Saves working capital.
  • No need to wait for a refund – Refund processing can take weeks or months.
  • Less compliance burden – Eliminates the need for refund applications and verification.

By using an LUT, exporters can directly send goods to international buyers without increasing the billing amount due to GST, making the products more affordable.

Method 2: Export with Payment of GST and Claim a Refund

If an exporter does not use an LUT, they must pay GST at the applicable rate on the invoice while exporting goods or services. However, they can later claim a refund of this GST paid.

How to Claim a GST Refund for Exports

  1. File the Correct GST Return (GSTR-1 & GSTR-3B)
    • Report export sales in Table 6A of GSTR-1.
    • Declare the tax paid in GSTR-3B.
  2. Match Shipping Bill and GST Invoice Details
    • The Invoice number, Shipping Bill, and GST Return details must match for the refund to be processed smoothly.
  3. GST Refund Process Through ICEGATE
    • After submitting returns correctly, GST data is automatically shared with ICEGATE (Indian Customs Electronic Gateway).
    • The Shipping Bill is verified with the GST details.
    • If everything matches correctly, ICEGATE processes the refund and credits it to the exporter's bank account.
    • The exporter can check the refund status on the ICEGATE portal.
  4. Apply for GST Refund on the GST Portal
    • Go to 'Services' > 'Refunds' > 'Application for Refund'.
    • Select “Refund of IGST Paid on Export”.
    • Submit the application along with shipping bill details, tax invoice, and FIRC/BRC (for service exports).
  5. Wait for Processing and Credit to Bank
    • Refunds are usually processed within 30 to 60 days if everything is correct.
    • The refund amount will be credited to the bank account registered with GST.

Problems with GST Refund Process:

  • Delay in processing refunds – Working capital gets blocked.
  • Document verification issues – Mismatches in invoices or shipping bills can cause rejection.
  • Refund can be denied if compliance is not proper – If records are incorrect, refunds may not be granted.

Thus, exporters prefer LUT over GST refunds to avoid these issues and improve cash flow.

Which is the Better Method?

Criteria

LUT (Without Payment of GST)

With GST Payment & Refund

Cash Flow Impact

No GST payment upfront

GST paid, refund later

Processing Time

Instant approval

Refund takes 30-60 days

Compliance Burden

Simple (One-time LUT filing per year)

Complex (Frequent refund applications)

Risk of Errors

Low

High (Invoice mismatches can cause rejection)

For most exporters, using an LUT is the best option as it avoids cash blockages and refund delays.

Conclusion: Reduce GST Burden on Exports

Exporters have two choices to avoid GST impact:

  1. Using a Letter of Undertaking (LUT) to export without paying GST.
  2. Paying GST and claiming a refund later, which can be time-consuming.

For businesses looking to keep their costs lower and make their products attractive to international buyers, using an LUT is the most efficient solution. By eliminating GST from invoices, exporters can reduce the financial burden on foreign buyers, making their products or services more competitive in global markets.

For more guidance on export compliance and trade regulations, platforms like Kilogrm provide valuable resources and community discussions for exporters and importers.

If you'd like to share your personal experience or looking for personalized suggestions, please feel free to join the conversation here.

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