GST on Exports: LUT vs IGST Refund Route Explained
Why exports are zero-rated
Exports of goods and services from India are treated as "zero-rated supply" under the IGST Act — meaning no GST is ultimately borne on exported goods/services, while exporters can still claim Input Tax Credit on the inputs used to produce them. This is deliberately more favourable than an "exempt" supply (like healthcare), where ITC on related inputs cannot be claimed at all. Exporters have two routes to achieve this zero tax outcome.
Route 1: Export under LUT (no GST charged)
Under a Letter of Undertaking (LUT), an exporter commits to exporting goods or services without charging any GST at all, avoiding the need to pay-then-claim-back tax. This is the simpler, cash-flow-friendly route for most regular exporters — no GST outflow occurs on the export invoice itself, and the exporter separately claims a refund of accumulated ITC on inputs used for the zero-rated exports.
Route 2: Pay IGST and claim refund
Alternatively, an exporter can charge and pay IGST on the export invoice at the applicable rate, then claim a full refund of that IGST paid, once the export is completed and shipping documentation is filed. This route involves a temporary cash outflow (paying IGST upfront) followed by a refund process, making it more cash-flow-intensive than the LUT route, though some exporters use it when LUT filing is delayed or for specific transaction types.
Compare both routes side-by-side for any transaction using the Export GST Calculator on GSTFlix — enter your export value and toggle between LUT and IGST-paid to see the cash-flow difference instantly.
Refund process and documentation
Refund claims (whether for accumulated ITC under LUT, or IGST paid under Route 2) are filed via Form RFD-01 on the GST Portal, supported by shipping bills, bank realisation certificates (BRC/FIRC) confirming receipt of export proceeds in convertible foreign exchange, and relevant invoices. Refunds are subject to processing timelines and scrutiny by the tax department, so maintaining clean documentation from the outset significantly speeds up realisation.
Which route should you choose?
Most regular, ongoing exporters prefer the LUT route for its cash-flow efficiency — no GST is ever paid out that then needs to be claimed back. The IGST-paid route is sometimes used for occasional exporters, situations where LUT filing has lapsed, or specific commercial arrangements where the counterparty requires a GST-inclusive invoice for their own purposes. Either way, the end tax outcome for the exporter is the same: zero net GST cost on the export transaction, provided the refund process is completed correctly.