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GSTJune 2026 · 12 min read

GST Refund for Exporters: LUT vs IGST Method — Which is Better?

If you export goods or services from India, you are entitled to zero-rated supply treatment under GST — meaning your exports carry no GST burden. But you need to either file a Letter of Undertaking (LUT) or pay IGST and claim it back. Here is a complete breakdown of both methods.

1. What is Zero-Rated Supply Under GST?

Under Section 16 of the IGST Act, 2017, a "zero-rated supply" is a supply on which no GST is charged but the supplier is still eligible to claim the full Input Tax Credit (ITC) on inputs used for making that supply. This makes it different from exempted supply, where ITC cannot be claimed.

Zero-Rated Supply includes:
Export of goods outside India
Export of services (payment in foreign exchange)
Supply of goods to a Special Economic Zone (SEZ) unit or developer
Supply of services to an SEZ unit or developer

The GST law gives exporters and SEZ suppliers two options: either export under a Letter of Undertaking (LUT) without paying IGST and claim ITC refund, or pay IGST on export and claim refund of the IGST paid.

2. The Two Methods — LUT vs IGST Payment

Method A — Export Under LUT
Export Without IGST + Claim ITC Refund
No IGST charged on export invoices
Claim refund of accumulated ITC on inputs
Better for working capital (no IGST outflow)
Best for regular exporters with high input costs
Refund basis: ITC accumulated on inputs used for zero-rated supply
Method B — Export With IGST
Pay IGST on Export + Claim Refund of IGST Paid
Pay IGST on export invoice (set-off from ITC first)
Refund auto-processed via shipping bill + GSTR-1
Blocks working capital (IGST paid upfront, refund awaited)
Simpler for one-time or occasional exporters
Refund basis: Actual IGST paid on exported goods/services
💡 Which method should you choose?

LUT (Method A) is almost always better for regular exporters — it avoids upfront IGST cash outflow and gives faster ITC refunds. Method B is practical only if your input ITC is minimal (you mostly provide services with low input costs) or if you are a one-time exporter.

3. LUT (Letter of Undertaking) — How to File

A Letter of Undertaking is a declaration submitted on the GST portal (Form GST RFD-11) by the exporter, undertaking that they will comply with all GST export conditions and pay any IGST if obligations are not met.

01
Eligibility
Any registered GST taxpayer who exports goods or services (including SEZ supplies) is eligible. Exception: taxpayers who have been prosecuted for tax evasion > ₹2.5 crore must pay IGST first.
02
Annual Filing
LUT must be filed once every financial year — before the first export in that FY. It is valid for the entire FY. File fresh LUT at the start of each new FY.
03
How to file
Login to GST Portal → Services → User Services → Furnish Letter of Undertaking (GST RFD-11). Self-declaration, no physical submission. Usually approved instantly.
04
Export invoices
Once LUT is approved, raise export invoices with the note: 'Supply meant for Export under LUT without payment of IGST.' Mention the LUT number and date on invoices.

4. ITC Refund for LUT Exporters — Rule 89 Calculation

When you export under LUT, you accumulate ITC on your input materials and services but cannot set it off since you have no output tax liability. You can claim this accumulated ITC as a cash refund from the GST department under Rule 89(4) of CGST Rules.

Refund Formula (Rule 89(4))
Refund Amount = (Turnover of zero-rated supply / Adjusted total turnover) × Net ITC
• Net ITC = Total eligible ITC availed in the period (CGST + SGST + IGST)
• Adjusted total turnover = All taxable supplies including zero-rated, minus exempt supply, minus supplies taxable at NIL rate
• Refund claim period: Minimum 1 month, maximum 2 years from relevant date
Common mistake: Many exporters don't claim refund for months because they think the department will process it automatically. GST ITC refund must be applied for proactively via Form GST RFD-01 on the GST portal.

5. GST Refund for SEZ Suppliers

Supply of goods or services to an SEZ unit or SEZ developer is treated as zero-rated supply. The same two methods (LUT or IGST payment) apply. Key difference: you need an endorsement on the invoice from the authorised officer of the SEZ.

Supply to SEZ must be for authorised operations (as per SEZ approval letter)
SEZ unit provides a letter/certificate confirming the supply is for authorised operations
Both goods and services supplies to SEZ qualify for zero-rating
LUT covers both export and SEZ supply — one LUT per FY is sufficient
Refund calculation is the same as for regular exporters (Rule 89(4))

6. IGST Method — Auto-Refund via Shipping Bill

If you export with IGST payment, the refund is largely automated through the integration between GSTN and ICEGATE (Indian Customs). The shipping bill filed at customs effectively acts as a refund application.

01
File GSTR-1
Report export invoices in Table 6A of GSTR-1. Mention shipping bill number and date.
02
Shipping Bill at Customs
File shipping bill at customs portal (ICEGATE). Ensure EGM (Export General Manifest) is filed by the shipping line.
03
Auto-matching
GSTN and ICEGATE systems match the invoice details from GSTR-1 with the shipping bill data.
04
Refund to bank
Once matched, IGST refund is automatically credited to your bank account registered on the GST portal. Usually within 2–3 weeks of EGM filing.

7. Quick Comparison — LUT vs IGST

FactorLUT (Recommended)IGST Payment
Cash Flow✅ Better — no IGST outflow⚠️ IGST outflow until refund
Refund TypeITC accumulated on inputsIGST actually paid on export
Refund Speed15–60 days (application-based)2–4 weeks (auto-processing)
ComplianceAnnual LUT + RFD-01 each periodNo LUT; linked to shipping bill
Best forRegular exporters with high inputsOccasional/service exporters
Refund AmountProportional ITC on export portion100% of IGST paid on exports

Need help with GST refund for exports or SEZ supply?

We handle end-to-end GST refund applications for exporters and SEZ suppliers — LUT filing, ITC reconciliation, RFD-01 application, and follow-up with the GST department. First consultation is free.

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Disclaimer: GST rules and procedures are updated regularly. This guide reflects CGST/IGST Act provisions and CBDT/GSTN notifications as of June 2026. Always verify current rules and consult a GST practitioner for your specific situation. © 2026 Associate Piyush, Pune.