GST on exports: LUT, bonds and SEZ refunds

A zero-rated supply is one on which GST is effectively not borne by the supply, even though the supply is taxable in principle. Exports of goods and services, and supplies to SEZ units and developers, fall into this category. The benefit of zero-rating is that the supplier can also recover the tax paid on inputs used to make the supply, so the relief flows through the chain. The practical question is not whether you get relief but how you take it — and GST provides two routes to do so.

There are broadly two ways to make a zero-rated supply. The first is to supply without paying integrated tax under a Letter of Undertaking (LUT) or bond, and then claim a refund of the unutilised input tax credit accumulated on inputs. The second is to pay integrated tax on the supply and then claim a refund of the tax paid. Both routes are intended to leave the supply free of tax in the end; they differ in cash flow and paperwork. Decide which route suits your business before you start exporting, because the procedure follows from the choice.

The LUT route lets eligible exporters supply without paying integrated tax upfront, by furnishing a Letter of Undertaking. This avoids blocking working capital in tax that you would only later reclaim. In return, you commit to meeting the export conditions, and you typically claim a refund of the accumulated input tax credit relating to those supplies. The LUT generally has to be furnished for the relevant period and renewed as required. If cash flow matters to you, the LUT route is usually the more comfortable option — just keep the undertaking current.

Supplies to SEZ units and developers are also zero-rated, and the same two routes broadly apply: supply under an LUT and claim a refund of input tax credit, or pay tax and claim a refund of the tax. Refund claims are made through the GST refund process and need supporting documentation linking the claim to the qualifying supplies. Because SEZ and export refunds depend on getting the documentation and procedure right, and conditions can change, confirm the current requirements and keep your records aligned to your refund claims.

The relief on exports and SEZ supplies is real, but it is procedural — refunds depend on filing correctly and keeping the paperwork in order. Choose your route deliberately, keep your LUT valid if you use it, file returns consistently so your refund claims reconcile, and retain the evidence linking inputs and supplies to the claim. Where the supply, the route or the documentation is uncertain, get advice before filing so that a genuine zero-rated supply does not get stuck waiting on a refund.