GST Refund on Exports: LUT vs IGST Payment — Which is Better for Your Business?

Under the GST framework, exports of goods and services are treated as zero-rated supplies under Section 16 of the IGST Act, 2017. This means the exporter is not required to pay GST on the export supply, and can additionally claim a refund of the ITC accumulated on account of such exports. Exporters have two options to avail this benefit.

Option 1: Export Under Letter of Undertaking (LUT) — Without Payment of IGST

This is the most commonly used and generally preferred route. Under this option, the exporter files a LUT on the GST portal before making the export supply, committing to fulfil export obligations. No IGST is paid on the export invoice.

Who Can File a LUT?

Any registered person can file a LUT — except those who have been prosecuted for tax evasion exceeding ₹2.5 crore under the CGST Act or IGST Act.

Refund Available Under LUT Route

Under this route, the exporter can claim a refund of accumulated Input Tax Credit (ITC) that could not be utilised against domestic supplies. The refund is filed in Form RFD-01 on the GSTN portal.

Option 2: Export With Payment of IGST — And Claim Refund

Under this option, the exporter pays IGST on the export invoice at the applicable rate and subsequently claims a refund of the IGST so paid. The refund is largely automated — the ICEGATE-GSTN data linkage ensures that shipping bill details match GSTR-1 data, and the refund is processed directly to the bank account on record.

When is This Route Preferable?

• When accumulated ITC is minimal or zero
• When the exporter wants faster refund processing (automated route)
• When LUT conditions cannot be fulfilled timely

Refund of ITC on Account of Inverted Duty Structure

Apart from export refunds, businesses where the GST rate on inputs is higher than the rate on output supplies (inverted duty structure) are also eligible for ITC refunds under Section 54(3) of the CGST Act. This commonly affects sectors like textile, footwear, and certain engineering goods.

Common Reasons for Refund Rejection

• Mismatch between shipping bill data on ICEGATE and GSTR-1 — particularly invoice number, date, and taxable value
• LUT not filed before the date of export
• GSTR-3B not filed for the relevant tax period
• Deficiency memo (RFD-03) not responded to within the prescribed time
• Export proceeds not realised within the prescribed period (currently 9 months for goods)

Time Limit for Filing Export Refund

Refund applications must be filed within 2 years from the relevant date. For export of goods, the relevant date is the date on which the ship or aircraft leaves India. For export of services, it is the date of receipt of foreign exchange.

Kyra Advisors — Export Refund Specialists

Our team has successfully processed export refund claims for clients in manufacturing, IT services, and trading sectors. We handle the complete process from RFD-01 filing to responding to deficiency memos and following up with refund sanctioning authorities. Contact us to discuss your export refund matter.