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If your service qualifies as an export under GST, the choice is between supplying under a Letter of Undertaking (LUT) without paying IGST and claiming a refund of eligible unutilized input tax credit, or paying IGST and claiming a refund of that tax. Neither route is automatically better: weigh upfront cash needs, eligible credits, paperwork and payment timing. First confirm the supply meets the export-of-services conditions; a foreign customer alone does not make it an export.
First, confirm the service qualifies as an export
The LUT and IGST-payment routes are options for qualifying zero-rated supplies, not ways to turn a non-export into an export. Under the export-of-services tests, the supplier must be in India, the recipient must be outside India, the place of supply must be outside India, payment must be received in the prescribed manner, and the supplier and recipient must not merely be establishments of the same person. Apply the statutory tests to the actual contract, service and payment arrangement. The IGST Act, section 2(6), sets out the conditions.
Take particular care with intermediary services and cross-border transactions between establishments of the same person: CBIC examples show that some such arrangements can fail the export tests. The outcome depends on the facts and applicable place-of-supply rules, so do not assume that invoicing a customer abroad settles the question. See the relevant CBIC sectoral FAQs.
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How the two routes differ
| Decision point | LUT or bond, without IGST | Pay IGST and claim a refund |
|---|---|---|
| Tax paid at export | No IGST is paid on the qualifying zero-rated supply under this route. | IGST is paid on the supply. |
| Refund sought | Refund of eligible unutilized ITC, subject to applicable law and procedure. | Refund of IGST paid, subject to applicable law and procedure. |
| Upfront cash | Avoids funding IGST on the export, though eligible ITC may still be tied up pending a refund. | Requires funding the IGST pending the refund. |
| Key compliance step | Furnish a bond or LUT in Form GST RFD-11 before export, and retain invoice and payment records. | Report the export, pay tax and make the applicable refund claim with supporting documents. |
| Service payment condition | Rule 96A specifies receipt in convertible foreign exchange within one year from the export invoice date, or within further time allowed by the Commissioner. Failure to meet the applicable period has tax and interest consequences. | The cited official materials do not establish a universal service-export refund-processing timeline. |
These are the two routes set out in IGST Act section 16. The statute describes the LUT/bond option as supplying without payment of integrated tax and claiming refund of unutilized ITC; the alternative is payment of IGST followed by a refund claim.
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When the LUT route may fit better
LUT is often worth considering when preserving working capital matters and you have eligible ITC to recover. It avoids paying IGST on the export invoice, but it does not mean there is no refund process: any refund is for eligible unutilized ITC and remains subject to the applicable rules, records and processing. A valid LUT also does not prove export eligibility or make every credit refundable.
Furnish the LUT or bond in Form GST RFD-11 before export, as required by CGST Rules, Rule 96A. If the service payment does not arrive in convertible foreign exchange within one year from the export invoice date, the rule allows further time if the Commissioner permits it. If payment is not received within the applicable period, tax due and applicable interest become payable under the rule.
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CBIC Circular No. 125/44/2019-GST says delayed LUT furnishing may be condoned where exports are established, allowing the LUT facility ex post facto based on the facts and circumstances. Treat this as a possible administrative remedy, not a reason to routinely file late. Consult the circular and check for later instructions before relying on it.
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The payment route may suit an exporter who can fund the tax temporarily and prefers to seek a refund of IGST paid rather than a refund of eligible unutilized ITC. That distinction can matter when considering the business’s credit position and cash-flow needs. The refund remains subject to applicable law and procedure; paying IGST does not cure an arrangement that fails the export-of-services tests or guarantee that a claim will be approved.
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The available official materials do not establish that this route is universally faster, or give a guaranteed refund date for service exporters. Do not use a general provisional-refund rule as a promise about your claim; eligibility and processing depend on the applicable provisions and the facts of the claim.
What to compare before choosing
- Working capital: Can you fund IGST until a refund is processed, or is avoiding that upfront payment more important?
- Credit position: What eligible unutilized ITC is available, and does the LUT route’s ITC-refund basis suit your circumstances?
- Payment certainty: How likely is the customer to remit on time, and can you document the receipt in the required manner?
- Records and reconciliation: Can your invoices, returns, refund statements and remittance evidence be reconciled accurately?
- Eligibility risk: Are place of supply, intermediary treatment, related establishments or other export conditions uncertain? Resolve these issues before treating either route as available.
There is no universal winner. The decision is a comparison of tax funding, eligible credits, documentation and the expected timing of customer receipts—not a guarantee about which refund will arrive first.
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Filing and evidence to manage
For a service export under LUT
- Confirm that the transaction meets the export-of-services conditions.
- Furnish the bond or LUT in Form GST RFD-11 before export and retain evidence of filing.
- Report the export invoice in the applicable return and keep the invoice and records of the service payment.
- Track the receipt deadline under Rule 96A: one year from the export invoice date, unless the Commissioner allows further time.
- For an eligible unutilized-ITC refund claim, reconcile invoice details and supporting records under the applicable refund procedure.
For an export on payment of IGST
- Confirm export eligibility before applying the payment route.
- Report the export invoice and pay IGST as required.
- Prepare the applicable refund claim for IGST paid, with supporting records and reconciled invoice and payment information.
CBIC’s refund rules identify export-of-services invoice details and relevant Bank Realization Certificates (BRCs) or Foreign Inward Remittance Certificates (FIRCs) as supporting information for refund claims. Keep receipts linked to the corresponding invoices and returns. The applicable requirements can depend on the claim and current procedure.
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A practical decision rule
First establish that the supply qualifies as an export. Then compare the two refund bases and the cash-flow consequences against your expected remittance timing and ability to maintain supporting records. If funding IGST would strain working capital, the LUT route may be more workable, provided you can meet its conditions and pursue any eligible ITC refund. If paying IGST is manageable and a refund of the tax paid better fits your position, compare that option with the applicable claim requirements. Where export status, place of supply, intermediary treatment, payment evidence or refund eligibility is unclear, get transaction-specific advice from a qualified Indian GST professional.
Rules and portal procedures can change. Check the current statutory provisions, notifications and GST Portal instructions before filing.
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