Export without Paying GST — Letter of Undertaking (LUT), Zero-Rated Supply, IGST Refund, Merchant-Exporter 0.1% Rate, Deemed Exports and SEZ Supplies
Video Explanation & Insights
GST on exports explained: zero-rated supply, LUT, bond, deemed export and refunds
3 videos on this topic
How GST treats an export
GST is a tax on supply, and the treatment depends on where the supply goes. Within a state it is an intra-state supply attracting CGST and SGST; across a state line it is inter-state and attracts IGST at the full rate. Taking goods across India's border is an inter-state supply too — so an exporter must hold a regular GST registration, and a composition dealer must switch to the regular scheme before the first export or even the first inter-state sale.
Section 16 of the IGST Act then makes exports of goods and services, and supplies to a Special Economic Zone unit or developer, zero-rated. Zero-rated is not exempt. On an exempt supply — wheat flour, healthcare — the output is untaxed and the input credit is lost and becomes part of cost: a ₹10 lakh machine with ₹1.8 lakh GST costs ₹11.8 lakh. On a zero-rated supply the rate is 0% but input tax credit remains available and is refunded, which is the whole economic point of the export regime.
| Exempt supply | Zero-rated supply (export, SEZ) | |
|---|---|---|
| Tax on output | None | 0% |
| Input tax credit | Not available — added to cost | Available and refundable |
| Examples | Nil-rated, exempted and non-taxable goods and services | Export of goods or services; supply to SEZ unit or developer |
Export with payment of IGST, or without it under an LUT
| Route | Invoice | What you get back | When to prefer it |
|---|---|---|---|
| With payment of IGST | IGST charged on the export invoice and paid through the electronic ledgers | Refund of the IGST paid, processed against the shipping bill through customs — usually the fastest refund | Large unutilised credit balance to absorb; automated refund |
| Without payment — under LUT | No tax on the invoice; LUT number quoted | Refund of unutilised input tax credit on inputs and input services (Form RFD-01), except credits blocked under section 17(5) | Standard route for most exporters; no cash outflow |
| Without payment — under bond | As LUT, but with a bond and 15% bank guarantee | Same refund of ITC | Only where the exporter is not eligible for LUT — prosecution for tax evasion above ₹2.5 crore |
- •The LUT is filed online in Form GST RFD-11 for each financial year, with two witnesses, before exporting without tax; it undertakes to pay the tax with interest if goods are not exported within three months of the invoice (extendable) or export proceeds are not realised within the FEMA time limit.
- •Section 17(5) blocked credits — food and beverages, motor vehicles for personal use, works contract for immovable property and similar — cannot be refunded under either route.
- •Refund of the compensation cess paid on inputs is also available on zero-rated supplies.
SEZ supplies, merchant exporters and deemed exports
A supply to an SEZ unit or developer is zero-rated even when the SEZ is in your own city — a Jaipur supplier billing a Sitapura SEZ unit issues an IGST invoice, not CGST/SGST, and may supply under LUT or with tax and refund. A merchant exporter can buy goods for export from a registered supplier at a concessional IGST rate of 0.1%, provided the goods are exported within 90 days of the supplier's invoice, the exporter is registered with an export promotion council or commodity board, the purchase order is given to the supplier and the invoice copy reaches the jurisdictional officer; the goods must move directly to the port or a registered warehouse.
Deemed exports are goods that never leave India but are treated as exports — supplies to an Export Oriented Unit, or against an Advance Authorisation or EPCG authorisation. Only goods qualify, not services; tax is charged on the invoice and either the supplier or the recipient claims it back as refund. Foreign exchange for physical exports has to be realised within the FEMA window — nine months as the video explains — or the LUT benefit is reversed with interest.
Setting up to export without GST
- 1Step 1 — Regular GST registration (convert from composition if needed); IEC from DGFT; AD code registered at the port.
- 2Step 2 — File the LUT in Form RFD-11 for the year before the first tax-free export; renew every April.
- 3Step 3 — Export invoices without tax quoting the LUT; shipping bills filed with the invoice and GSTIN; e-BRC on realisation.
- 4Step 4 — Monthly or quarterly RFD-01 refund of unutilised ITC with statement 3 (invoices vs shipping bills); track the export within three months of invoice.
- 5Step 5 — For SEZ, EOU and authorisation-holder customers, classify the supply (zero-rated or deemed export) and choose who claims the refund.
GST on exports: questions we are asked
Exports are zero-rated: the rate is 0% but, unlike exempt supplies, input tax credit stays available and is refunded.
A Letter of Undertaking filed online in Form RFD-11 each financial year that lets you export or supply to SEZ without paying IGST. A bond with 15% bank guarantee is needed only where you are ineligible for LUT.
No. Export is an inter-state supply; switch to the regular scheme first.
Under LUT, claim refund of unutilised ITC in RFD-01; with payment of IGST, the IGST paid is refunded through customs against the shipping bill.
The concessional IGST a registered supplier charges a merchant exporter on goods that will be exported within 90 days, subject to EPC registration and documentation conditions.
They are zero-rated supplies — IGST invoice even within the state, and refund available; they are not deemed exports.
Goods supplied within India to an EOU or against Advance Authorisation or EPCG; tax is charged and refunded to the supplier or recipient.
Yes — from September 2025, parcels exported by courier or post below ₹1,000 are also eligible.