Export refunds: the LUT route versus the IGST route
One decision at the start of the year determines your working capital for the whole of it.
A zero rated supply may be made either without payment of tax under a letter of undertaking, claiming a refund of unutilised input tax credit, or on payment of integrated tax, claiming a refund of the tax paid. The LUT route suits an exporter whose credit accumulates and whose documentation is strong. The IGST route is faster where the refund is processed against the shipping bill, but it is restricted in specified situations and it locks up cash until the refund arrives. The choice should be made on the credit profile, not on habit.
The two routes
Under Section 16(3) of the IGST Act with Section 54, an exporter may supply without payment of tax under a bond or letter of undertaking and claim a refund of unutilised input tax credit, or supply on payment of integrated tax and claim a refund of the tax paid.
The LUT is filed in RFD-11, is valid for the financial year, and must be renewed. An expired LUT is one of the most common causes of an export being treated as a taxable supply.
Under the IGST route the shipping bill is treated as the application for refund of the tax paid on the export of goods, and the refund is processed on the basis of the shipping bill and the return data. For services the refund is claimed in RFD-01.
Restrictions apply to the IGST route in specified situations, including where certain benefits have been availed on the inputs, which is why the route must be checked against the procurement pattern rather than assumed.
Choosing between them
Choose the LUT route where credit accumulates faster than it can be used, where inputs are largely goods, and where the compliance function can support monthly refund filings with invoice level annexures.
Choose the IGST route where the credit is largely on input services, because those services are not refundable under an inverted duty claim but the tax paid on the export is fully refundable, and where the operational simplicity of a shipping bill based refund outweighs the cash lock up.
Model both for a full year. The comparison is between the interest cost of the cash locked up under the IGST route and the credit permanently stuck under the LUT route.
Do not switch mid year without recomputing, and never make the two supplies inconsistently within the same period without documenting the reason.
Where claims fail
An expired or unfiled LUT, converting a zero rated supply into a taxable one with interest.
A mismatch between the shipping bill, the invoice and the GSTR-1 export table. The three must agree on invoice number, value, and shipping bill particulars.
Realisation of proceeds not established, particularly for services, where the foreign inward remittance certificate is the whole case.
Claims filed for a period in which the credit was not availed, or where the credit relates to blocked categories, which the department extracts from the invoice level annexure.
Ineligible refund where the export benefit restrictions apply to the inputs used.
What to do on Monday
Renew the LUT at the start of every financial year and put the renewal in the compliance calendar.
Model both routes annually on your actual credit profile before choosing.
Reconcile the shipping bill, the invoice and the GSTR-1 export table monthly, before filing the refund.
Maintain a remittance file for services, indexed to invoices, because that is where those claims are decided.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is a bond or an LUT required?
An LUT is available to most exporters on the conditions notified; a bond with security is required where those conditions are not met. File in RFD-11 and renew every year.
Can we use both routes in the same year?
Yes, but not inconsistently for the same class of supply without a documented reason, because the department reads inconsistency as manipulation.
Is the refund under the IGST route automatic?
It is processed on the shipping bill and return data, but it can be held on risk parameters, and then the claim becomes a correspondence exercise.
What happens if export proceeds are not realised?
Recovery of the refund follows, subject to the period allowed under the foreign exchange law and any extension. See the dedicated page on this.
Does the LUT route work for services?
Yes, and it is common, but the documentation burden is higher because receipt of consideration in convertible foreign exchange must be proved.
In this cluster
- GST refunds: every category, every form, every deadline
- VKC Footsteps: why input service tax stays stuck in an inverted duty structure
- Provisional refund of ninety percent: the mechanism and how to keep it
- Replying to RFD-08: the refund rejection notice
- Deficiency memos in RFD-03 and the limitation reset problem
- Interest on delayed refunds under Section 56
- Unjust enrichment in GST refunds: when it applies, and when it does not
- Section 77: refund where tax was paid under the wrong head
- SEZ supplies and refund: endorsement, authorised operations and the disputes
- Deemed exports and the refund to the recipient
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.