GST refund on exports — the LUT route vs the IGST-paid route

The two routes — at a glance

	LUT route (without payment of IGST)	IGST-paid route
Setup	File Form GST RFD-11 (LUT) before first export of FY	No advance filing — just charge IGST on invoice
Cash outflow on export	NIL IGST charged	IGST charged on invoice value & deposited
Refund mechanism	Refund of unutilised ITC under Sec 54 (RFD-01)	Refund of IGST paid (auto via shipping bill)
Timeline	~60-90 days from RFD-01 filing	~15-30 days via customs ICEGATE feed
Best for	Exporters with significant accumulated ITC	Exporters with limited inputs / services exporters

How the LUT route works

Step 1 — File LUT (Form RFD-11)

Once per FY, before the first export, file RFD-11 on the GST portal. Eligible filer: any registered taxpayer who hasn't been prosecuted for tax evasion ≥ ₹2.5 Cr. Auto-approved within minutes. No bond / bank guarantee required for the eligible categories.

Step 2 — Invoice export with "Without Payment of Tax under LUT"

Export tax invoice carries the LUT number. No IGST shown on invoice. Customs and the foreign buyer don't see any tax line.

Step 3 — Accumulate ITC

Your domestic input purchases (raw materials, services, packaging) bear IGST / CGST / SGST. Since output supply is zero-rated, you're sitting on accumulating ITC.

Step 4 — File refund (RFD-01) periodically

You can file refund monthly or quarterly under Sec 54 + Rule 89. Refund is of "unutilised ITC" calculated by the formula:

Refund = (Turnover of zero-rated supplies ÷ Adjusted Total Turnover) × Net ITC

Documents: export invoices, shipping bills, FIRC / BRC, GSTR-1, GSTR-3B. Submit via portal.

Step 5 — Refund processing

Officer issues RFD-02 acknowledgement, possibly RFD-04 deficiency memo. Within 60 days of complete application, RFD-06 sanction + RFD-05 payment advice. 90% provisional refund within 7 days is often available for accredited exporters.

How the IGST-paid route works

Step 1 — Charge IGST on export invoice

Treat the export as a regular IGST-taxable supply. Charge IGST at the applicable rate (typically the rate that would apply if domestic). Deposit the IGST via GSTR-3B.

Step 2 — File shipping bill with IGST details

The shipping bill on ICEGATE carries the IGST amount and the relevant tax invoice details. This is the trigger for the refund.

Step 3 — Auto-refund via ICEGATE

Customs reconciles the shipping bill + EGM (Export General Manifest) + GSTR-1 export invoice data. If matched, IGST refund is auto-credited to the bank account on file. No RFD-01 needed.

How to decide

LUT route is better when:

• You have substantial domestic inputs (manufacturer / processor) — accumulated ITC is real.
• Working capital matters — IGST-paid route locks ~18% of export value for 15-30 days.
• Your buyer has visibility into your invoice — no IGST line keeps things clean.
• You're a services exporter — payment from foreign buyer is direct, no shipping bill, IGST-paid route doesn't really fit.

IGST-paid route is better when:

• You're a trader / merchant exporter — limited inputs, accumulated ITC is tiny.
• Auto-refund timeline (15-30 days) is meaningfully faster than your processing officer's refund (60-90 days).
• Your inputs are largely exempt / zero-rated (agricultural commodities, certain pharma APIs).
• You want zero officer-interaction.

Services exporters — special considerations

Service exports (IT services, KPO, professional consulting to foreign clients) face a unique twist: there's no shipping bill / EGM. So the IGST-paid auto-refund channel doesn't apply. Service exporters typically default to the LUT route + RFD-01 refund of unutilised ITC.

Critical documentation for service exports:

• Place of supply proof — recipient is located outside India per Sec 13 of IGST Act. Master service agreement + invoice to a foreign entity address.
• Payment in convertible foreign exchange — FIRC (Foreign Inward Remittance Certificate) from your bank, or eBRC for RBI.
• Recipient not a "merely an establishment of distinct person" — i.e. not a related-party intra-company supply.

The refund formula deep-dive

Rule 89(4) — refund of unutilised ITC for zero-rated supplies:

Refund = (Turnover of Zero-Rated Supply of Goods + Turnover of Zero-Rated Supply of Services) × Net ITC ÷ Adjusted Total Turnover

"Net ITC" excludes ITC on capital goods. "Adjusted Total Turnover" includes domestic + export + zero-rated + exempt supplies. Important: this formula caps the refund — it never refunds more ITC than the formula allows, even if your accumulated balance is higher.

Common defaults we see

1. LUT renewed late. LUT is valid for one FY only. If you exported in April 2026 but the FY 2026-27 LUT was filed only in May 2026, the April exports are at risk — typically you can argue they were "intended under LUT" and avoid the IGST liability, but it's defendable on facts.
2. RFD-01 filed beyond 2 years. Time limit under Sec 54 is 2 years from the relevant date (date of export, date of shipping bill, etc.). Beyond that, refund is time-barred.
3. FIRC / BRC not collected timely. RBI permits 9 months for goods, 12 months for services. Beyond that, the export is "non-realisation" and the refund can be clawed back.
4. Mixed business — domestic + export. Refund formula uses adjusted total turnover; if you have a significant domestic component, the refund per export is less than 100% of input tax suffered.
5. Capital goods ITC. CG ITC isn't refundable under Rule 89(4) for goods exporters. Excluded from "Net ITC". This shocks first-time refund applicants.

The interest entitlement

If refund is not sanctioned within 60 days of complete application, the taxpayer is entitled to interest at 6% per annum under Sec 56. If the refund order is rejected and later allowed in appeal, interest at 9% under proviso to Sec 56. Most officers process within timeline — but if you've been waiting 90+ days, you can file a grievance and claim interest at the point of sanction.

Bottom line

LUT vs IGST-paid is a working-capital + speed decision, not a tax-saving decision (net economics are the same). Manufacturers with heavy ITC → LUT. Traders / merchants with light inputs → IGST-paid. Services exporters → almost always LUT. File LUT in early April, validate every shipping bill against GSTR-1 to keep the auto-refund channel clean, and don't sleep on the 2-year refund time bar.

Related

• GST export refund calculator
• GST e-invoice ≥ ₹5 Cr — 14-day setup
• GSTR-9C reconciliation gaps
• GST notice response playbook