Exporters have two options for exporting goods: with payment of IGST or without payment of IGST under LUT. Each option has its pros and cons. This comprehensive guide compares the two options.
Option 1: Export With Payment of IGST
Process
- Pay IGST on the export
- File shipping bill
- Shipping bill serves as refund application
- Refund is processed
Pros
Simplified Process: Shipping bill serves as refund application. No separate refund application is required.
Faster Refund: Refund is processed based on shipping bill data.
No LUT Required: No need to file LUT.
Certainty: Refund is assured (subject to conditions).
Cons
Working Capital Blocked: IGST paid is blocked until refund is received.
Cash Flow Impact: Cash flow is affected.
Interest Cost: Cost of blocked working capital.
Delay Risk: Refund may be delayed.
Option 2: Export Without Payment Under LUT
Process
- Furnish LUT
- Export without payment of IGST
- Accumulate ITC on inputs
- Claim refund of ITC
Pros
Working Capital Not Blocked: No IGST is paid, so working capital is not blocked.
Better Cash Flow: Cash flow is not affected.
No Interest Cost: No cost of blocked working capital.
ITC Utilization: ITC can be utilized for other purposes.
Cons
LUT Required: LUT must be filed and renewed annually.
More Detailed Process: Refund of ITC requires FORM GST RFD-01.
Eligibility Restrictions: Only eligible for persons with good compliance record.
Compliance Burden: LUT compliance and ITC refund process.
Comparison
| Aspect | With Payment | Without Payment (LUT) |
|---|---|---|
| IGST Paid | Yes | No |
| Refund | Refund of IGST | Refund of ITC |
| Application | Shipping bill | FORM GST RFD-01 |
| Process | Simplified | More detailed |
| Working Capital | Blocked | Not blocked |
| LUT Required | Not required | Required |
| Eligibility | All exporters | Good compliance record |
| Cash Flow | Affected | Not affected |
Which Option to Choose?
Choose With Payment If:
- You want a simplified process
- You have sufficient working capital
- You want certainty of refund
- You do not want the compliance burden of LUT
Choose Without Payment (LUT) If:
- You want to avoid blocking working capital
- You have good compliance record
- You want better cash flow
- You are willing to comply with LUT requirements
Common Mistakes
Mistake 1: Choosing Wrong Option Choosing the wrong option for your business situation.
Mistake 2: Not Considering Cash Flow Not considering the impact on cash flow.
Mistake 3: Not Filing LUT (For LUT Option) LUT must be filed before exporting without payment.
Mistake 4: Not Claiming Refund (For With Payment Option) Refund must be claimed; it is not automatic.
Best Practices
Assess Cash Flow: Assess the impact on cash flow before choosing.
Check Eligibility: Check eligibility for LUT before choosing.
Consider Compliance Burden: Consider the compliance burden of each option.
Evaluate Speed: Consider the speed of refund.
Seek Professional Guidance: The choice has complexities; professional advice is recommended.
The choice between export with payment of IGST and without payment under LUT depends on various factors including cash flow, compliance burden, and eligibility. By understanding the pros and cons, exporters can make the right choice.
Need help with export options? Our GST experts provide comprehensive advisory and support.
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