Refunds for Exporters of Agricultural Produce, and the LUT

Refunds for Exporters explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

An exporter of taxable goods has two routes. An exporter of exempt agricultural produce has one — and the compliance that normally guards that route, the Letter of Undertaking, cannot be insisted upon in his case.

Exports are zero-rated under section 16(1) of the IGST Act, with two options: export under bond or LUT and claim refund of unutilised ITC, or pay IGST and claim refund of the tax. The Handbook notes that "in case of export of Agriculture produce, most of products are exempt or having NIL rate of GST and in turn exporter cannot use route of with payment of IGST… left with only option i.e. to export without payment of tax under Letter of Undertaking or Bond and claim refund of input tax." And per Circular No. 125/44/2019-GST, for exempt and non-GST goods "the requirement for furnishing a bond or LUT cannot be insisted upon."

Why the pay-IGST route is closed

There is no IGST to pay. If the produce is exempt or nil-rated, the exporter cannot pay integrated tax on the export and therefore cannot claim it back. The route is not disallowed; it is arithmetically unavailable.

So the refund must come from the input side — the GST borne on "packing materials, fertilizers, pesticides, machinery repairs, cold-storage services, transportation, etc."

And this is why an otherwise unregistered agriculturist may need to register. Section 23 relieves him from registration; the refund rules require a registered person to claim. Section 23 and the registration relief →

The LUT, and when it is not needed

The ordinary rule. "Applicant shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest" within:

• fifteen days after the expiry of three months from the date of the export invoice, if the goods are not exported out of India; or
• fifteen days after the expiry of one year, or the FEMA period including any RBI extension, whichever is later, from the date of the export invoice, if payment for services is not received in convertible foreign exchange or in Indian rupees where the RBI permits.

Who cannot furnish an LUT. "any person who has been prosecuted for tax evasion for an amount of Rs. 2.5 Crores or above under the act is not eligible to furnish LUTs" — such persons, and any other assessee not furnishing an LUT, must furnish bonds, and "the bonds are required to be furnished manually" while LUTs go through the portal.

Validity. "The validity of such LUT's is for a period of one year (till the end of financial year). An exporter furnishing LUT's is required to furnish fresh LUT for each financial year." And if the LUT conditions are not met in time, "the privileges are revoked, and the exporter will have to furnish bonds."

The agricultural exception. "It is clarified by Master circular-refund 125/44/2019 that, in case of zero-rated supply of exempted or non-GST goods, the requirement for furnishing a bond or LUT cannot be insisted upon… Further, the exporter would be eligible for refund of unutilized input tax credit of Central tax, State tax, Union Territory tax, Integrated tax and compensation cess in such cases."

The logic is the same as above. An LUT is a promise to pay the tax if the export fails. Where no tax could arise, there is nothing to promise.

What the refund is computed on

The rule 89(4) formula:

(Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover

• "Net ITC" — "input tax credit availed on inputs and input services during the relevant period";
• "Adjusted Total Turnover" — total turnover of goods and services "excluding the value of exempt supplies other than zero-rated supplies";
• Value of goods exported — the FOB value in the shipping bill or bill of export, or the value in the tax invoice or bill of supply, whichever is less.

Capital goods are excluded. "In case of Zero rated supplies under LUT, applicants are not eligible to claim the refund ITC of capital goods even if they are utilised in making the Zero rated supplies." Rule 89(4) and the 1.5 times cap →

And the portal pays the least of three amounts: the rule 89(4) maximum applied to the consolidated ITC; the credit ledger balance at the end of the tax period after GSTR-3B is filed; and the credit ledger balance at the time of filing the refund application. The debit is taken IGST first, then CGST and SGST/UTGST equally, with any shortfall in one taken from the other.

The filing conditions that actually cause rejections

The Handbook's procedural list is worth reading as a checklist:

• the LUT number must appear on the export invoice;
• the invoice must carry the declaration "Supply meant for export under bond or letter of undertaking without payment of integrated tax";
• Table 6A of GSTR-1 must carry the shipping bill number, invoice date, port code and invoice amount;
• EGM number and date are compulsory and are matched against ICEGATE;
• no mismatch between GSTR-1 and GSTR-3B — "Export sales mentioned in Table 3.1.b of GSTR-3B should be matching with invoice-wise details mentioned in GSTR-1";
• the invoices on which ITC is claimed must match GSTR-2B;
• the refund period cannot span financial years, though "there is no restriction on clubbing of financial years" has been read as permitting successive-period claims within a year; and the returns for those periods must be filed.

And the forms: RFD-01 to apply, RFD-01W to withdraw, RFD-02 acknowledgement, RFD-03 deficiency memo (issued only once), RFD-04 provisional order for up to 90% within 7 days of acknowledgement, RFD-05 payment order, RFD-06 sanction or rejection within 60 days, RFD-07 withholding, RFD-08 show cause notice, RFD-09 reply. On rejection, the ITC is re-credited to the credit ledger.

The two-year limit runs from the relevant date under Explanation 2 to section 54 — and "the time limit of two years does not apply to the claim application filed for the reason of excess balance in the electronic cash ledger." A claim below ₹1,000 cannot be filed at all.

Realisation, and the Nepal and Bhutan concession

Rule 96B, inserted by Notification No. 16/2020-Central Tax dated 23.03.2020, requires export proceeds to be realised within the FEMA period. "In case the sale proceed is not realised within the prescribed time limit, the refund amount sanctioned to the extent of non-realisation shall have to be refunded along with applicable interest." It applies to both export routes.

Two reliefs sit inside the rule. Where the RBI writes off the realisation requirement on merits, "the refund paid to the applicant shall not be recovered". And where proceeds are realised after recovery, the amount is re-refunded if evidence is produced within three months of realisation and within any extended RBI period.

Nepal and Bhutan. "The acceptance of LUT for supplies of goods to Nepal or Bhutan will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange" — Notification No. 37/2017-CT dated 04.10.2017 and Circular No. 88/07/2019-GST. "The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if convertible foreign exchange."

Key takeaways

• Exports are zero-rated under section 16(1) of the IGST Act, but the pay-IGST route is unavailable for exempt or nil-rated produce.
• Circular No. 125/44/2019-GST: for exempt and non-GST goods, a bond or LUT cannot be insisted upon, and refund of unutilised ITC including compensation cess is available.
• An LUT is valid for one financial year; a person prosecuted for evasion of ₹2.5 crore or more must furnish a bond.
• Capital goods credit is not refundable on zero-rated supplies under LUT.
• The portal sanctions the least of the rule 89(4) amount and the two credit ledger balances.
• Rule 96B claws back the refund with interest if proceeds are not realised within the FEMA period — with RBI write-off and three-month re-refund reliefs.
• Goods to Nepal and Bhutan may be exported under LUT against Indian rupees; services need convertible foreign exchange.
• The claim window is two years from the relevant date, except for excess cash ledger balance; claims below ₹1,000 cannot be filed.

Read next

• Rule 89(4): The Refund Formula and the 1.5 Times Value Cap
• Section 23(1)(b): The Agriculturist's Exemption From Registration
• ITC Reversal in a Rice Mill: Rule 42, Worked Through

Disclaimer: Positions stated as on 5 September 2026, based on sections 54 to 58 of the CGST Act, 2017, section 16 of the IGST Act, 2017, rules 89, 91 and 96B of the CGST Rules, 2017, Notification Nos. 37/2017 and 16/2020-Central Tax, and Circulars No. 125/44/2019-GST and 88/07/2019-GST, as reproduced in the ICAI Handbook on Applicability of GST on Agricultural Sector (January 2026, law updated to 31 December 2025).