An exporter requires a Letter of Undertaking, which acts as a guarantee given by the bank of the importer to the bank of the exporter. This enables the exporter to conduct transactions involving zero rated supply to SEZ without payment of IGST and export of goods to a country outside India without payment of IGST.

When an exporter wants to export products and claim a GST refund, it becomes mandatory to submit an LUT, as per the Central Goods and Service Act 2017. Once filed, the Letter of Undertaking is valid for that particular financial year. Hence, unlike the refund process, an exporter does not need to go through the procedural requirements every time an export consignment is carried out.

1. A Letter of Undertaking eliminates blocking of funds by way of tax payments, and thus, exporters do not have to apply for refunds.
2. By filing an LUT, an exporter can export goods or services without the burden of immediate tax payment.
3. Exporters filing for a Letter of Undertaking are not required to provide additional bank guarantees to the importer.

A letter of undertaking (LUT) can be furnished by any registered taxpayer involved in the export of goods and services. However, individuals facing prosecution for tax evasion exceeding INR 2.5 crore or more are not eligible to use this option, and they are required to provide an export bond. 
Additionally, individuals should consider the following factors before applying for an LUT: