LUT vs Bond with bank guarantee — what's the difference under GST
Both an LUT and a bond let you export without paying IGST upfront — the difference is who can use which. An LUT is a simple self-declaration available to virtually all exporters. A bond, furnished on non-judicial stamp paper along with a bank guarantee (typically up to 15% of the bond amount), is required only from the small minority of exporters who don't qualify for an LUT — mainly those prosecuted for tax evasion above ₹2.5 crore.
What they have in common
Both mechanisms serve the same purpose under Rule 96A: they let you supply as a zero-rated export or SEZ supply without paying IGST on the invoice, subject to actually completing the export within the required timeframe.
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An LUT has no cost, requires no collateral, and can be filed entirely online in about 10–15 minutes, valid for one financial year. A bond must be executed on non-judicial stamp paper, is typically backed by a bank guarantee — which itself carries a cost — and is the fallback route reserved for exporters who are ineligible for an LUT under Notification No. 37/2017-Central Tax.
Why almost nobody uses a bond today
Since the 2018 reforms removed the earlier turnover and forex-realization conditions for LUT eligibility, the bond route has become a narrow exception rather than a common choice. See our eligibility guide for exactly who still falls into that exception.
If I'm not eligible for an LUT, can I still export without paying IGST?
Yes, through a bond with a bank guarantee instead of an LUT. The underlying benefit — not paying IGST upfront — is the same; only the mechanism and the collateral requirement differ.
This article is for general information only. For your specific situation, consult a practicing CA.
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