Zero-rated supply under GST — how LUT and export refunds fit together
“Zero-rated supply” under Section 16 of the IGST Act, 2017 covers exports of goods or services and supplies to SEZ units or developers. It doesn't just mean no tax is charged on the outward supply — it also means the supplier keeps the right to full input tax credit on inputs used to make that supply, unlike a regular tax-exempt sale. Reaching that zero-tax outcome happens through either the LUT route or the pay-IGST-then-refund route.
Zero-rated vs exempt — an important distinction
An exempt supply doesn't attract output tax, but it also typically blocks the corresponding input tax credit. A zero-rated supply doesn't attract output tax and still lets the supplier claim ITC on the inputs used — which is why the “zero-rated” language, and the two mechanisms for achieving it, matter so much for exporters' margins.
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Check my eligibility →The two routes, side by side
Route one: file an LUT, export without paying IGST at all, and separately claim a refund of any accumulated input tax credit that couldn't be used against domestic sales. Route two: pay IGST on the export invoice, then claim a refund of that IGST itself, since the tax paid effectively nets out against the credit position.
Why the LUT route is usually preferred
Filing an LUT avoids the working-capital hit of paying IGST altogether, even though an exporter using LUT will typically still need to file a periodic ITC refund claim for input taxes — so an LUT doesn't eliminate every refund application, but it does eliminate the largest one.
If I use LUT, do I still need to file any refund claim at all?
Often yes — for the accumulated input tax credit on your purchases and expenses, since that can't usually be fully absorbed by zero-rated sales alone. What LUT eliminates is the much larger IGST-on-the-export-invoice refund, not every refund claim an exporter might file.
This article is for general information only. For your specific situation, consult a practicing CA.
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