Intro: Every guide tells you that exports from India are “zero-rated” under GST, and that this is a good thing. It is — but the phrase quietly misleads a lot of first-time D2C exporters. Zero-rated does not mean GST stops affecting your business the moment a parcel crosses the border. It means the tax is meant to net to zero eventually, after you have either paid it and reclaimed it, or formally undertaken not to pay it. The machinery that makes “eventually” happen is a Letter of Undertaking, a bond in the narrow cases where an LUT is refused, and a refund claim for the input tax credit locked up in your supply chain. Get those three right and GST is a wash on your export P&L. Get them wrong and you are looking at an 18% IGST bill on invoices you had booked as tax-free, or working capital sitting with the government for months. Here is how the plumbing works for a brand shipping individual orders — whether they land in Dubai, London, or anywhere else.
First, you do need to be GST-registered
Exports count as inter-state supply, so the usual ₹20–40 lakh turnover threshold for GST registration does not shield an exporter. If you export goods, you register — whatever your turnover. Registration is also the precondition for everything else in this article: no GSTIN, no LUT, no RFD-01, no refund. Service exporters get a narrow threshold exemption in some situations; goods exporters should assume registration is mandatory from the first shipment.
Why “zero-rated” doesn’t mean GST-free in your bank account
GST touches an export in two separate places, and exporters who think about only one of them get surprised by the other.
The first is the IGST on the export invoice itself. Under Section 16 of the IGST Act an export is a zero-rated supply, so you may make it without charging integrated GST. But “may” is conditional: you either pay the IGST and claim it back later (the Rule 96 route), or you file a Letter of Undertaking that lets you not charge it at all (the Rule 96A route). Do neither and the supply is not automatically zero-rated — it is a taxable supply you under-charged, and the department can come back for the tax plus interest.
The second is the input GST buried in everything you bought to make and move the product — raw materials, packaging, manufacturing job-work, warehousing, courier and freight invoices, platform fees, agency retainers. You paid GST on all of it. Because your output supply carries no GST to set that credit against, it piles up as unutilised input tax credit. On a D2C export brand that number grows every month, and it is real cash — often 5–12% of landed cost depending on your input mix.
The LUT deals with the first problem. The refund claim deals with the second. You need both.
The LUT: what it is, and why every exporter files one
A Letter of Undertaking is a one-page declaration you file on the GST portal in Form GST RFD-11. In it you promise to complete your exports within the prescribed timelines and to pay the IGST with interest if you don’t. In exchange you get to invoice foreign customers with no IGST line at all — so you are never out of pocket for that tax in the first place, and never waiting on its refund.
- It is open to almost everyone. Notification 37/2017 – Central Tax extended the LUT facility to all registered exporters. The only exclusion is a person prosecuted for tax evasion of more than ₹2.5 crore under GST or an earlier law — and even they can export under a bond with a bank guarantee. For a normal D2C brand a self-declaration that you have not been prosecuted is enough; verification, if any, happens after the fact.
- It lasts one financial year. An LUT furnished for FY 2026–27 covers 1 April 2026 to 31 March 2027 and no longer. You refile a fresh one every year, and the portal opens the next year’s form well before April so you can do it before your first export invoice of the year.
- Filing it is free and fast. There is no government fee and, in the normal case, no physical documents to submit.
An LUT costs nothing and takes ten minutes. Forgetting to refile it on 1 April is one of the most common reasons an Indian exporter suddenly owes 18% IGST on invoices they had booked as zero-rated.
If your LUT lapses — because the year rolled over and nobody refiled — every export invoice you raise in the gap is technically an IGST-payable supply until the new LUT is in place. Exporters have had to pay the tax and claim it back the slow way for a whole quarter over a diary miss.
The bond, and the narrow case you’d actually use one
Before LUTs were opened up, many exporters had to execute a bond backed by a bank guarantee. Today the bond is the fallback for the small set of exporters who cannot use an LUT — chiefly the ₹2.5 crore-prosecution case above, or a specific direction from the department.
A bond is executed on non-judicial stamp paper for an amount covering the tax liability on your expected export turnover, and the jurisdictional officer can require a bank guarantee of up to 15% of the bond amount. That guarantee is locked-up collateral — which is exactly why the LUT, with no guarantee at all, is what you want. If someone is selling your brand a “bond service,” check first whether you simply qualify for an LUT, because almost every D2C exporter does.
The refund you’re actually chasing: unutilised input tax credit
With the LUT in place, no IGST leaves on your invoices — so the refund you file for is the accumulated input tax credit on your inputs. This is a Rule 89 claim, filed in Form GST RFD-01 on the portal, and the amount is not “all your unused credit.” It is capped by a formula in Rule 89(4):
Refund = (turnover of zero-rated supply × net ITC) ÷ adjusted total turnover
In plain terms: if 70% of your turnover is exports, you can broadly expect to recover credit proportionate to that 70%, not 100%. Domestic D2C sales dilute the claim.
- Your GSTR-1 and GSTR-3B have to agree, and your export invoices in GSTR-1 have to carry the correct shipping-bill details. A mismatch is the single most common reason a claim stalls.
- You have two years from the “relevant date” (broadly, the date the goods leave India) to file. Don’t let claims pile up unfiled — but do batch them monthly or quarterly rather than per-order.
- 90% comes fast, 10% after scrutiny. For zero-rated claims the officer sanctions 90% provisionally and the balance after verifying documents.
- If the refund is late, the government owes you interest at 6% a year after 60 days — small consolation, but it exists.
The two ways GST leaves, and comes back
| Route A — export under LUT | Route B — export on payment of IGST | |
|---|---|---|
| IGST on your invoice | None | Charged and paid in cash or credit |
| What you reclaim | Accumulated input tax credit (Rule 89) | The IGST you paid (Rule 96) |
| How you claim | File RFD-01 on the portal | Automatic — the shipping bill is the refund application |
| Working-capital hit | Only the input GST, until refunded | The full IGST, until refunded |
| Best for | Almost every D2C exporter | Brands with little input credit, or specific cases |
Route B sounds simpler because the refund is automatic once your shipping bill and EGM match on ICEGATE. But it means paying IGST in cash every month and waiting for it — a working-capital drag a growing brand feels immediately. Most D2C exporters should be on Route A with a live LUT.
The courier-and-post trap for D2C parcels
Here is where ecommerce exporters differ from container exporters — and where refunds quietly die.
Ship a pallet through a port and a full electronic shipping bill is filed and everything reconciles on ICEGATE automatically. Ship individual parcels through a courier or India Post and the export document is a Courier Shipping Bill — and which one you use decides whether you can claim anything at all:
- CSB-IV is for gifts, samples and low-value non-commercial parcels. It carries no export incentives — no IGST refund, no RoDTEP, no drawback. Couriers often default walk-in shipments to CSB-IV.
- CSB-V is the commercial-export bill. Only shipments filed under CSB-V are eligible for GST refunds and other export benefits. If your 3PL or courier files your commercial orders under CSB-IV to save paperwork, every one of those orders is a refund you can never claim.
Even on CSB-V, courier and postal shipping bills have historically been processed manually through the ECCS system rather than flowing straight into ICEGATE, so the IGST refund on courier exports has not always been as automatic as the port process. Build the reconciliation into your monthly close rather than assuming it happens on its own. For postal exports the Foreign Post Office files the bill on your behalf, and the same CSB logic applies.
One 2026 change works in your favour here. DGFT Notification 67/2025-26 removed the ₹10 lakh per-consignment value cap on courier exports with effect from 1 April 2026, so a higher-value order no longer has to be split into several parcels or pushed onto a full shipping bill just to stay inside the rules. The CSB-V-versus-CSB-IV choice still decides whether the refund exists at all — but the ceiling that used to push D2C brands off the courier channel entirely is gone.
It is also why your HS classification matters on every parcel, not just on bulk consignments — the HS code, IOR and customs-duty basics carry straight over to courier exports.
What changed in 2025 — and why refunds got faster
Two things moved in late 2025 that matter for exporters.
First, the GST 2.0 rate overhaul. Notified on 17 September 2025 and effective from 22 September 2025, it collapsed most goods into a 5% and an 18% slab. Exports stayed zero-rated and full ITC refunds were explicitly preserved — but your input GST rates may have shifted, which changes the size of your accumulated-credit claim. Re-check the formula against your current input mix.
Second, and more useful day to day: the risk-based provisional refund. Following the 56th GST Council meeting on 3 September 2025, CBIC’s reforms put a system in place — operational from 1 November 2025 — where a refund application classified as low-risk gets its 90% provisional sanction released on the system’s assessment, without an officer manually reviewing it first. To qualify you must have completed Aadhaar authentication on your GST registration (Rule 10B) and not fall into the excluded categories the government notified. For a clean, well-documented D2C exporter, this is the difference between a refund cycle measured in weeks and one measured in months.
Where D2C exporters actually lose the refund
Almost every failed or delayed claim traces to one of these:
- A lapsed LUT. The year turned over and nobody refiled. Diarise it for late March, every year.
- GSTR-1 vs GSTR-3B mismatch, or export invoices filed in GSTR-1 with no shipping-bill details.
- The wrong Courier Shipping Bill. Commercial orders on CSB-IV are permanently outside the refund system.
- Shipping bill and EGM not matching on ICEGATE — a data-entry problem at the courier’s end that only you have the incentive to chase.
- Foreign exchange not realised in time. Under Rule 96A, if you export under an LUT and don’t bring the money back within the prescribed period, the exemption is withdrawn and you owe the IGST with 18% interest. This is where GST compliance and your settlement and FEMA setup stop being separate problems.
- Claiming under both routes for the same supply, which guarantees a query.
- Sitting on the two-year clock until claims expire.
None of this is exotic. It is bookkeeping discipline — but it is export bookkeeping discipline, a different muscle from domestic GST filing, and most brands build it only after losing the first few refunds. The full picture of what a compliant export setup looks like is in the documents an Indian D2C brand actually needs.
Making GST a wash, not a drag
The LUT, the bond and the ITC refund are not the interesting part of building an export brand — but they decide whether GST is a neutral line on your P&L or a permanent few-percent drag. The rules are the same whether you ship to the UAE or the UK; what changes is having someone own the monthly reconciliation between your GST returns, your shipping bills and your settlement data. Xeliport runs cross-border operations for Indian D2C brands as one stack — customs, compliance and settlement in the same workflow — so the LUT gets refiled, the shipping bills reconcile, and the refund actually lands, instead of being something you discover was never claimed a year later.