The various incentives/exemptions available to exporters in India in greater details:
Sales Tax/VAT Exemption
Income Tax Concessions
Special Economic Zones
Free Trade & Warehousing Zones
Star Export Houses
EOUs, Electronic Hardware Technology Parks, Software Technology Parks, Bio-Technology Parks
Sales Tax/VAT Exemption
VAT at zero rate and full credit of input tax is also available to a dealer directly selling to an exporter provided the same goods are actually exported.
The exporter needs to provide the following documents as evidence of goods exported:
Copy of export contract or order from a foreign buyer
Copy of the customs clearance certificate
Copy of the commercial invoice issued to the foreign buyer
Copy of Bill of Lading/Air-Way Bill
Proof of payment from the foreign purchaser or letter of credit
The exporter can make use of 'H Forms' supplied by the CST (Central Sales Tax) authorities that are being continued even now in the VAT regime.
The application has to be supported by the following documents:
Copy of Customs Certified Shipping Bill
Copy of Customs Certified Invoice
Copy of Letter of Credit
Copy of Confirmed Export Order
The supplier, on the other hand, can submit the following documents with his VAT return to justify zero rating of his particular sale to the exporter:
Purchase order from exporter.
Copy of Bill of Lading/Air-Way Bill
Excise is a tax on production or manufacture of goods. It is a duty levied on the production of goods and the liability of payment of excise duty arises immediately upon manufacture of goods. In India, excise duty is governed by the provisions of the Central Excise Act, 1944.
Exporters can avail excise clearance in the following ways:
Exports under Claim of Excise Rebate
Procedure for Filing the Rebate Claim and its Sanction
Application in the prescribed form
Duplicate copy of ARE-I/ARE-II in sealed cover received from Customs Officer
Duly attested copy of Bill and Lading
Duly attested copy of shipping bill (export promotion copy)
Original copy of duly ARE-I/ARE-II duly endorsed by the Customs Officer certifying the export of the consignment
disclaimer certificate in case where the claimant is other than the exporter.
Export under Bond - Under Rule 19 of Central Excise Rules, an exporter is permitted to remove excisable goods for export without payment of excise duty by executing a bond (legal undertaking) in favour of the excise authorities for the amount of the excise duty payable.
Duty drawback is an incentive given to the exporters of different categories of goods under the "Customs and Central Excise Duty Drawback Rules, 1995". The duty drawback scheme is administered by the Directorate of Duty Drawback in the Ministry of Finance, Government of India.
There are two types of drawback rates:
All Industry Rates
Brand/Special Brand Rates
Income Tax Concessions Under Section 10A of the Income Tax Act, 1961 undertaking operating from a Special Economic Zone (SEZ ) that manufactures articles/things or computer software are eligible for deduction of export profits. For undertaking commencing operation from the notified Special Economic Zones (SEZs) on or after 1st April, 2002, the tax holiday is available for a total period of seven assessment years, comprising of a deduction of 100% of export for five years followed by deduction of 50% of export profits for subsequent two years.
The Government of India has several schemes in place that allow the exporters to import inputs/ capital goods at concessional rates of import duty. The schemes are discussed below:
Export Promotion Capital Goods Scheme (EPCG)
Duty Free Import Authorisation Scheme
Duty Exemption Passbook Scheme (DEPB)
Duty Free Import Authorization Scheme
This scheme is the latest improvement announced in the Annual Supplement 2006 to the FTP 2004-09. The new scheme seeks to clubs the Advance Licencing scheme and the Duty Free Replenishment Certificate and were to come into effect from May 1, 2006.
Advance Licence can be issued for the following:
An Advance Licence contains:
The names and description of items to be imported and exported/supplied.
The quantity of each item to be imported or wherever the quantity cannot be indicated, the value of the item shall be indicated.
The aggregate CIF value of imports.
The FOB/FOR value and quantity of exports/supplies.
Duty Entitlement Passbook (DEPB) Scheme Under DEPB (Duty Entitlement Passbook) Scheme, exporters are allowed to claim customs duty credit as a specified percentage of FOB value of exports made in freely convertible currency. The objective of DEPB is to neutralize the incidence of Customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product. The scheme launched in 1997 is likely to be replaced by some superior alternative that is being worked out through a dialogue with the export community. Under the DEPB. The DEPB is valid for a period of 24 months from the date of issue.
Special Economic Zones In order to create an internationally competitive and smooth working environment for exports in India, the Government of India formulated the Special Economic Zone policy on 1/4/2000. Under the current foreign trade policy, Special Economic Zone (SEZ) is defined as a specifically delineated duty free enclave that is deemed to be foreign territory for the purposes of trade operations and duties and tariffs. Goods and services going into the SEZ area from DTA (Domestic Tariff Area) are to be treated as exports and goods coming from the SEZ area into DTA are to be treated as imports.
Strong telecommunication backbone
A unique work environment that powers the city
Optic-fibre cable network
On-site sub-station for failsafe power
Rail station onsite to provide for easy cost effective transport options
Pollution-free, clean and green environment
The following facilities/incentives are available to units in SEZs:
No licence required for import.
Exemption from customs duty on import of capital goods, raw materials, consumables, spares etc.
Supplies from DTA to SEZ units treated as deemed exports.
Reimbursement of Central Sales Tax paid on domestic purchases.
100% income tax exemption for a block of five years, 50% tax exemptions for two years and up to 50% of the profits ploughed back for the next three years under Section 10-A of Income Tax Act.
SEZ units may be for manufacturing, trading or service activity.
SEZ unit to be positive net foreign exchange earner within three years.
100% Foreign Direct Investment in manufacturing sector allowed through automatic route, barring a few sectors.
Facility to retain 100% foreign exchange receipts in EEFC Account.
Facility to realize and repatriate export proceeds within 12 months.
Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc.
Domestic Sales on full duty subject to import policy in force.
No fixed wastage norms.
Full freedom for sub-contracting including sub-contracting abroad.
Job work on behalf of domestic exporters for direct export allowed.
No routine examination by Customs of export and import cargo.
No separate documentation required for Customs and Exim Policy.
In-house customs clearance.
Support services like banking, post office clearing agents etc.
Free Trade and Warehousing Zones
The units functioning out of such zones will be extended:
Income Tax Exemption as per Section 80-IA of the Income Tax Act
Exemption from Service Tax
Free foreign exchange currency transactions
Other benefits as applicable to units in Special Economic Zones
Star Export Houses
They are allowed licence/certificate/permissions and Customs clearances for both imports and exports on self-declaration basis.
Fixation of Input-Output norms on priority within 60 days.
They are allowed exemption from compulsory negotiation of documents through banks. The remittance, however, needs to be received through banking channels.
100% retention of foreign exchange in EEFC account.
They are permitted enhancement in normal repatriation period from180 days to 360 days.
They are entitled for consideration under the Target Plus Scheme.
They enjoy exemption from furnishing of Bank Guarantee in schemes under the foreign trade policy.
Supply of goods against Advance Licence/Advance Licence for annual requirement.
Supply of goods to Export Oriented Units.
Supply of capital goods to holders of licences under the Export Promotion Capital Goods (EPCG) scheme.
Supply of goods to projects financed by multilateral or bilateral agencies.
Supply of capital goods, including in unassembled/disassembled condition as well as plants, machinery, accessories, tools, dyes.
Supply of goods to any project or purpose in respect of which the Ministry of Finance.
Supply of goods to the power projects and refineries not covered in (vi) above.
Supply of marine freight containers by 100% EOU.
Supply to projects funded by UN agencies.
Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding.
Deemed exports are allowed the following privileges:
Advance Licence for intermediate supply/deemed export/DFRC/DFRC for intermediate supplies
Deemed Export Drawback
Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of terminal excise duty will be given.