Export Incentive Schemes in India - How to benefit from them?
Export incentives are one of the most crucial topics that every trader should know about, especially all the exporters. These incentives might be confusing for someone who’s never heard of them before but knowing about them is a prerequisite to being a great trader. Once you grasp the basics, you can easily latch onto the more complicated details. So without any further delay, let’s get into it and find out what these export incentives are and how they work in India.
The crux of export incentives is that they are provided to the exporters by their government since they help bring in foreign exchange. It also helps them combat the various costs and other infrastructural obstacles encountered along the way. The government can choose to provide these incentives in the form of subsidies, tax concessions, duty remissions, low-cost credit, and even guarantees on bad loans.
The lower taxes and other benefits provided to the exporters help in increasing the competitiveness of Indian goods in the global market. Without the export incentives, the growth of exports wouldn’t be as fast and it could further slow down the growth of the entire nation. The incentives keep changing with respect to the availability and costs of the goods to suit the prevailing market trends.
The Indian export incentives are aligned with government initiatives like “Atmanirbhar Bharat” and “Make in India”. The foreign trade policy released by the DGFT (Directorate General of Foreign Trade) outlines all of these incentives and is applicable for a period of 5 years. Some countries consider practices like these as unfair and this leads to occasional disputes in the WTO.
The reason why these incentives are so important is that they direct the entire economy of a nation. Other significant benefits would be job creation, higher wages for workers, and increased self-reliance via locally produced goods. Since almost all the nations are constantly looking for ways to decrease their current account deficit, export incentives are a great way of making exports more competitive and surpassing imports.
There are many different types of export incentives in India but they’re divided into three primary groups for easier classification and understanding.
1. Exports from India Schemes
MEIS (Merchandise Exports from India Scheme): Under this scheme, the export of notified goods to a notified market rewards the exporter with transferable duty credit scrips. These scrips are usable for paying customs or central excise duties on the inputs and even the e-commerce exports are eligible for this scheme. This scheme has recently been replaced by a much better RoDTEP Scheme because of its WTO rules violation.
SEIS (Service Exports from India Scheme): This scheme is a little different than the previous one because it deals with the export of services instead of goods. This scheme offers similar scrips like the MEIS and it’s also transferable to another party. The only requirement to make a SEIS claim is having minimum net foreign exchange earnings of $15,000.
RoDTEP (Remission of Duty or Taxes on Export Products): This scheme provides reimbursement to the exporters for all the taxes that were previously not rebated. The refunds received by the exporters can be used to pay customs duty on any imports or even transferred to other importers.
2. Export Promotion Schemes
Zero Duty EPCG (Export Promotion Capital Goods): The main goal of this scheme is to facilitate exports by promoting the import of capital goods that can be used to produce high-quality goods and services. Under this scheme, the capital goods used for pre-production, production, and post-production are allowed to be imported at 0% customs duty.
EOU/EHTP/STP/BTP: The Export Oriented Unit, Electronics Hardware Technology Park, Software Technology Park, and Bio-Technology Park schemes have been clubbed together due to their similar characteristics. These schemes are available for enterprises that want to export 100% of their goods and services. All the units that fulfill this criterion will also be eligible for tax and compliance waivers which include duty-free imports.
3. Duty Exemption/Remission Schemes
AA (Advance Authorisation): What this scheme does is that it allows for duty-free imports of any inputs that would get physically incorporated into the product intended for export. Multiple items like fuel, oil, catalysts, packaging material, and more are covered, provided there is a 15% value addition to the final product.
AAAR (Advance Authorisation for Annual Requirement): This is an add-on to the AA scheme meant only for those exporters who either have a status holder certificate or past export performance. This is a totally voluntary option and covers only the SION notified products.
DFIA (Duty-Free Import Authorisation): This scheme shares a lot of its similarities with the AA scheme and it also allows duty-free import of inputs as well. However, the differentiating factor between the two schemes is that imports under DFIA are only made after the completion of exports. The DFIA license is valid for a year and it has a value-addition requirement of 20% which is a little more than AA.
DBK (Duty Drawback): This is a scheme that refunds the exporters on the customs and excise duties paid by them for importing inputs. The refunds are credited to the exporter’s account within two months of the shipment.
RoSCTL (Rebate of State and Central Levies and Taxes): This scheme was a result of the USA’s constant complaints to WTO about India’s excessive incentive schemes. Initially, this scheme was intended only for the textile industry but its scope will be broadened soon. Under this, the exporters are rewarded with credit scrips that can be transferred.
These are just some of the export incentivization attempts being made in India and there are countless others that haven’t been mentioned here. Exports are one of the most significant sources of income for any nation and growth in exports is typically seen in a positive light. India’s exports are especially important due to the emerging nature of its economy and its ambition to be a $5 trillion economy in the upcoming years.
For an exporter, it is crucial to declare these schemes during customs filing. Many choose to depend on their CHA to guide them. While exporters using the Xport-Pro software are able to declare these schemes right within the application itself. And not just that, with Xport-Pro they are able to maintain robust reports of various claims, amounts received and balance claims pending as well.
Indian administration is very keen on providing a boost to the promising and critical export sector. Even though India’s attempts at aiding SME businesses and boosting domestic export growth have been controversial internationally, the government relentlessly continues to provide concessions and benefits to Indian exporters. Since so many schemes and programs work simultaneously, we have tried to encapsulate the pivotal ones. If you’re just starting out then the above-mentioned schemes are a good stepping stone, but you could always dig deeper to know and learn more.