What are Export Incentives?
Export incentives are provided to exporters as an acknowledgement for bringing in foreign exchange, and to compensate for the infrastructural obstacles and costs that they face. India’s Foreign Trade Policy (FTP) 2015-20 highlights various export incentives made available by the government through the Directorate General of Foreign Trade (DGFT), as updated and extended till Sept 2021.
How Export Incentives work in India?
The government collects less tax for the exported goods, to increase the competitiveness in the global market. The incentives provided, ensure higher reach of the local product and the growth of the Indian Export Businesses.
But the incentives are provided keeping in mind the availability of the particular product/material. These incentives are changed and modified according to the scarcity and abundance of the product.
Types of Export Incentives
These incentives include the exports from India scheme, duty exemption/remission scheme, and export promotion capital goods scheme. Let’s take a closer look at them:
Exports from India scheme
Merchandise Exports from India Scheme (MEIS) & Service Exports from India Scheme (SEIS)
This export incentive scheme can be subdivided into the merchandise and services sector.
Under MEIS, the export of notified goods to notified markets is rewarded on realised FOB value of exports in free foreign exchange or on FOB value of exports as given in the shipping bills in freely convertible foreign exchange, whichever is lower.
MEIS rewards are available on the export of goods through courier or international post on consignments of FOB value of up to Rs. 5 lakh.
Under SEIS, service providers of eligible services are entitled to duty credit scrips at notified rates on the net foreign exchange earned. Free foreign exchange remittance received through international credit cards and other instruments are also taken into account while computing the value of exports.
Here are some incentives commonly available under MEIS and SEIS:
Under the export incentives, exporters will be able to file their pending claims from FTP 2009-14 during the FTP 2015-20 regime. This is known in FTP parlance as a ‘transitional arrangement’.
Under the CENVAT credit/drawback rules, any additional duty or central excise duty paid in cash or through duty credit scrips will be adjusted as CENVAT credit or duty drawback. On the other hand, basic customs duty paid is adjusted as duty drawback.
Exporters can utilise duty credit scrips on the payment of duty in case of import of capital goods under lease financing.
MEIS rewards can be claimed either by the supporting manufacturer, along with a disclaimer by the entity realising the foreign exchange, or by the entity realising foreign exchange from overseas itself.
Duty credit scrips are rewards offered under both MEIS and SEIS. These can be utilised to pay basic customs duty, additional customs duty, and central excise duties paid on domestic procurement. It can be utilised for payment of customs duties in case of Export Obligation (EO) defaults for authorisation, payment of composition fee and application fee under FTP, and for payment of value shortfall in EO.
Status holder recognition is conferred on the basis of export performance, with export houses being rated from one to five stars. Status holders are eligible for various additional privileges. Double weightage is given to the following IEC holders in export performance calculation for granting status:
Micro, Small, and Medium Enterprises (MSMEs)
Manufacturing units with ISO/BIS certification
Units located in J&K and the north-eastern states
Units located in agri export zones
Duty exemption/remission schemes
These allow duty-free import of inputs for export production, and include the following duty exemption schemes:
Advance Authorisation Scheme
Advance authorisation__ allows duty-free import of inputs that get physically incorporated into the export product. This may include oil, fuel, and catalysts. The value addition of the inputs is measured as per standard input-output norms, based on which the exemption is provided.
Advance License for Annual Requirement
It is issued on the basis of annual requirement of an exporter for physical exports, intermediate supplies or deemed exports. Advance License for annual requirement is entitled only for One to Five Star Export Houses.
Duty-free import authorisation
Duty-free import authorisation allows duty-free import of inputs on the basic customs duty portion of duty. Additional customs/excise duties will be adjusted as CENVAT credit.
Duty drawback scheme
Duty Drawback Scheme aims to provide a refund to exporters on the customs and excise duties paid on inputs and raw materials or services for use in the production of export products. The re-export of the imported goods should happen within a stipulated time to be eligible for the drawback. The drawback is reversed if the sale proceeds are not received within a stipulated time.
Rebate on state and central taxes and levies (RoSCTL) offers benefits to made-up articles and garment exporters in the form of duty credit scrips. It was devised in the wake of complaints from the US to the WTO about India’s export incentive schemes. This scheme will eventually be made available beyond the textile industry.
The good news is that most of these schemes are aimed at ensuring that the exporter realizes the subsidies, drawbacks & incentives with minimal human intervention. The ebrc program for international trade in India aims to directly allows DGFT to obtain export proofs automatically and process any incentives etc directly to the exporters account.
Export promotion capital goods scheme
Zero duty EPCG scheme
Export Promotion Capital Goods Scheme (EPCG) facilitates the import of capital goods to India to improve the country’s production quality and competitiveness. Import of capital goods is allowed at the pre-production, production, and post-production stages at zero customs duty. These too are exempt from integrated goods and services tax (IGST) and compensation cess.
Additionally, the FTP 2015-20 also extends export benefits to the production of goods and services made in Export-Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs), and Bio-Technology Parks (BTPs).
Other Export Benefits in India
Towns of Export Excellence
Gold Card Scheme
Export of Goods under Bond
Market Access Initiative (MAI) Scheme
Marketing Development Assistance (MDA) Scheme
Status Holder Scheme