Engaged in Export Business? Here are the schemes you must know.

Last Updated at: November 04, 2019
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Adam Smith in the 18th century said: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” When we extrapolate this into the international domain, it gives a fair answer to why we need cross-cultural trade and exchange of goods and services. India, our country is blessed with rich resources – from spices like pepper, turmeric, cardamom, cinnamon (that the Portuguese came for) to heavy metals, pearls, and minerals that we export. In this century, India’s export bills have only increased, with pharmaceutical products, vehicular accessories and apparel exports rising.

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To promote exports from India, the Government of India has launched several schemes for economizing the exports abroad and encouraging domestic producers of export products (and often being at the receiving end of flak from countries like the United States). While there are several sector-specific schemes, in this post, we mention the most significant few that exports can benefit from:

  1. Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) – Under this scheme, the government gives a duty credit on the free on board value of exports (the price reckoned before adding freight, insurance or other charges of transportation), which is in the range of 2-5 percent. This duty credit can be used by your business for paying customs duties for imports that you may use for various business needs such as sourcing inputs from abroad, or payment of customs or excise duty. Thus, if the value of goods exported is Rs. 10,000, an amount up to 500 rupees can be used as credit to pay customs duties. In case of you’re an exporter of services, under SEIS, a duty credit of 5 percent of the net foreign exchange earned can be issued.
  2. Export Promotional Capital Goods Scheme (EPCG): Under this Scheme, capital goods such as machinery or other long-term assets that an export business needs for production, can be imported at zero customs duty. Currently, in India, import of heavy machinery attracts a customs duty of 26.85 percent and thus, for importing a machinery worth 10 lac rupees, a customs amount of almost 2.7 lacs is required to be paid, which is exempted under this scheme.
  3. Availing the advantage of deemed exports: Deemed exports refer to certain specific transactions where the goods are supplied within India and the payment may be received either in INR or foreign exchange. They are known as deemed exports as goods are supplied to Export Oriented Units, or units in specially designed Software Technology Parks, or the capital goods are being supplied to license holders under EPCG, or supply is for power projects, UN agencies etc. Under GST, deemed exporters of products can avail refund claims for the tax paid by them, only if input tax credit has not been availed.
  4. Setting up Export Oriented Units in Software Technology Parks or Electronic Hardware Technology Parks: Since India is a hub of technology-related exports, business processing outsourcing has contributed to a lot of foreign exchange earning. To further incentive units, STPs and EHTPs have been set up that work on a single window clearance mechanism, which is faster, and access to high-speed data communication, entrepreneurial support and good infrastructure for services like call centers, software development has been provided.
  5. Income tax exemptions for export profits: Under the Income Tax Act, export businesses are eligible for several deductions. Units set up in SEZs are eligible for a 100 percent exemption from their export income for a period of five years. For other units that have both export and domestic profits, a deduction will be available in the proportion that export profits bear to the overall profit. Thus, if a company has made 20 lacs profit from its export business and 30 lacs profit from its business in India, the total profit taxable is 50 lac rupees, with one-third of it being export profit. Let us assume the tax liability calculated at 30 percent, is of Rs. 15 lacs, then an amount of 5 lacs would be exempted, being one-third of the tax attributable to export business.

 

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Engaged in Export Business? Here are the schemes you must know.

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Adam Smith in the 18th century said: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” When we extrapolate this into the international domain, it gives a fair answer to why we need cross-cultural trade and exchange of goods and services. India, our country is blessed with rich resources – from spices like pepper, turmeric, cardamom, cinnamon (that the Portuguese came for) to heavy metals, pearls, and minerals that we export. In this century, India’s export bills have only increased, with pharmaceutical products, vehicular accessories and apparel exports rising.

Get FREE legal advice now

To promote exports from India, the Government of India has launched several schemes for economizing the exports abroad and encouraging domestic producers of export products (and often being at the receiving end of flak from countries like the United States). While there are several sector-specific schemes, in this post, we mention the most significant few that exports can benefit from:

  1. Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) – Under this scheme, the government gives a duty credit on the free on board value of exports (the price reckoned before adding freight, insurance or other charges of transportation), which is in the range of 2-5 percent. This duty credit can be used by your business for paying customs duties for imports that you may use for various business needs such as sourcing inputs from abroad, or payment of customs or excise duty. Thus, if the value of goods exported is Rs. 10,000, an amount up to 500 rupees can be used as credit to pay customs duties. In case of you’re an exporter of services, under SEIS, a duty credit of 5 percent of the net foreign exchange earned can be issued.
  2. Export Promotional Capital Goods Scheme (EPCG): Under this Scheme, capital goods such as machinery or other long-term assets that an export business needs for production, can be imported at zero customs duty. Currently, in India, import of heavy machinery attracts a customs duty of 26.85 percent and thus, for importing a machinery worth 10 lac rupees, a customs amount of almost 2.7 lacs is required to be paid, which is exempted under this scheme.
  3. Availing the advantage of deemed exports: Deemed exports refer to certain specific transactions where the goods are supplied within India and the payment may be received either in INR or foreign exchange. They are known as deemed exports as goods are supplied to Export Oriented Units, or units in specially designed Software Technology Parks, or the capital goods are being supplied to license holders under EPCG, or supply is for power projects, UN agencies etc. Under GST, deemed exporters of products can avail refund claims for the tax paid by them, only if input tax credit has not been availed.
  4. Setting up Export Oriented Units in Software Technology Parks or Electronic Hardware Technology Parks: Since India is a hub of technology-related exports, business processing outsourcing has contributed to a lot of foreign exchange earning. To further incentive units, STPs and EHTPs have been set up that work on a single window clearance mechanism, which is faster, and access to high-speed data communication, entrepreneurial support and good infrastructure for services like call centers, software development has been provided.
  5. Income tax exemptions for export profits: Under the Income Tax Act, export businesses are eligible for several deductions. Units set up in SEZs are eligible for a 100 percent exemption from their export income for a period of five years. For other units that have both export and domestic profits, a deduction will be available in the proportion that export profits bear to the overall profit. Thus, if a company has made 20 lacs profit from its export business and 30 lacs profit from its business in India, the total profit taxable is 50 lac rupees, with one-third of it being export profit. Let us assume the tax liability calculated at 30 percent, is of Rs. 15 lacs, then an amount of 5 lacs would be exempted, being one-third of the tax attributable to export business.

 

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.