Exporting goods and services is a vital part of any country’s economy, and India is no exception. To encourage exporters and boost foreign exchange earnings, the Government of India has introduced several schemes. One of the most beneficial incentives for exporters is the Duty Credit Scrips (DCS). This blog will explain what Duty Credit Scrips are, how they work, and how they can be sold if an exporter doesn’t need them.
What are Duty Credit Scrips?
Duty Credit Scrips (DCS) are a form of incentive offered by the Indian government under the Foreign Trade Policy (FTP) 2015-20. These scrips are provided to exporters to promote exports from India and increase the inflow of foreign currency. Essentially, they act as a reward for exporters, allowing them to offset certain taxes or duties they owe on imported goods.
When an exporter sells goods or services abroad, they earn foreign currency. To motivate them to export more, the government gives them these Duty Credit Scrips, which can be used to pay for import duties on goods they need to bring into India. This reduces the amount of cash they need to spend on taxes, freeing up funds that can be used for other important business activities.
How Do Duty Credit Scrips Work?
Duty Credit Scrips are given to exporters based on the value of their exports. The value of these scrips typically ranges between 2% to 5% of the export value, depending on the product and the export scheme under which it falls.
Here’s a simple example to understand how it works:
Imagine an exporter named Raj, who exports goods worth Rs. 10,00,000. Based on his exports, the government gives him Duty Credit Scrips worth 5% of his export value, which is Rs. 50,000. Now, Raj needs to import raw materials for his next order, and he owes Rs. 70,000 in import duties. Instead of paying the full amount in cash, Raj can use his Rs. 50,000 Duty Credit Scrips to reduce his tax bill, leaving him with only Rs. 20,000 to pay out of pocket.
This way, Raj saves money on taxes and can use that extra cash to grow his business.
Where Do Duty Credit Scrips Come From?
The Duty Credit Scrips are issued under three main export promotion schemes:
- Merchandise Exports from India Scheme (MEIS): This scheme rewards exporters of goods by offering them Duty Credit Scrips. The scrips are calculated as a percentage of the Free on Board (FOB) value of exports in foreign exchange. This scheme helps exporters by reducing their tax burden on imports.
- Service Exports from India Scheme (SEIS): This scheme is for exporters of services. It works similarly to MEIS, where service exporters are rewarded with Duty Credit Scrips, which they can use to offset their import duties.
- Export Promotion Capital Goods Scheme (EPCG): This scheme is aimed at encouraging exporters to import capital goods (like machinery) that they need to produce goods or services. Under this scheme, exporters can get Duty Credit Scrips to reduce the import duties on these capital goods.
Uses of Duty Credit Scrips
Duty Credit Scrips are very useful for exporters as they help reduce the cost of imports by offsetting various types of taxes and duties. Here are some of the taxes that can be paid using DCS:
- Basic Customs Duty (BCD)
- Additional Customs Duty (ACD)
- Safeguard Duty
- Anti-Dumping Duty
- Transitional Specific Safeguard Duty
However, there are some limitations. Duty Credit Scrips cannot be used to pay for GST, Compensation Cess, or Education Cess.
Validity of Duty Credit Scrips
From the date they are issued, Duty Credit Scrips are valid for 24 months. This means exporters have two years to use them before they expire. If an exporter doesn’t have any import duties to pay within this time, they can sell the scrips to someone else who can use them.
How to Apply for Duty Credit Scrips
Exporters can apply for Duty Credit Scrips through various schemes, each with its own set of guidelines. Here’s a quick overview of the application process:
For MEIS:
- Application must be filed within 12 months from the date of the Let Export Order or within 3 months from the day the EDI bills are uploaded to the DGFT server by the Customs.
- The application can be submitted online using the Ayat Niryat Form 3A, along with the Electronic Bank Realization Certificate (eBRC) and shipping bills.
- Application must be filed within 12 months from the date of the Let Export Order or within 3 months from the day the EDI bills are uploaded to the DGFT server by the Customs.
- The application can be submitted online using the Ayat Niryat Form 3A, along with the Electronic Bank Realization Certificate (eBRC) and shipping bills.
For SEIS:
- Applications must be filed within 12 months from the end of the financial year for which the claim is made.
- Exporters must specify the port of registration in their application.
- Incentives range between 3% and 5% of the net foreign exchange earned.
- Applications must be filed within 12 months from the end of the financial year for which the claim is made.
- Exporters must specify the port of registration in their application.
- Incentives range between 3% and 5% of the net foreign exchange earned.
For EPCG:
- The exporter can apply under the Post Export EPCG Duty Credit Scrip Scheme, which allows them to import capital goods and pay the applicable duty in cash.
- The basic customs duty paid on capital goods will be reimbursed in the form of Duty Credit Scrips.
- The exporter can apply under the Post Export EPCG Duty Credit Scrip Scheme, which allows them to import capital goods and pay the applicable duty in cash.
- The basic customs duty paid on capital goods will be reimbursed in the form of Duty Credit Scrips.
How to Sell Duty Credit Scrips
If an exporter doesn’t have any immediate need for the Duty Credit Scrips, they can sell them to other businesses that can use them to offset their own import duties.
Here’s how it works:
- Transferability: Duty Credit Scrips are freely transferable. This means that if an exporter doesn’t need them, they can sell them to another person or company.
- Discounted Sale: Usually, Duty Credit Scrips are sold at a discount. For example, if an exporter has a scrip worth Rs. 2,00,000, they might sell it for Rs. 1,95,000. The buyer gets a scrip worth Rs. 2,00,000, but at a discounted price, while the seller gets immediate cash, which is better than letting the scrip expire.
- No Organized Market: There isn’t a formal marketplace for selling Duty Credit Scrips, so the transfer is usually done peer-to-peer. This means the buyer and seller have to find each other directly or through intermediaries.
- Process: Once the buyer and seller agree on a price, the exporter needs to transfer the scrip officially. This usually involves paperwork and might require the help of a Customs House Agent (CHA) to register the transfer with the Customs department.
Sale of Duty Credit Scrips under GST
Initially, the sale of Duty Credit Scrips was subject to GST because they were classified as “goods” under the GST Act. However, taxing these tax-based incentives didn’t make much sense, so in October 2017, the government exempted Duty Credit Scrips from GST. This exemption has made it easier for exporters to sell these scrips without worrying about additional taxes.
Conclusion
Duty Credit Scrips are a valuable tool for exporters in India, helping them reduce their tax burdens and freeing up cash for business growth. Whether used directly to offset import duties or sold to other businesses, these scrips provide significant financial benefits.
If you’re an exporter, understanding how to maximize the use of Duty Credit Scrips can make a big difference to your bottom line. And if you ever find yourself not needing them, selling them at a discount is a practical way to make sure they don’t go to waste. By leveraging these incentives, exporters can continue to expand their operations and contribute to India’s growing economy.Also Read: A Complete List of Custom Duty in India
