Tax Planning Tip
By CA Manzoorhasan Shaikh for Maeeshat
Have you ever thought of tax & finance planning by way of Export?? I am damn sure, your answer will be a big “NO”. You will start thinking how can I reduce my tax cost by exporting more. Yes! You can!!! This has become a reality now only because of Foreign Trade Policy (FTP) of Government of India. In lay man’s language, a Foreign Trade Policy is nothing but a plan for five year period for exports, imports which includes various benefits for motivating confidence of Indian Industry for doing business internationally & bring back flows of Foreign Currency which is a need of hour for Indian Government.
Recently Modi Government has introduced a FTP for the term 2015-2020 where for promoting Exports, Serve From India Scheme has been renamed & brought two new policies under the name “Service Exports from India Scheme (SEIS)” & “Merchandise Exports from India Scheme (MEIS)”. Salient features of these schemes have been highlighted below:
Service Exports from India Scheme (SEIS)
In the Foreign trade Policy 2015-2020, there are two scheme introduced for exports of Merchandise and Services respectively:
- Merchandise Exports from India Scheme (MEIS)
- Service Exports from India Scheme (SEIS)
The objective of the scheme is to provide rewards to exporters to offset infrastructural inefficiencies and associated costs involved and to provide exports a level playing field. In this article, we will understand key benefits under SEIS.
What is SEIS:
SEIS is Service Exports from India Scheme, the objective of scheme is to encourage exports of notified Services from India. It is modified version of earlier SFIS scheme as given in the Foreign Trade Policy 2009-2014.
Benefits of SEIS:
Certain percentage viz. 3% / 5% of Net Export Value (i.e. Gross Exports Less Gross Imports) will be allowed as Credit to Exporters for adjusting against certain taxes specified in below paragraph. This will be called as Duty Credit Scripts (DCS). The Duty Credit Scripts (DCS) and goods imported / domestically procured against them shall be freely transferable. This has been a long-standing demand of services exporters. Several sectors could not use the duty exemption scrips as they did not import any inputs. The full transferability of the scrips will now enable exporters to pay other input taxes and also sell to other importers. However exporters are disappointed as the quantum of incentive has gone down from 10 per cent to 3-5%.
Utilization of Duty Credit Scripts
Duty Credit Scripts can be utilized against payment of following types of taxes / duties:
- Payments of Customs Duties for imports of inputs or goods
- Payments of Excise Duties on domestic procurement of inputs or goods, including capital goods
- Payment of Service Taxon procurement of services
- For payment of Custom Duties in case of Export Obligation defaults. However, penalty / interest need to be paid in cash
- Payment of Composition fee under FTP
- Payment of Application fee under FTP
The eligibility criteria are as follows:
- There should be a Service provider who is providing ‘service’ from India to any other country.
- Service provider who is providing ‘service’ from India to consumer of any other country.
- Service provider should earn minimum amount of net free foreign exchange earnings, which are as follows
- US Dollar 10,000 – Individual service providers i.e. sole proprietorship
- US Dollar 15,000 – other than above entity
- Payment in Indian Rupees for service charges earned on specified services, shall be treated as receipt in deemed foreign exchange as per guidelines of Reserve Bank of India. The list of such services is yet to be notified.
- One must hold active Import Export Code (IEC) at the time of rendering services for which rewards are claimed. Entity should also be a member of Services Export Promotion Council (SEPC).
- Foreign Exchange earned for rendering of services other than the notified service will not be counted for entitlement. For E.g. equity or debt participation, donations, receipts of payments of loans, foreign exchange earned related to financial services sector like raising of foreign currency loan, etc. will not be considered as Exports & no benefits will be granted on same.
- Free foreign exchange earned through International Credit Cards and other instruments, as permitted by RBI shall also be considered for computation of value of exports.
- Valid documents viz. Foreign Inward Remittance Certificates (FIRCs), Export Invoices will be mandatory requirement for claiming DCS.