Introduction
Export incentives play a vital role in encouraging businesses to expand into international markets. These incentives, provided by the government, include various forms of financial assistance such as duty drawbacks, export subsidies, and remission schemes. While these benefits support exporters, they are subject to taxation under the head “Profits and Gains of Business or Profession” as per the Income Tax Act, 1961. This blog explains how income from export incentives is taxed, the applicable provisions, and examples to help businesses understand their tax liabilities.
What Are Export Incentives?
Export incentives are benefits provided by the government to exporters to make their goods and services competitive in the global market. These incentives reduce the cost of exporting and enhance profitability.
Examples of Export Incentives:
- Duty drawback on imported raw materials used for exports.
- Refunds under the Remission of Duties or Taxes on Export Products (RoDTEP) scheme.
- Income from transfer or sale of export entitlements.
Taxability of Export Incentives
Under Section 28(iiib) to Section 28(iiid) of the Income Tax Act, income derived from export incentives is taxable under the head “Profits and Gains of Business or Profession.”
1. Duty Drawback [Section 28(iiib)]
Duty drawback refers to the refund of customs and excise duties paid on inputs used in manufacturing exported goods.
- Taxability: Fully taxable as business income.
Example:
A business receives ₹2,00,000 as duty drawback for exported goods. This amount is taxable under “Profits and Gains of Business or Profession.”
2. Income from Export Incentive Schemes [Section 28(iiic)]
Earnings from government schemes such as RoDTEP or the former MEIS (Merchandise Export from India Scheme) are taxable.
- Taxability: Fully taxable as business income.
Example:
A company receives ₹3,00,000 under the RoDTEP scheme for its exports. This amount is taxable under this head.
3. Sale of Export Entitlements [Section 28(iiid)]
Exporters often receive entitlements such as licenses or quotas that can be sold in the market. The income from such sales is taxable.
- Taxability: Fully taxable under business income.
Example:
A textile exporter earns ₹1,50,000 from selling export quotas. This income is taxable under “Profits and Gains of Business or Profession.”
4. Profit on Transfer of Duty Credit [Section 28(iiie)]
Income from transferring duty credit under any export promotion scheme is taxable.
Example:
A business transfers duty credits worth ₹75,000. This income is taxable.
Deduction Under Section 80HHC (Old Provision)
Previously, exporters could claim a deduction under Section 80HHC for profits derived from exports. However, this section has been phased out and is no longer applicable for current assessment years.
Key Points to Remember
- Fully Taxable:
- All export incentives are fully taxable under “Profits and Gains of Business or Profession.”
- Separate Disclosure in ITR:
- Income from export incentives must be disclosed separately while filing income tax returns.
- GST Implications:
- Export incentives are not subject to GST as they are considered government subsidies.
- Set-Off of Expenses:
- Exporters can claim expenses incurred during export activities as deductions, reducing taxable income.
Examples of Tax Treatment
Example 1: Duty Drawback
A company exports goods and receives ₹5,00,000 as duty drawback. This amount is fully taxable as business income.
Example 2: RoDTEP Refund
A manufacturer receives ₹2,50,000 under the RoDTEP scheme for exporting furniture. This income is fully taxable.
Example 3: Sale of Export Licenses
A business earns ₹1,00,000 by selling export entitlements. This income is taxable under Section 28(iiid).
FAQs
1. Are export incentives taxable?
Yes, export incentives such as duty drawbacks, RoDTEP benefits, and income from selling export entitlements are fully taxable under “Profits and Gains of Business or Profession.”
2. Can expenses related to exports be deducted?
Yes, expenses incurred for export activities, such as shipping, packaging, and marketing, can be deducted from taxable income.
3. Is income from export incentives exempt from GST?
Yes, export incentives are treated as government subsidies and are not subject to GST.
4. How should export incentives be disclosed in the ITR?
Export incentives should be disclosed separately under the head “Profits and Gains of Business or Profession.”
5. Are old export incentive schemes like MEIS taxable?
Yes, income from old schemes like MEIS is taxable if received in the current assessment year.
Conclusion
Export incentives provide valuable support to businesses involved in international trade, but they are fully taxable under the Income Tax Act. Proper disclosure and understanding of the provisions under Section 28(iiib) to 28(iiie) are essential for compliance and accurate tax reporting. By planning deductions and maintaining clear records, exporters can optimize their tax liabilities while benefiting from these incentives.
Additional Resources
Learn more about disputed ownership and tax laws on the official Income Tax India website.
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