Deemed exports help encourage international trade as developed domestic manufacturing creates an incentive for suppliers. Comprehending deemed exports is essential for organizations striving to utilize government policies effectively. This article defines deemed exports, outlines the criteria for beneficiary exporters, and explains the incentives under the export policy.
What are Deemed Exports?
Deemed exports are sales where India treats domestically sold goods as exports for benefits. These goods don’t physically leave India. The Export and Import (EXIM) Policy defines deemed exports as goods manufactured in India and supplied locally, with payment made in Indian Rupees or convertible foreign exchange. For instance, if an industry sells machinery to an EOU within India and the EOU uses the machinery to produce export goods, it qualifies as a deemed export. This classification supports domestic suppliers while restricting product exports.
Eligibility Criteria for Deemed Exports
To qualify as deemed exports under the export policy, goods must meet certain conditions.
- Goods Only: This scheme considers only physical goods, leaving services unclassified.
- Produced in India: Manufacturers or producers must create the product within India’s geographical boundaries, as imported goods are not considered.
- No Physical Movement Outside India: The sale must involve goods that remain in India, as they cannot be shipped outside the country.
- Government Notification: It is mandatory that deemed exports authorize the Central Government officially vide Section 147 of the Central Goods and Services Tax (CGST) Act, 2017.
- Payment Terms: Payments can be received only in Indian Rupees or any convertible foreign exchange.
- GST Compliance: GST paid at the time of supply should also be provided on the deemed export supplies. However, suppliers can also claim the refund on such supplies later.
- Specific Transactions: Specific transactions fall under the broad category of deemed exports and are exported. For example, Advance Authorization (AA), Duty-Free Import Authorization (DFIA), and supplies made by EOUs.
Benefits of Deemed Exports
The deemed exports scheme offers several advantages that can significantly enhance a supplier’s competitiveness and profitability:
- Duty Exemptions
Among the strongest attractions offered by deemed exports, one of them is relief from terminal excise duty or a full refund of duties paid. This conserves the working capital of suppliers while making them more competitive both locally and internationally.
- Advance Licensing Opportunities
Deemed exporters can obtain advance licenses for various purposes, such as intermediate supply and Duty-Free Replenishment Certificates. These licenses enable simplification in operations and help in cost control.
- Special Import License Eligibility
Manufacturers involved in deemed exports may receive a special import license, typically at 6% of the Freight on Board (FOB) value. This allows them to import raw materials or inputs at reduced costs, ensuring business growth and continuity.
- Deemed Export Drawback Scheme
The suppliers receiving advance releases under an Advance Release Order or a Back-to-Back Letter of Credit may also opt for the Deemed Export Drawback Scheme wherein drawback refund of terminal excise duty is available along with the Special Imprest License.
- Support for EPCG License Holders
Even exporters selling products to deeming recipients under an EPCG license can benefit from the deemed exports scheme. That would be a useful exception as suppliers would, in such cases, be able to derive the benefits of deemed exports if they, as part of the operations of their business, satisfy certain specific regulatory mandates.
Deemed Exports Under GST Framework
The GST regime treats deemed exports differently than other exports. While it zero-rates other exports, meaning no tax is levied, it taxes deemed exports at applicable GST rates. However, suppliers can claim a full refund of this tax paid on deemed export transactions. The Central Government has issued the various categories of transactions that will qualify as deemed exports under the conditions specified in the CGST Act. This ensures that businesses dealing with those kinds of transactions can recover their taxes while also complying with the regulatory needs.
Common Challenges Faced by Suppliers
Deemed exports offer numerous benefits, but suppliers may face challenges such as:
- Complex Compliance Requirements: Uncomfortably high compliance requirements surely overwhelm companies that have no experience or knowledge about export policies.
- Documentation Burden: All the documentation for the deemed export scheme needs to be accurate and present in full.
- Market Awareness: One needs to be aware of changes in government policies and the market situation to identify the maximum benefits received through deemed exports.
Final Thoughts
Since you are now aware of what happens under deemed exports, including the very eligibility criteria as well as benefits, let’s look into how this approach may help your business. Always verify all documents relating to your transaction to ascertain whether you are in line with government requirements. Use these insights into deemed exports effectively, and you can optimize the functioning of your supply chain, contributing to India’s growing economy through better manufacturing capabilities as well as international trade engagements. Continue being proactive in this space for continued growth and success in your business endeavors.
