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Trade Policies

FDI Policy


UIncentives to Promote Telecom Equipments Manufacturing

  • Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005.
  • 4% additional duty on import of ITA products to countervail the state level taxes.
  • No industrial licence for manufacturing of telecom equipment. Simple Industrial Entrepreneur Memorandum (IEM) has to be filed with SIA.
  • 100% Foreign Direct Investment (FDI) through automatic route.
  • Fully repatriable dividend income and capital invested
  • Payment of technical know-how fee of upto US$ 2 million and royalty upto 5% on domestic sales and 8% on export sales, net of taxes, through automatic route.
  • Imposition of additional import duty, at the rate not exceeding 4% ad-valorem, to countervail sales tax, value added tax, local taxes and other charges leviable on like goods on their sale or purchase or transportation in India
  • Promotion of telecom product specific SEZs.
  • Modification of Electronic Hardware technology Park (EHTP)/Special Economic Zones (SEZs) scheme to allow 100% sales in the Domestic Tariff Area (DTA) for the purpose of meeting export obligations.
  • UIncentives for Promotion of Service Sectors U
  • Any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March 2005, will be allowed in computing the total income, a deduction of, an amount equal to hundred percent of profits and gains derived from such business for ten consecutive assessment years.
  • Import of specified telecom equipment (ITA1 Products) is permitted at zero customs duty rates.
  • Import of all capital goods for manufacturing telecom equipment does not require any license.
  • UIncentives for Exporters
  • 10 year income tax holiday for EOU/EPZ/STP/EHTP units.
  • Export income is exempt from income tax for all exporters.
  • Under the Export Promotion Capital Goods Scheme (EPCG) capital goods for pre production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Custom duty is permitted subject to an export obligation equivalent to 8 times of duty saved on capital goods imported to be fulfilled over a period of 8 years. However, for SSI units, import of capital goods at 5% Customs duty shall be allowed subject to a fulfillment of an export obligation equivalent to 6 times the duty saved (on capital goods imported under the Scheme) over a period of 8 years from the date of issue of licence provided the landed CIF value of such imported Capital goods under the Scheme does not exceed Rs. Twenty Five Lakhs and the total investment in plant and machinery after such imports does not exceed the SSI limit.
  • However, in respect of EPCG licences with a duty saved of Rs.100 crore or more, the same export obligation, as the case may be shall be required to be fulfilled over a period of 12 years.
  • Tax holiday 100% for five years and 30% for next five years in a block of 15 years.
  • Infrastructure Telecom equipment exempted from customs duty.
  • Reduction of customs Duty on Mobile Phones to 5%.
  • Exemption from Excise duty on Cellular Phones and it components, Pagers, Radio Trunking Terminals and Parts.
  • Telecom services sector allowed the benefit of carry forward of losses on mergers.

Foreign Trade Policy 2004-09

Annual Supplement 2008-09
Duty free import of samples up to Rs. 75,000/- (Presently Rs. 60,000/) would be allowed for all exporters.
Exemption from Service Tax on services (related to exports) rendered abroad
Government has after all agreed to the principle that we should only export goods and not the taxes and duties thereon. In line with this, services rendered abroad and charged on exports from India would be exempted from Service Tax.
Exemption / Remission of Service Tax on export of goodsService tax on services rendered in India and utilized by exporters would be exempted / remitted. Remission mechanism would be institutionalized after working out modalities with Department of Revenue (DoR).
Categorization of exporters as One to Five Star Export Houses has been changed to Export Houses & Trading Houses, with rationalization and change in export performance parameters.
Expansion of Ceiling, Scope and Coverage
Under Focus Market Scheme (FMS) and Focus Product Scheme (FPS) coverage / scope of eligible markets / items would be enhanced. Revised allocation for benefits is now Rs.1000 Cr, for exports during 2007-08.
New Markets and Products
16 countries (including 10 from CIS block) are added as new Markets and several value-added low volume export products have been identified and would be entitled to benefits under FPS.

FMS & FPS extended to EOUs
Moreover, EOUs not availing direct tax benefits would also get benefits under FMS and FPS. For full details on Focut Market & Product Schemes, please see http://www.dgftcom.nic.in Foreign Trade Policy 2007-08 (Section 3.9 and 3.10).
Promotion of High Tech Products is essential to increase quantum of such products' manufacturing base in India for export purposes. An Export Promotion Scheme is launched with following salient features:-
i.    Duty credit of 10% on incremental export growth would be given as incentive for exporter.
ii.    List of products would be notified in consultation with concerned Ministries.

Extension of DEPB Scheme

DEPB Scheme stands extended upto 31.3.2008. It is proposed to introduce a new scheme instead of DEPB soon.

Modification in DEPB scheme

While extending the scheme for another year, government has agreed to reimburse the cost of duty on fuel and special additional duty, on all export related imported goods, to the extent it is not cenvatable. Benefit may be allowed by notifying Brand rate of DEPB for such products.


Export Obligation (EO) for tiny and cottage sector
For tiny and cottage, sector export obligation period is raised to 12 years.

Spares, tools and spare refractory for Imported CG
Issue of EPCG for import of spares, tools and spare refractory would be allowed for existing imported plant and machinery (though not imported under EPCG cover).

Waiver of EO due to Force Majeure

Waiver of outstanding export obligations can only be considered where, because of force majeure or other unforeseen circumstances / reasons, exporter is unable to fulfill export obligation.

Concurrent EPCG - Fixation of Average EO

Wherever more than one EPCG authorizations are issued concurrently, fresh EPCG authorization would build upon last required average export obligation only (incorporating the previous EPCG obligation), notwithstanding actual achievements. This removes anomaly whereby better performance is penalized presently.

Block wise EO abolished

Block-wise fulfillment of export obligation would be done away with. This will reduce unnecessary transaction cost and paper work. While doing so in case of existing export obligations fresh EPCG would be issued only to such applicant who has fulfilled proportionate export obligation by that time. Simultaneously, services sector will have to maintain the average to avail new EPCG. This would be a supportive measure for export promotion and growth.


Interest on delayed payments

Interest on delayed payments (refund of terminal excise duty / duty drawback on deemed exports and CST) would be payable in lines of provisions in Customs and Income Tax Acts. This facility would also apply to delayed payments for deemed exports.

Counting for NFE of EOU

Supplies of accessories such as buttons and hangers by EOUs to DTA units will be counted for NFE calculations.

Defining manufacture under Income Tax

Definition of manufacturing shall be incorporated in Income Tax Act. This would remove uncertainty regarding taxation for EOU units.

SEZ Policy

Highlights of SEZ Act
As Foreign Investors select the destination after analyzing the market potential and competition, availability of land, power and water at concessional rates the countries FDI offers tax benefits, facilities for repatriation of profit to parent company and cheap power, water and land. They amend the laws of Land to exempt the investors from paying various taxes. In case of India, in addition to the vast market. The government has devised Special Economic Zones Schemes giving various concessions as follows:

  • A designated duty free enclave and to be treated as foreign territory for  trade operations and duties and tariffs.
  • No licence required for import.
  • Exemption from customs duty on import of capital goods, raw materials, consumables, spares etc.
  • Exemption from Central Excise duty on procurement of capital goods, raw materials, consumable spares etc. from the domestic market.
  • Supplies from DTA to SEZ units treated as deemed exports.
  • Reimbursement of Central Sales Tax paid on domestic purchases.
  • 100% income tax exemption for a block of five years,50% tax exemptions for two years and upto 50% of the Profits ploughed back for next 3 years under section 10-A of Income tax Act.
  • Supplies from DTA to SEZ to be treated as exports under 80HHC of the IT Act.
  • 100% Income-tax exemption for 3 years & 50% for 2 years under section 80-LA of the Income-tax Act for off-shore banking units.
  • Reimbursement of duty paid on furnace oil, procured from domestic oil companies to SEZ units as per the rate of Drawback notified by the Directorate General of Foreign Trade.
  • SEZ unit to be positive net foreign exchange earner within three years.
  • 100% Foreign Direct Investment in manufacturing, sector allowed through automatic route barring a few sectors.
  • Facility to retain 100% foreign exchange receipts in EEFC Account.
  • Facility to realize and repatriate export proceeds within 12 months.
  • Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc. without G.R. Waiver under intimation to the Development Commissioner.
  • "Write-off" of unrealised export bills upto 5%.
  • Commodity hedging by SEZ units permitted
  • Capitilization of import payables
  • No cap on foreign investment for SSI reserved items.
  • Exemption from industrial licensing requirement for items reserved for SSI sector.
  • Profits allowed to be repatriated freely without any dividend balancing requirement.
  • Domestic Sales on full duty subject to import policy in force.
  • No fixed wastage norms.
  • Full freedom for subcontracting including subcontracting abroad.
  • Job work on behalf of domestic exporters for direct export allowed.
  • No routine examination by Customs of export and import cargo.
  • No separate documentation required for customs and Exim Policy.
  • In house customs Clearance.
  • Support services like banking, post office clearing agents etc. provided in Zone Complex.
  • Developed plots and ready to use built up space.
  • Exemption from Custom/Excise Duty on goods for setting up units in the zone.
  • In addition, the States concerned are also giving benefits of Cheap Land, Power, Water, Capital as well as many other direct and indirect tax incentives.