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In India, exports contribute about 18% to the overall GDP. The government has initiated various incentives for promoting exports, including duty credit scrips. They are valuable credits that Indian exporters can use to offset import duties.
For example, under the Merchandise Exports from India Scheme (MEIS), eligible exporters can receive up to 5% duty credit on their export value.
This article explores the benefits of duty credit scrips, clarifies how GST impacts their sale and use and provides a clear guide on how exporters can sell these scrips to enhance cash flow. So let’s get started!
Duty credit scrip is issued under the Foreign Trade Policy, 2015-20 by the Directorate General of Foreign Trade (DGFT). DGFT gives duty credit scrips to exporters under MEIS and SEIS schemes. They allow exporters to receive credits based on their export performance, which can then be used to reduce customs duty liabilities on future imports.
These scrips can be used to pay basic customs duties on any imported good which helps businesses cut costs on imports and increase profitability.
There are 3 major schemes that provide DCS - the Merchandise Exports from India Scheme (MEIS), the Service Exports from India Scheme (SEIS) and the Export Promotion Capital Goods Scheme (EPCG). They differ in their eligibility criteria, but each serves to increase the competitiveness of Indian exports in international markets.
MEIS Duty Credit Scrip
The MEIS Duty Credit Scrip is for exporters of goods only. Any exporter of specified products as approved by the MEIS scheme can receive DCS based on his export performance. Credits are usually awarded between 2% and 5% of the FOB value of exports, which is again dependent on the category and destination of goods. MEIS was brought in to facilitate all kinds of sectors and products - from textiles and agriculture to electronics and pharmaceuticals.
SEIS Duty Credit Scrip
The SEIS Duty Credit Scrip targets the exporters in the services sector. In contrast to MEIS, it does not focus on the goods. The DCS under the SEIS are issued to eligible service exporters at the rate of 3% to 5% of their net foreign exchange earnings. It provides incentives for exports in consulting, IT, hospitality, healthcare, and education services. This makes the Indian service provider more appealing in the global market because their import-related expenses are covered via duty credit scrips.
EPCG Duty Credit Scrip
The EPCG Scheme enables capital goods to be imported into the country at concessional duty rates and also provides export-duty credit scrips to exporters. In other words, the scheme allows an importer-exporter to import capital goods that facilitate the production capacity, which will be used in the production of exportable items. The duties under EPCG are to be balanced with certain export obligations that exporters have to fulfill for that particular benefit.
Together, these duty credit scrips offer Indian exporters a big advantage in terms of cutting import expenses and enhancing their cash-flow options. By understanding which one applies to their business and leveraging that, exporters in both goods and services can more optimally perform their export operations and get a better grip in foreign markets.
Initially, duty credit scrips attracted a tax of 12%, but as the GST regime has evolved, duty credit scrips are currently exempt from GST. This exemption is effective both at the time of issue and at the time of their sale or transfer; in other words, the seller, as well as the buyer, do not pay any GST at the time of these scrips' transfer. This exemption makes DCS more accessible to businesses as they do not have to worry about GST at the time of selling or buying these scrips.
Countries worldwide use HSN codes to classify traded goods.
In India, the HSN Code 4907 applies to duty credit scrips because they are considered "documents of title conveying the right to receive money."
The code aligns with the function that DCS carry because they entitle the holder to tax benefits or duty exemptions on imports. Knowing the right HSN code, 4907, is critical for exporters in the correct categorization of such documents at the time of sale transfer, or offsetting import duties, thereby ensuring regulatory compliance and smoother.
Businesses should confirm updates of HSN classifications through the Central Board of Indirect Taxes and Customs or seek the advice of a tax consultant since some classes sometimes change. That is important in correct filing and regulatory processes.
Duty Credit Scrips form a very integral part of export incentives that Indian exporters enjoy under schemes like the MEIS (Merchandise Exports from India Scheme) and the SEIS (Services Exports from India Scheme). Here is the step-by-step procedure on how Indian exporters claim their Duty Credit Scrips, together with the documents and procedures to file with the Directorate General of Foreign Trade.
Step 1: Verify your eligibility
The exporter must verify their eligibility with relevant export schemes:
MEIS
Applicable to exporters who have shipped goods to notified markets and sectors.
SEIS
Available for service exporters who earn foreign exchange from services provided outside India.
EPCG (Export Promotion Capital Goods Scheme)
For exporters looking to import capital goods at concessional duty rates.
Step 2: Gather Documentation
The following documents are required while requesting DCS:
Step 3: DGFT Application Submission
Once all the export documents are in place, an application for the issuance of duty credit scrips is to be filed with the DGFT.
File your application through the online platform given by the DGFT at www.dgft.gov.in
Step 4: DGFT Verification
After the application is filed, the DGFT scrutinizes the submission to ensure all the relevant criteria are met. In case it finds that the application is comprehensive and valid, it will process the same.
Step 5: Issuance of Duty Credit Scrips
The exporter will be issued DCS upon being granted approval by the DGFT. Such scrips will be available in the account of the exporter with the DGFT. The amount of such scrip will depend on the exporting value and the rate of incentive applicable under the scheme.
Step 6: Use or Sale of Scrips
Once the Duty Credit Scrips are issued, the exporter has two options:
Apply the scrips: The scrips can be used to offset import duties when purchasing goods for their business.
Sell the scrips: Exporters can sell the scrips to importers or brokers to generate some cash.
As duty credit scrips have a limited period of validity, they can be freely sold or transferred by exporters who have no immediate use for them.
The sale of duty credit scrips is a strategic way to utilize such credits by small or medium-sized enterprises, which would otherwise find it impossible to get the full benefit of the scrips. For example, if an exporter has duty credit scrips worth Rs. 50,000, he can sell his DCS at a discounted rate of Rs. 40,000 and make an easy profit of Rs. 10,000. Here’s how you can sell duty credit scrips -
1. Peer-to-peer - sell directly to importers
Importers, especially when they engage in trade frequently, are normally interested in acquiring DCS to offset the import duties they have to pay. This is the most common method of selling DCS and it can be very efficient since it does not involve any middlemen.
2. Use a Broker
There are third-party brokers who have the expertise and contacts to find buyers for DCS. They often do better than you could on a direct sale, although a brokerage fee will apply.
3. Online trading platforms
Over the last couple of years, selling DCS over internet-based auction sites has become popular. This form of sale allows the seller to interact with a big body of prospective bidders which increases the chances of receiving a favorable price. Internet sites like dutyexchange.com or dutycentral.in can help u buy & sell DCS.
Every nation wants a large foreign exchange reserve in order to manage economic downturns. To that end, the Indian govt. provides various benefits to exporters, one of them being duty credit scrips. Through schemes like MEIS, SEIS, and EPCG, exporters get significant credits that can result in a reduction in import duties; this eventually accelerates the cash flow in their business. The availability of these scrips for sale or transfer further increases the flexibility of businesses, especially small and medium-sized enterprises, as it helps generate immediate funds.
Duty credit scrips come with an expiration date, and they must be utilized before this period ends. The duration of validity for duty credit scrips under the various schemes is as follows:
MEIS: Valid for 18 months from the issuance date.
SEIS: Valid for 18 months from the issuance date.
EPCG: Valid for 18 months from the issuance date.
Though both SEIS and MEIS duty credit scrips reduce the import duties, they belong to different export categories. MEIS is for the exporters of the product whereas SEIS is exclusive for the exporters of services. These scrips may belong to different categories but cannot be exchanged or substituted for one another.
No, duty credit scrips cannot be used to pay IGST, CGST, or SGST on imports. They can only offset basic customs duties such as:
The MEIS, SEIS, and EPCG schemes do not set an upper limit on the amount of duty credit scrips an exporter can earn. However, the credit depends on the value of exports and the specific export performance in relation to the scheme guidelines.
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