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How to Calculate Duty Drawback on Export in India?

In India, the Central Board of Indirect Taxes and Customs or CBIC is responsible to provide guiding policies regarding collecting customs duties and excise charges. To ensure businesses can have a financially beneficial endeavour when shipping out products overseas, the board introduced schemes regarding duty drawbacks on export.

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What Is Duty Drawback on Export?

In simpler terms, duty drawback refers to the amount an exporter can claim to have a refund of that he or she had spent as customs duty when shipping in that product in question, its raw materials, or its substitute.

Parameters set forth by Sections 74 and 75 of this country’s Customs Act of 1962 have clearly stated these regulatory parameters under which this kind of transaction can take place. This scheme had proved itself to be a lucrative offer to businesses of this country, with 60% of India’s total exporters having signed on for these services in this financial year of 2021 – 2022.

Types of Duty Drawbacks

Notably, based on the relation between imported and exported products, different kinds of duty drawbacks on export schemes are applicable. These include:

1. Manufacturing Direct Identification Drawback

Certain companies are known for shipping different kinds of raw materials in order to manufacture goods which will be exported by them afterwards. Such exporters are able to claim a duty drawback for the import tariff they have originally paid for these raw materials.

2. Manufacturing Substitution Drawback

Companies can also claim a duty drawback on export if products they are shipping abroad are of a similar kind and quality of goods that they have imported beforehand. Additionally, as per laws, if these imported goods were not used altogether for the end product getting shipped out, an exporter can still claim the rebate.

3. Unused Merchandise Direct Identification Drawback

A business is eligible to make a claim for custom duty repayment under this scheme if it is exporting a hitherto unused item that it had previously imported.

4. Unused Merchandise Substitution Drawback

A company might have exchanged a set of imported products with another similar set shipped in by paying adequate custom duty. So, this business can claim a refund if it exports this second set of goods if those have never been in use.

How to Calculate the Duty Drawback on Export?

In order to receive duty drawbacks, claimed sum has to be more than set threshold of minimum duty drawback percentage and amount. Moreover, the 3 factors to calculate the allowed duty drawback are as follows:

Duty drawback amount
Minimum Amount of duty drawback
Minimum percentage of duty drawback

Now, you can also receive the allowed duty drawback amount with this formula mentioned below:

Export Value of Products x [Minimum Duty Drawback Percentage/100] ≥ Drawback Claimed By Company

A sample is taken for the sake of example, where a product is exported at the value of ₹50000 and the minimum percentage of duty drawback is 1. So, if a business will have to claim a duty drawback on export, then it has to be equal to:

₹50000 x [1/100] = ₹ 500

What are the Factors Determining Duty Drawbacks on Export?

Some crucial aspects that determine the duty drawback on export include the following:

Physical Change of Imported Goods: Suppose a business had shipped in certain raw materials from overseas. Therefore - if it has to claim a refund on tariffs paid for the import - raw materials must have a significant physical change to produce the exporting goods.
Number of Imported Units Used: A business can be using imported products to process the goods it is manufacturing for sole purpose of exporting. In that scenario, the unit of raw materials used for production of each piece of an exportable commodity cannot be exactly same if a duty drawback has to be claimed.
Export Value of a Product: An exporter is not legally allowed to receive any duty drawback if value of the exporting goods is lesser than the amount he or she paid for the original importing.
Role of Government: It should also be noted that if an exporter is unable to receive sale of goods within a set timespan, the government itself can deem this drawback.
The Period between Importing and Exporting a Product: As per regulations of the Customs Act, an individual can claim 98% of the import tariff paid for a product, if he or she is shipping them abroad within two years of the payment’s exact date.

Things to Consider with Duty Drawback on Export Calculations

When applying for duty drawback on export, one has to keep in mind that:

He or she can save up significantly on the costs of manufacturing a product.
If he or she has not made any drawback claims for the past three years, the exporter is allowed to make those refunds in a single go.
Keeping necessary documents within reach is crucial, as inadequate bookkeeping practices can prolong the disbursement procedure.

The success of duty drawback on export schemes has been apparent in recent times. For instance, in the financial year of 2021-2022, a lump sum of ₹ 23,920 Cr had been disbursed to the exporters as a drawback refund. Therefore, such fundraising opportunities can be highly effective in cementing the sustainable growth of a business in the long run.

FAQs About Calculating Duty Drawback on Export

All

Is the Goods and Services Tax or GST applicable for duty drawback?

Exported goods are not under the purview of GST.

Can an exporter check his or her duty drawback-related details online?

An exporter can check the details of his duty drawback information from the official portal of the Indian Customs Electronic Commerce/Electronic Data Interchange (EC/EDI) Gateway or ICEGATE.

What is the validity period of duty drawback?

The validity period of duty drawback is within 2 years from the date of payment of duty on the importation. However, it can be extended on sufficient cause being shown by the Board.

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