Deemed Exports Explained: Benefits & Compliance in India

In international trade, managing deemed exports is an important part of compliance. This entails following particular rules and ensuring all internal procedures satisfy legal requirements. Comprehending the regulatory environment and implementing comprehensive training initiatives for your staff are essential for effective management. Handling deemed exports correctly keeps your operations running smoothly and keeps you from getting into issues with the rules and regulations. 

Here, we’ll examine the essential requirements for export compliance and the crucial instructions needed to handle the nuances. Concentrating on these areas can ensure that your company stays compliant and runs well. Let’s get started.

Deemed Exports Explained: What You Need to Know

Deemed exports refer to transactions where goods are supplied within India, but the payment is received in Indian rupees or foreign currency. Even though the goods never leave the country, these transactions still receive the same benefits as actual exports. The Government of India has designated certain transactions that qualify for these benefits under specific conditions.

Example of Deemed Exports

Let’s say a manufacturer in Maharashtra supplies machinery to a company located in a Special Economic Zone (SEZ) in India. The company uses this machinery to produce goods to be sold to a buyer in the United States. The transaction between the Maharashtra manufacturer and the SEZ company is treated as a deemed export, while the sale of goods to the U.S. buyer is classified as an actual export.

The Export and Import (EXIM) Policy defines deemed exports as goods manufactured in India that are sold within the country, with payment accepted in either Indian rupees or foreign currency.

The Advantages of Deemed Exports

Deemed exports offer several benefits to manufacturers and suppliers, as per the guidelines outlined by the Ministry of Commerce & Industry. Below are the key advantages:

1. Advance Licensing Opportunities

Suppliers involved in deemed exports can obtain licences such as Advance Authorisation, Advance Authorisation for annual requirements, or Duty-Free Import Authorisation (DFIA). These licences allow duty-free import of raw materials and other inputs, helping you manage costs. You can also get an Advance Licence for intermediate supplies, deemed exports, or a Duty-Free Replenishment Certificate (DFRC) for smoother trade operations.

2. Excise Duty Exemption or Refund

Deemed exports are either exempt from terminal excise duty or qualify for a full refund of the duty paid. You’re eligible for a terminal excise duty exemption if your goods are supplied through an International Competitive Bidding (ICB) process. In other cases, you can claim a refund. This ensures that you preserve working capital and enhance profitability.

3. Special Import License Eligibility

Manufacturers engaged in deemed exports are eligible for a Special Import License. This licence, usually 6% of the Freight on Board (FOB) value, allows you to import raw materials or necessary inputs at a reduced cost, helping you maintain continuous production and expand your business.

4. Deemed Export Drawback Scheme

Suppliers fulfilling orders under an Advance Release Order or Back-to-Back Letter of Credit are eligible for the Deemed Export Drawback Scheme. This scheme allows you to receive a refund on terminal excise duty and gives you access to a Special Imprest License, further supporting your participation in deemed exports.

5. Benefits for EPCG Licence Holders

You can still take advantage of most deemed export benefits when supplying goods to a recipient with a zero-duty Export Promotion Capital Goods (EPCG) licence. However, you won’t be eligible for the Special Imprest License or the Deemed Export Drawback Scheme. This ensures that even when supplying goods under an EPCG licence, you can still benefit from other aspects of the deemed export scheme.

6. Refund of Terminal Excise Duty for Eligible Goods

Goods classified under deemed exports, particularly those listed in Schedule 4 of the Central Excise Act, 1944, are eligible for a refund of terminal excise duty if they meet the necessary criteria. This allows suppliers to reduce their financial burden and reinvest in their operations.

Export, Deemed Export and Merchant Export: Key Differences Explained

These are some of the critical differences between export, deemed export and merchant export that you should know about:

Aspect	Export	Deemed Export	Merchant Export
Definition	Products and services are produced in a certain country and sold to consumers in another country.	Goods are manufactured in India but supplied locally under specific conditions.	Goods procured locally and sold to international buyers under the merchant’s label.
Movement of Goods	Goods move from the producing country to a foreign country.	Goods remain within India but are meant for international use or are used in export-oriented units.	Goods are purchased locally and then exported to international markets.
Examples	A company in India sells products to buyers in the USA.	A Kerala-based manufacturer sells goods to an Export Oriented Unit (EOU) in Maharashtra.	A trader buys goods from Indian manufacturers and exports them to European buyers.
GST Application	Zero-rated; no GST levied on exported goods.	GST is applicable, but a refund can be claimed.	Subject to GST in India, a refund can be claimed.
Financial Transactions	It often involves settling financial matters such as letters of credit and exchange rates.	Payment can be made in Indian rupees or convertible foreign exchange.	Merchant exporters handle financial transactions and logistics for the export process.
Role of the Exporter	Manages the entire process of shipping goods to another country.	Supplies goods locally under conditions defined as deemed export.	Acts as an intermediary, buying from local suppliers and selling to international buyers.
Documentation Required	Includes export licences, shipping documents, and invoices.	Requires documentation related to local sales and compliance with deemed export conditions.	Requires export documentation, including compliance with international trade regulations.
Eligibility for Benefits	Eligible for export incentives and tax benefits.	Eligible for specific government incentives and benefits.	Eligible for export incentives and benefits.

Understanding the Eligibility Criteria for Deemed Exports

To qualify as deemed exports, a transaction must meet specific requirements set by the government. Here’s a clear breakdown of what makes a transaction eligible:

1. Applies to Goods Only: Deemed exports only cover goods. Services are not eligible under this scheme, so you must deal with physical products to qualify.
2. Goods Must Be Produced in India: The items involved must be manufactured or produced within India’s borders. This means that goods sourced from outside India don’t fall under deemed exports.
3. Goods Stay Within India: The goods involved in the transaction cannot be shipped outside India. They must remain within the country’s boundaries to qualify.
4. Government Recognition: The goods must be officially declared as deemed exports under Section 147 of the Central Goods and Services Tax (CGST) Act, 2017. This is an essential step in the eligibility process.
5. Currency and GST Payment: Payments for deemed exports can be made in Indian Rupees or any convertible foreign currency. GST applied to these goods must be paid when the supply takes place, and there’s an option to claim a full refund of this tax later.
6. No Bonds or LUT Allowed: Goods classified as deemed exports cannot be processed under a Letter of Undertaking (LUT) or a bond.

Categories Eligible for Deemed Export Status

Here are the main types of goods that can be considered deemed exports:

1. Goods are provided under advance authorization or similar schemes.
2. Goods supplied to Export Oriented Units (EOUs), Software Technology Park (STP) units, Electronic Hardware Technology Park (EHTP) units, and Bio-Technology Park (BTP) units.
3. Capital goods sent to holders of Export Promotion Capital Goods (EPCG) authorisation.
4. Goods delivered for projects funded by international agencies or funds, as per guidelines from the Ministry of Finance’s Department of Economic Affairs.
5. Capital goods, including unassembled or disassembled items, plants, machinery, accessories, tools, and dies, are used for installation until production starts.
6. Goods supplied for projects or purposes authorised by the Ministry of Finance under specific notifications for duty-free imports.
7. Marine freight containers, as long as they are exported from India within 6 months or as extended by customs.
8. Goods used in projects funded by UN agencies.
9. Goods provided for nuclear power projects through competitive bidding.

Deemed Exports in the GST Framework: What You Need to Know

Under GST, “deemed exports” refer to transactions where goods are supplied within India but treated like exports for tax purposes. Although these goods do not cross international borders, they qualify for tax benefits and incentives provided by the government.

Here’s how deemed exports work:

• Tax Treatment: Unlike regular exports, deemed exports are not zero-rated supplies. This means GST must be paid at the time of the transaction. However, you can later claim a refund for the tax paid.
• Refund Eligibility: The tax refund can be claimed by either the supplier or the recipient. If the supplier claims the refund, the recipient cannot claim an input tax credit (ITC) for that transaction.

Procedure to Claim a Refund:

1. Prepare a Detailed Statement: Create a comprehensive statement with invoice-wise information about the goods supplied as deemed exports.
2. Obtain an Acknowledgment: Get an acknowledgement from the tax officer responsible for the Advance Authorisation (AA) or Export Promotion Capital Goods (EPCG) holder recipient.
3. Attach a Copies of the Signed Tax invoice: A copy of the recipient’s signed tax invoice is required for Export Oriented Units (EOUs), Electronic Hardware Technology Park Units (EHTPs), Software Technology Park Units (STPs), and Bio-Technology Park Units (BTPs).
4. Provide Letters of Undertaking (LoUs):
   • No ITC Claimed: The recipient must submit a Letter of Undertaking confirming that no ITC has been claimed for the transaction.
   • No Refund Claim: The recipient must also provide a Letter of Undertaking stating they will not claim a refund for the transaction.

ShiprocketX: Simplifying Exports for eCommerce 

If you want to take your business global, ShiprocketX makes international shipping easy and efficient. This platform is designed to help you expand your reach and simplify eCommerce exports. Even though you’re shipping from India, you can connect with customers in over 220 countries through transparent, door-to-door delivery with no weight restrictions.

ShiprocketX offers flexible shipping options to suit your needs. Customs clearance is straightforward, removing the usual paperwork hassles of international shipping. You’ll receive real-time updates via Email and WhatsApp, so your customers are always informed about their orders. 

With a courier network covering 220 international destinations, you can quickly grow your customer base. You can also enhance customer loyalty with a branded tracking page that displays your logo and promotes your products. Dedicated account managers are available to offer support and quickly address any issues. By using ShiprocketX, you simplify your international shipping process and improve your global presence.

Conclusion

When handling deemed exports, staying compliant is crucial for the success of your business. Understanding the applicable regulations and providing proper training to your team can make all the difference. Following the rules can avoid penalties and protect your business from legal issues. Regularly update your staff on the latest policies and ensure they know how to manage sensitive data and goods. With the right knowledge and training, you can confidently navigate the complexities of deemed exports and focus on growing your business.