Export Pricing Structure

The export price structure is made of several segments. Such segments can broadly be divided
into :—
1. Fixed Costs
2. Variable costs

• direct costs
• export specific or indirect costs

Fixed Costs

Fixed costs are those which remain fixed irrespective of level of production or sale.

Examples of fixed costs

• Rent
• Rates
• Salaries
• Accountancy costs
• Most marketing costs related to expoet business like advertising, sales promotion
• Research and Development
• Plant and Machinery

It depends on the the share of export in the total production and sales of the exporter.

VARIABLE COSTS

Variable costs are expenses that change in proportion to the activity of a business .Variable cost
is the sum of marginal costs over all units produced. It can also be considered normal costs. A
cost of labor, material or overhead that changes according to the change in the volume of
production units.
Examples

• Raw materials, components used in the export products

• Labour directly employed in tbe production of export product
• Fuel and power
• Transportation on carriage of goods to godown and factory
• Packing labelling and marking of goods
• Commission paid to salesman and agent
• Sales expenditure on maintaining staff
• Sales promotion expense on publicity
• Banking expenses including credit on finance

Export-Specific Costs

Such costs arc those which are specific or exclusive to export and also known
as indirect costs as distinguished from direct costs. These are additional costs, other variable
(direct) costs being sometimes common to export and domestic pricing. Export-specific costs are
also defined as summation of export distribution costs.

Examples

• Packaging/packing, labelling and marking of goods

• transportation from warehouse/factory to port of despatch,
• commission payable to agents (domestic or overseas), if any employed
for procuring export orders
• after-sales service, if any, to be provided, including cost of spare parts,
• cost of maintaining overseas sales offices/after sales-service establishments,
• expenditure on maintaining staff for export sales in the country,
• sales promotion expenditure on publicity, etc,
• direct financial costs on extending credit facility, bank charges Oil
• negotiation of documents for realization of export proceeds,
• Internal transport costs and ocean/air freight charges, as applicable.
• Port charges/customs levies including export duty and cess if any.
• forwarding/shipping agents and documentation charges
• consular/visa fees, supervision and pre-shipment inspection charges,
• Any other cost arising specifically for exporting a product.

Commission
There are two components of commission, one payable to domestic agents and canalizing
agencies and the other to the overseas agents. The rate of commission of the canalizing
and domestic agents may be nominal. commission payable to overseas agents range between 5 to
12.5 %depending on the product/market and volume/turnover of business

Port Charges, Customs Levies, Export Duty/Cess

Though all exports don't attract export duty/cess, port charges and customs levies are there on all
shipments. Whereas export duty/cess i.e. customs tariff are mostly on products like tea, coffee,
jute manufactures, tobacco, hides and skins, mica, etc. exported from India, almost all port arid
customs authorities through out the world do collect charges of one or other kind. Detailed
information on these aspects may be collected from Clearing and Forwarding/Shipping Agents.
However, a few of them are discussed here.

Special loading Charges

A vast array of additional costs may be levied against you if you happen to be shipping an
unusual or awkward product. The transport company, faced with additional costs associated with
this abnormal move, will pass the costs all to you. When the goods finally reach the docks, there
is certain to be all additional unloading charge exacted by the dock operator.

Initial Cartage

This includes the cost of getting your merchandise down to the dock.

Freight to Seaboard

This is the line haul charge for those firms that are inland from port facilities.

Terminal Charges

Wharfage charges are cargo handling charges between the truck and the ship.

Ocean Freight

Ocean freight charges represent the largest cost component of the exporting costs. The freight rate is
based on a weight tonne or a measurement tonne- the one used will be that which offers the most revenue
to the ship. Thus. if you include unnecessary packaging you may be charged on the basis of cubic
measure which would increase your freight costs relative to freight charges computed On a weight
measure.

$urcharges

Surcharges will vary from commodity to commodity port to port and even operator to opera tor.
 • Bunkers surcharge.

Bunkers is tbe term referring to the fuel that powers the ship. If fuel rates increase and the
shipping companies do not wish to increase their freight rate, they merely issue a bunkers'
surcharge.

• Staffers Charge

Most ports will themselves not take the respionsibility of loading and unloading the container

• Equipment handling charges

Heavy lift charges will be against the containers.

• Port surcharge

The shipping company may choose to levy surcharge if it has encountered problems such
as shallow draft, problem quays, and labour problems.

• Congestion Charges

These generally occur when there are major problems in a port ie bot I swaiting in line to
get loaded.

• Currency Exchange surcharge

A surcharge is levied if even you are paying in the highest rated currency.

Documentation Charges

The consular documents involves charges for

:--
• the documents themselves
• translation charges to have the documents in the language of the importing
country,
• nortization charges (if required), and
• fines levied by tbe consulate for mistakes and corrections made to the documents.

.
Other charges

There are a number of additional charges that may be levied that are not listed
on an Export Costing Sheet. These include':-

• Costs of moving goods on arrival.

The costs of a higher ship to transfer cargo from and to bigger ships in a shallow draft harbor
may have to be bome by the scller. Additionally, there may be some inbound terminal and/or
wharfage charges.

• Export permits.

Most countries have an Export Control List, and if you wish to export goods in this category you
have to receive a permit from your government. A heavy fine may be-levied if such goods are
exporter without the required permit. Although in most cases there is no charge for the permit it
involves time and effort which can be included in administrative costs.

• Export duty.

Many countries charge an export duty on specific or all commodities This provides a source of revenue
assist in the development of the country. Often times the duty decreases with tbe extent t of processing:
raw materials acquire a higher duty while duty on finished products is lower or non-existent.

• Import permit

. Often timcs the customer will require that you as the seller contact the neccessary parties in his
country to obtain any required import permits.

• Storage charges.

Incvitably no one seems to arrive on time - the boat coming to your dock, the boat arriving at another
deck, the transport company pickillg up the goods in the foreign market to he delivered' to your customer,
etc. 1 everyone of those cases, you are liable for the storage cbarges, not the shipping companies.

• Bank charges.

Banks call assist you in the colIection in of money fromcustomers. You can request them to hold the
document until they receive paymcnt from the customer. Of course, you will be assessed a
fee for the services.

• Financing charges.

If your goods are going into a long term project and the customer in order to buy, requircs long-term
credit, then these financing charges to extend tbe credit over that period or time obviously have to be
added into your costs.
 • Miscellaneous.

In this category fall costs one may describe as petty; phone calls, cables, telexes, stamps, fees for advice j
legal services. Sometimes, the C & F or Shipping Agents include the port and custom charges
in their (forwarders) fee. But it is better if exact incidence of such charges is known in advance of costing
a product for export..

Documentation fee

In addition of the forwarding doc which a CHA collects from the exporter, there are certain charges for
preparing documents. For example, for obtaining a consular invoice, certificate of origin. GSP certificate
or export visa, consignment inspection charges, etc which the exportcr is required to pay. These charges
may be either directly paid by the exporter to the concemed agency or through his Agent (CHA) where
tbe latter prepares the documents. These charges also form a part of export pricing.

Forwarding Charges

How ever big or well-organised an exporter is, he has to retain Forwarding/Shipping Agent who
is an authorised Customs House Agent (CHA). It is obligatory to retain a CHA, and be charges a
fee which is a direct charge all export transaction. It must, therefore, be taken into account for
pricing' a product for export.

Export Incentives Sales Tax Exemption andReimbursement of CST to 100%

EOU/EPZIFTZlSTP/EHTP Units*

No Liability under State Sales Tax Law

Article 286( I) of the Constitution states that no law of a State shall impose, or authorise the
imposition of. a tax on the sale or purchase of goods where such sale or purchase takes place (a)
outside the State; or (h) in the course of the import other goods into, or export of the goods out of
the territory of India.

Sales in the course of export: Section 5 of the Central Sales Tax Act defines the expression "in
the course of export". The sale which is to be regarded as exempt is a sale which causes the
export to take place or is the immediate cause of the export, To establish export a person
exporting and a person importing are necessary elements and the course of export is
between them. A sale in the course of export of the country should be understood as meaning a
sales taking place not only during the activities directed to the end of exportation of the goods
out of the country but also as a part of or connected with such activities. A sale by export thus
involveses a series of integrated activities commencing from the agreement of sale with a
foreign buyer and ending with the delivery of the goods to a common carrier for transport out of
the country by land or sea. Such a sale cannot be dissociated from the e.xport without which it
cannot be effectuated. and the sale and the resultant export form parts of a single transaction.
The phrase 'sale in the course of export' comprises in itself three elements: (i) that there must be
a sale: (ii) that goods must
actually be exported; and (iii) the sale must ~ a part and parcel of the export. Therefore, either
the sale must take place when the goods are already in the process of being exported which is
established by their having already crossed the customs frontiers, or the sale must occasion the
export. Thus, the sale which is to be regarded as exempt is a sale which causes the export to lake
place or is the immediate cause of the export.

Exemption under Central Sales Tax Act, 1956

The Parliament is empowered to levy sales tax on sales in the course of export. However, in
order to boost India's exports, the Government has exempted export sales from levy of Central
Sales Tax Act also. The export sales contemplated to be exempt have been defined u/s 5 of the
CST Act-

Sales by Transfer of Documents of Title of the goods: Section 5( 1) describes the two modes
where under a sale or purchase is deemed to be in the course of exports, viz., (:)where the sale or
purchase occasions the export, (ii) and when: the sales or purchase is effected by transfer of
documents of title the goods after the goods have crossed the customs frontiers of India
As regards the first mode, we have already discussed in the preceding paragraphs. In regard to
the second mode,two requirements must be satisfied to claim that :he sale of the goods has taken
place in the course of export.These arc:

(a) the sale is effected by transfer of documents of title to the goods; and
(b) that the transfer of documents was &effected after the goods had crossed the "customs
frontiers of India. In an export-sale, the bill or lading is the document of title to the goods, and
thus, unless there is an agreement to the contrary, the transfer of the bill of lading with
endorsement in favour of the buyer will amount to the sale of goods and the passing of the
property therein from the seller to the buyer. For the purposes of bringing a transaction under the
second mode, it has to be shown that the sale was effected by transfer of documents of title to the
goods and that such transfer was effected after the goods had crossed the frontiers of India.

Crossing the Customs Frontiers of India As per Section 2(ab) in the Central Sales Tax Act
crossing the customs frontiers of India" means crossing the limits of the area of a customs
station in which imported goods or exported goods are kept before clearance by customs
authorities.

Deemed Exports: Under the Export and import Policy, certain supplies of goods hy the
main/sub-contractors to the ultimate exporters are considered as 'deemed exports' and are entitled
to certain benefits which are similar to the actual exports. As regards sales tax exemption, such
supplies shall be exempt if the conditions laid down ufs 5(3) of the Central Sales Tax are
fulfilled Refer to 'Penultimate Sales in the course of export later. However, certain dealers selling
goods locally to foreigner tourists against foreign exchange have ,also been claiming such
sales as 'deemed exports'. Such sales are not eligible for exemption and are taxable under the
Local Act since being local sales.

Registration

For claiming exemption from sales lax the exporter has to get himself registered with the Sales
Tax Authorities. The procedure of registration has been explained In detail in an earlier chapter
of the Book. The exporter is required to produce documentary evidence of the goods exported at
the time of Sales Tax Assessment. The deduction for the purpose of export~made out of the
country shall be allowed on furnishing of the following documents:
(i) Export Invoices
(ii) Bill of Lading/Air Cargo 8i11 duly stamped by the custom authorities.
Besides, the books of accounts., shall also be scrutinised by the assessing officer.

Penultimate Sales in the course of export

As per section 5(3) of the CST Act. the last sale or purchase of any goods immediately
preceding the sale or purchase occasioning the export of goods out of the territory of India. shall
also be deemed to be in the course of export. if such last sale or purchase takes place after and
for complying with the agreement or order for or in relation to such export. The exemption is
available only to such penultimate sale as satisfies the two conditions namely. (a) that such
penultimate sale must take place i.e" become complete after the agreement or order under which
the goods are to be exported, and (b) it must be for the purpose of complying with such
agreement or order, and it is only then that such penultimate sale is deemed to be a sale
in the course of export. ."The agreement" occurring in the phrase "the agreement or order for or
in relation to such export" in section 5(3) means or refers to the agreement with a foreign buyer
and not an agreement with a local party containing the covenant to export. In order to claim
protection of sub-section(.3) of section 5. the dealer will have to establish that the last sale before
the sale occasioning export were of those goods which were exported. .' 'The merchant-exporter
has to furnish the prescribed declaration forms to his supplier to enable him claim the Sales Tax
Exemption against the goods supplied for exporls. In such cases. both the Supplier and the
Exporter have to be registered with the Sales Tax Authorities. Form H has to be furnished for
purchases made from outside the State; and Forn 14 has been furnished for purchases made
within Maharashtra (Form ST-49 for Delhi. for other States refer to the local law J. A bill of
lading only shows that the exporter exported certain goods to the foreign buyer. It does not
identify that it is the goods which were sold by the dealer to the exporter. that were exported {Q
the foreign buyer. This can be established only by filling form'H' (or form ST-49).The exporter
should apply in prescribed proforma to the concerned Sales Tax Officer for issuing 'form H" (nr
Form14 orST-49 etc.) along with the following documents
(I) Copy of shipping bill, duly certified by the Customs authority.
(2) Copy of invoice duly certified
(3) Copy of letter of credit.
(4) Copy of confirmed export order
On receipt of the application the Sales Tax Officer may order for issuance of "Form H" to the
exporter. After the goods have been exported the exporter shall. Fill in the form in
triplicate.One .copy of Form H will he retained by tbe exporter while remaining two copies will
he given to dealer or manufacturer from whom the exporter has purchased thegoods for export.
"Form H" cannot be endorsed in favour of a third party. The exporter is also required to maintain
proper account of Form H in the prescribed form registcr. This prescribed
form/register duly filled up, is to be submitted to Sales Tax Authority, in prescribed time.

Sales Tax on Transfer of Export Licences

In Vikas Sales Corporation & AI/I, vs err & Alii .. the Supreme Court has held that REP
Licenses/Exim Script, are 'goods'. The court observed that the REP Licenccs/Exim Scrips have
their own value; tbey are bought and sold as such, The original licensee or tlie purchaser is not
bound 10 Import the goods permissible there under; he can simply sell it to another and that
person to yet another. These licences are treated and dealt with in the commercial world as
merchandise, as goods.

The Export Oriented Units and the units in export processing zones (EPZs.l, Free Trade zones
(FTZ). Electronic Hardware Technology Park (EHTP) , Software Technology Tax paid by them,
on the purchase made by them from the Domestic Trade Area (DTA). To be utilised for cxport
production.on (he following terms and conditions.

(i) The supplies from DTA/EOU/FTZ/EHTP /STP must be utilized by them for export and/or
utiliscd for export production and may include raw material, components, consumables, packing
materials. capital goods, spares, material handling equipment ctc. on which Central Sales Tax
(CST) has been actually paid by the EOU/EPZ/FTZ/EHTP/STP units.
(ii) While dealing with the application for reimbursement of CST. The Development
Commissioner or the designated officer of EHTP/STP shall see, inter- nalia. that the purchases
arc essential for the production of goods meant for export und/or to be utilised for export
production by thc units.
Procedure
I. As soon as the goods are received by the eligible units in their premises they should be entered
in tho material receipt register showing the details of goods, quantity ,the source of purchase and
the C form against which purchaseis made etc. which will be subject to periodical check by Ihe
authorized staff of the Zone/Customs administration. A Chartered Accountant's Certificate
verifying the materials receipt rcgister relevant to· the claim shall he submitted
Along wilh the claim.
2, The reimbursement of CST shall be admissible only to units registered with the Sales Tax
Authoritics. A photosta tcopy of the Sales Tax Registration Certificate should be furnished to the
Zonal office concerned.
3. The unit shall present its claim for reimbursement of Central Sales Tax in the prescribed form
to the Development Commissioner of the EPZ concerned or the designated officer of the
EHTP/STP along with the following documents :
(a) Chartered Accountant's Certificate in prescribed form.
(b) Original Invoice/Bill of the supplier showing details regarding the description of goods.
quantity, value. amountof CST paid etc. and the CST registration number of both the buyer and
supplier.
(c) Photostat copy of C form issued by the purchaser to the supplying unit with reference to the
counterfoil produced by the unit. The counterfoil of C form will be returned to the unit aftcr
endorsement 'Cancclled /CST reimbursed' duly signed by the authorised officer of the Zone.
(d) Original receipt (along with photocopy) issued by the supplier in token of having received the
amount of the bill. including the CST, shall be submitted. The original receipt will he returned to
the unit·after making endorsement" Cancelled and CST of Rs reimbursed duly signed by the
authorised officer of the Zone. In case original receipts are not available and payment was made
through hank, a Bank statement indicating cheque details and Chartered Accountant's Certificate
reconciling the cheque details with of the invoice of the supplier, as prescribed I and
accompanying table, shall be furnished as proof of payment made by cheque/draft
against the invoice.
(e) The reimbursement will be limited to the payment of CST against Form only.
(f) The unit shall also intimate the name or thc person/persons who arc authoriscd by the firm to
sign the C form and furnish three copies of his/their specimen signature(s) which will be kept in
the relevant tile of lhe unit.
(g) The reimbursement will be made on quarterly basis, within a period of six months from the
completion of the quarter. In exceptional cases, the Development Commissioner may consider
delayed applications after satisfying that·the delay was due to genuine grounds .
.(h')The daim for CST reimbursement for amoun below IOO on any single invoice shall not be
entertained
The disbursing authority for the claim of reimbursement of CST will be Development
Commissioner/designated officer of EHTP/STP who will make thc payment to the Unit. All
claims shall be subjected to pre-audit before payment.

Export Incentives : Income Tax

Exemptions/ Deductions*

DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM PROJECTS OUTSrDE

INDIA [SEc 80HHBj
Available to : A resident Indian company or a non-corporate tax-flayer engaged in {he business
of execution of a project tunder a contract with the Government of a foreign State for the
construction of any building. road. dam. bridge or other structure. the assembly or installation of
any machinery or plam and the execution of other specified work outside India .

Amount of Deduction: 50 per cent of profits and gains. derived from such business.
Conditions:
(i) The consideration for the execution of such project or work IS payablc in convertibe foreign
exchange (includes consideration received in non-convertible rupees from bilateral ;account
countries. but docs not include remittances from Nepal and Bhutan.
(ii) The tax-payer maintains separate accounts for the business of [hc execution of tre project or
work and where the tax-payer is a non-corporate tax-payer. other than a cooperative co,osociety
the acc'ounts should be audited by a chartered accountant.
(iii) The tax-payer debits to the profit and loss account and credits to a "Foreign project. Gave
account" a sum equal to50 per cent of the profits and gains from such project or work. 111e
reserve is required to be utilised by the tax-payer during a period of 5 immediately succeeding
assessment years for the purpose of his business and not for distribution by way of dividends or
profits.
(IV) The tax-payer remits into India in convertible foreign exchange an amount equal to ~,) per
cent. of .such profits and gains. within a period of 6 months from the end of the relevant
accounting year. Where however, the amount credited by the tax-payer to the "Foreign project
reserve account" or the amount actually remitted into India by him. or .either of these amounts is
less than 50 per rent of such profit and gains. the deduction under this provision wjlJ be restricted
to the lower of the two amounts.
If.at any time before the expiry of 5 years from the end of the relevant accounting year. Tax
-payer utilises the amount credited to the "Foreign project reserve account" for the purpose of
distribution by way of different kinds or by way ·of profits or for any other non-business
purpose. the deduction which has been Originally allowed to him under this provision will be
:deemed to have been wrongly allowed and the income of the relevant previous year shall be
reassessed
Notc: if the deduction under this section is claimed. no deduction can be claimed under section
80H to 80RRA 1Il Part C OF Chapter VIA of the lncome-tax Act. 1961.
The audit report obtained in Form l IOCCA should he furnished everv vear for which the
deduction is claimed to the Assessing Officer along with the return of income of the rele vanl
year .Audit need 0111y be done of the accounts of the foreign project and not of all the accounts
of the assessee.

DEDUCTION IN RESPECT OF EXPORT TURNOVER [SEe. 80fIHCj

Available to : An Indian company or a person (other than company) resident in India while
(i) exports out of India during the previous year, any goods or merchandise (excluding mineral
loil. minerals and ores other than processed minerals and ores specified In the Twelfth Schedule
sale-proceeds; of which are receivable in convertible foreign exchange; or
(ii) is a "supporting manufacturer/processor", manufacturing any goods or merchandise
excluding mineral oil. Minerals and ores other than processed minerals and ores specified in the
Twelfth Schedule I. and selling the same to an Export Trading House for the purpose of export
out of India. and who has been issued.1 certificate in this respect by such Export Trading House
(in Form 10 CCAB).
Notes:- (a) 'Export out of India' does not include of goods In a Shop. emporium (.- other
establishment situated In India made to foreign tourists against foreign exchange
(hJ Sale proceeds in respect of protocol exports. i.e. under Government to Government credits
(but excluding remittances from Nepal and Bhutan) are eligible for deduction U/S 80HHC.
irrespective of the fact that such sale proceeds are realised in Indian currency
(c) Goods transferred to a branch. office., warehouse or other establishment of the ,assesse
situated outside India. shall be deemed to he exported out of India
(d) The sale proceeds of the exports shall have to be received in, or brought into, India or
credited to a separate bank account outside India maintained for the purpose by the assessee with
the approval of the RBI, within6 months from the end of the previous year or within such
extended time as the Commissioner may allow.
DEDUCTION IN RESPECT OF EARNINGS IN COnVERTIbLE FOREIGN
EXCHANGE (SEe. 8OHHD)

Available to : An approved hotel or an approved tour operator or a travel agent. being an Indian
company or a person(other than company) resident in India. engaged in the business of providing
services 10 foreign tourists. proceeds of which are received in convertible foreign exchange
within (. months from the end of previouS year or within "such extended time as
heCommissioner may allow. .Pavment received by an assessee in Indian currency obtained by
coversion of forcign exchange brought into India throught; an authorised dealer. from another
hotelier, or tour operator or travel agent, as the case may be, on behalf of foreign
tourists. shall be deemed to have been received by the assessee in convertible foreign exchange.
if the person making the payment furnishes to the assessee a certificate in Form IOCCAE
indicating the amount received in foreign exchange. itsconversion into Indian currency and other
prescribed particulars

Amount of Deduction; (i) 50% of profits derived from services provided to foreign tourists, plus
(ii) Amount of profits transferred to the reserve account.Total deduction shall. however. not
exceed the "profits" derived from services provided 10 foreign
"Profits derived from services provided to foreign tourists" means-Amount of proceeds receivcd
in. or brought into. India in convertibleforeign exchange within 6 months from the end of
previous year
less amount passed on in Indian currency to another hotelier. tour operator or travel agent
x Profit as computed under "Profits
Total Receipts of Business and Gains of Business or Profession"

Conditions;
(a) In .support of the claim for deduction. repect of a chartered accountant In Form IOCTAD.
certifying that the amount of deduction is rightly claimed on the basis of receipts in convertihle
foreign exchange. payments made in Indian currency to another hotelier, tour operator or travel
agent and ,receipts in Indian currency deemed to have heen received inconvertible foreign
exchange has to be furnished along with the return of income
(b) Reserve created is to be utilised during the next live previous years for following purposes
(i) Construction of new (approved) hotels or expansicn of facilities in existing arpr()\ed hOlels:
Oi) Purchase of new cars/coaches by approved tour operators or travel agents;
(iii) Purchase of sports equipment for mountaineering. trekking. golf. river-rafting, elc ..
(iv) Construction of conference or convention centres:
(v) Provision of notified facilities for the growth of tourism in India.
Any amountof reserve utilised for any other purpose, shall he deemed to be profits in the year it
is so utilised. Similarly,any amount of reserve not ulilised in the specified manner. shaL be
deemed to be profits In thc year next following the expiry of periooat 5 years.

A vailablc to
business of:
(i) export oul of India of com pUler software or its IranSml~'iIOn from India to a place (Iul>iJc
India by any mean~; or
(ii) providing technical services outside India in conneclior with the development ur pruduLllon
of comruter software.
Th-: considerallon In respecl of such computer software ,;,ould be recclved in. or hrou!.'ht into.
India In convertible
foreign exchange or credlled to a separale account lllainl:Jlncd '01' lhe purpose hy thc asscssc:
wilh ~Iny hank outside India
with the prior approval of the Reserve Bank of India wllhin : months from the end of lltc rrevious
year or within such
extended period as the Commissioner may allow.

DEDUCTION FOR EXPORT OF COMPUTER SOfTWARE (SEe. SOHIIE)

An Indian company or a person (other than a company resident in Indi will) " ,"gaged in thc
Note: "Computer software" means any computer programme . recorded on any disc. tape.
perforated media or other information storage device and includes any programme transmitted
from India to a place outside Indi.i by any means.

Amount of Deduction: 100% of the profits derived from the aforesaid business of computer
software. shall be eligible
for deduction.'Profits derived from the business of computer software' is equal to :
Export Turnover Profits of the business as computed under "Profits and gains of business or
profession"
-------- x _ 90% of receipts of commission. r..rokerage, interest. rent. etc. included in the profit
Total Turnover _ Profits of any foreign branch, office. warehouse, etc.
'Export turnover' means consideration in respect of computer software received in or brought into
India in convertible foreign exchange within 6 months from the end of the previous year or such
extended time as the Commissioner may .allow.
but excludes freight, telecommunication charges or insurance 2ltributable to the delivery of
computer software outside India.or expenses, if any, incurred in foreign exchange in providing
the technical services outside India.
'Total turnover' docs not include the amount of cash compensatory support. duty drawhack, profit
on sale of REP import entitlement licenses, any freight, telecommunication charges or insurance
attributable to the delivery of the computersoftware outside India. and expenses. if any, incurred
in foreign exchange in providing technical services outside India
.
Conditions
(I) Any claim for deduction should be supported by the report of a Chartered Accountant. in
form 10 CCAF. certifyingthat the deduction has been correctly claimed in accordance with the
provisions of this section.

(2) Where a deduction has been claimed and allowed under this section. no deduction shall be
allowed under any other provision of the Act in respect of same profits.
DEDUCTION FOR CONSULTANCY EXPORTS (SEe. 80:-0)
Available to : An asessee being an Indian company or any other person resident in India. who is
in receipt of anyincome by way of royalty, commission. fees. etc.] from tho:: Government of a
foreign State or a foreign enterprise. inconsideration for the use outside India of any patent.
inventioll.. design [or information conccming industrial, commercial orscientific knowleor skill
or technical or professional services rendered outside India/.
Amount..t of Deduction : 50% of such income as is received in. or brought into. India in
convertible foreign exchange .within six months from the end of the previous year or within such
further time as the Commissioner may allow. For seeking extension application should be made
in Form 10F.
Note: ( J) Sen'ices reI/de red or agreed to he rendered oJilside India shall il/clude sen'ius
rendered from India but shall
not include services reI/de red in lildia.
(2) However, it has been clarified that so long as the tffnnical alld professional sen'lces are
rendered from India alld
are received by n Foreign Covernmenr or enterprise outsid{ India, deduction u/s. 8()~O wuuld
he available to the person
ren.dering the servres even if the j(Jreign recipiellt of the servi!r.esutilises the benefit of such
sen.'ices in India.
DEOUCfION IN RESPECT OF CERTAL'i INCOMES FROM FOREIGN SOURCES
(SEe. 8OR.,8IltRR& 80RRA)
(a) Remuneration of Professors. Teachers, Research Scbdars, etc.
An individual, who is a citizen of India and receiving remmeration for any services rendered hy
him outside India. in thecapacity asa professor, teacher or research worker in any miversity or
educational institution or any other association or
body established outside India, is entitled to deduction.
(b) Income of certain professionals
An author. playwright, artist, musician, actor or sport.srrun including an athlete, being resident in
India and receiving anincome from a foreign government for rendering services in e~ercise of his
profession, is entitled to deduction.
(c) Remuneration of technicians and other employees
An individual. who is a citizen of India and is receivllg rcmuneration in foreign cur~cncy for hi:;
service:; renderedoutside India and sponsored by the Central Government or c a tcchnlcian and
contract of services approved by the CentralGovern'ment, .s entitled to deduction.
'Technician' has been defined to include any person having spccialiscd knowledg.e 111
COIl:"truClloll, manufacturing .•
mi~ing. generation or distribution of electricity or any other fom1 of power. agriculture. animal
hushandry, dairy. farming.
fishing, ship building, business administration and management, accountancy. any field of
nawral or applied sCience (ll1c1udmg
medical science) or social scielice or allY other field as the Board may prescribe (\'i:. actuarll>.
h~lllkillg. illsurance and
journalism).
N.ote: Consultants and retainers arc also deemed as ·employed·. for the purpose of lillS Sl'e'llllil
Amount of Deduction: 75% of such remuneration as is brought into India in convertible !urclgn
exchange within a
period of six rnonths from the end of the previous year, or within such extended period as thc
ComllllsSloIH.:r may allow.
Besides, the assessee shall be required to furnish a certificate in Form IOH, alongwith the return.
cendymg that the
deduction has been co~ectly claimed in accordance with the section.
FIVE YEAR TAX HOl-mAY FOR NEWLY ESTABLISHED INDUSTRIAL
UNDERTAKIN(;S IN FREE TRADE
ZONES, EHTPs AND STPs (SECTION lOA)
Profits and gains derived from an industrial undertaking set up in any Free Trade Zone or
Electronic Hardware Techn(1logy
Parks or Software Technology Parks are fully exempt for a period of five consecutive asscssmcnt
ycars falling at an~ time
within a period of eight years of commencement of production. This tax concession is availahk
tll all tax-raycrs including
foreign companies and resident non-corporate tax payers. The following conditions have to he
SJtl,fled
(i) The industrial undertaking should begin to manufacture or produce any article or thin~
(including production of
computer programmes) -
(a) during the previous year relevant to the assessment year 1981-82 or any subsequcill
assessmcilt year in any of
the free trade zones: or
(b) during the previous ycar relcvani to the aS5essment year 1994-95 or any suhscqucllI
;\SSl'ssnlent ycar. in any
electronic hardware technology park or software' technology park.
Note: (I) Manufacturing includes any process or assembling or recording of prograillmes l)n ary
disc, tape,
perforated media or other information storage device.
(2) It has been clarified that the software may be prepared either within the premises of the unit
or even at the
client's site abroad.
(3) It has also been clarified that though the provisions of this section were amended to include
"production of
computer programmes" w.e.f. A.Y. 19'94-95. however,'units which export software shall be
eligihle for availing the
five-year tax holiday even for the period prior to A.Y. 1994-95.
(ii) In relation to an undertaking which begins to Ironufacture or produce any article or thing on
or .fter 1.4.1995. its
exports are not less than 75% of its sales for that year.
(iii) The industrial undertaking should not have been formed by the splilling up or
rcconstruCllOI1 of a business already in
existence, except in case of an industrial undertaking referred to in section 338. 111 the
ClrClIInst;nces and within the
period specified in that section.
(iv) The industrial undertaking should not have been formed by the transfer to a new bUSiness or
machll1ery or plant
previously used for any purposc, exccpt whcre the machinery or plant is not previously used in
india, the machinery
or plant is imported and no deduction on accoont of depre~iation in' respect of such machinery or
plant has been
allowed or is allowable.
Section lOA will be applicable even if the 10(:11 value of the used machinery or plant
lIansterrcd to the new
undertaking does not exceed 20 per cent of the t,J(al value of the machinery or plant used in tie
industrial Ulllt.
Tax h<?liday is in lieu of all other tax concessions aV41lablc in the Income Tax Act. Units
availing or complete tax holiday
are not, entitled to various other concessions such as unabsorbed depreciationJinvestment
allowa~cc/development rebateJ
capital expenditure on family planning, set off and carry forward of losses and deductions ufss.
1iOHH/gOHHN80V80IN
80J, etc.
It is the option of the assessee to choose het ween t~ complete tax holiday under Section lOA and
other tax concessions
available under the Income Tax Act. [I' the assessee is rA)t interested in availing complete tax
huliday under section lOA, he
should before expiry of due date for furnishing the return of income under section 139 (I) furnish
to the Assessing Officer a
declaration in writing that the provisions of' Section ICt\ may not be made applic3blc 10 hil'l for
any relevant assessment
years.
Note: For the years. when the bellerit or Scetll'f] It)\ IS not opted for, the henefil of deduction
under Scction ROHHC can
be claimed.
Where the assessee exercises his 0rtion in the thld assessment year the exemrlion call he
aV<lilcd of upto the'seventh
assessment year. In a case wh,ere the optIOn in this 1;>\.:h,,:lls exercised by the <lssessee In the
sixth YC;lr. the exemplion can he
claimed upto the eighth year only.
Circular No. 308 dated 2\ith June, ILJX I is relcvdll! l'1 thiS regard.
FIVE YEAR TAX HOLIDAY FOR NEWLY ESTABLISHED 100% EXPORT ORIENTED
UNDERTAKINGS
(SEe. lOB)
(I) Any profits and gains derived by an assessee from a hundred per cent export-oriented
undertaking approved as such
by the Board are not included in the total income of the assessee.
(2) TIle hundred per cent export-oriented undertaking should fulfil the following conditions.
namely-
(i) itl1l3llufactures or produces any article or lhi'ng during the previous year.
(ii) it has not been fonned by the spli((ing up or the reconstruction of. a business already in
existence.
(iii) it is ROt fonned by the transfer to a new business of machinery or plant previously used for
any purpose. For the
purpose of section lOB reconditioned. imported machinery or plant will be regarded as new.
Further. where the totalvalue of the machinery or plant transferred to 'he new business does not
exceed 20 per cent of the total varue of themachinery or plant used in 'that business. the aforesaid
condition will be deemed to have been complied with, and
(iv) in relation to an undertaking which hegins to manufacture or produce any article or thing on
or after 1.4.1994, itsexports of such article/thing are not less than 75% of its lotal sales for that
previous year.
(3) For the purpose of this section, 'manufacture' includes any processing. assembling or
recording of programmes onany disc. tape. perforated media or other information storage device.
Besides. units engaged in production of computer programmes are also eligible for this
exemption.
It has been clarified that a computer programme may be developed either within the premises of
the unit or even at theclient's side abroad. It has also been clarified that though the provisions of
this section were amended to include "production of compute rprogrammes" w.e.f. A.Y. 1994-
95. however, units which export software shall be eligible for availing the five-year taxholiday
even for the period prior to A. Y. 1994-95.
(4) The benefit of section lOB is available to the assessee in respect of any five consecutive
3Ssessmentyears (herein after referred 10 as tax holiday period) falling within a period Of eight
years beginning with the initial assessment year in which begins to manufacture or produce
articles or things. The period of five consecutive assessment years will be as
specified by !he assessee at his option subject to the condition that it will not in any case cover
any period after the expiry ofthe said eight-years period.
(5) In computing the total income of the assessee of the assessment year immediately succeeding
that tax holiday period. the unabsorbed depreciation allowance, the unabsorbed investment
allowance, the unabsorbed development rebate.the unabsorbed capital expenditure on family
planning relating to the relevant assessment years will not be taken into consideration. Similarly.
unabsorbed business loss or loss under the head "Capital gains" relating to lhe lax holiday
periodwill not be taken into account. Where the assessee was entitled to a deduction during the
tax holiday period in respecl of the profits and gains from the newly established industrial
undertakings in backward area (Sec.80HH). or small scale in rural areas (Sec. 80HHA). or the
partial tax holiday (Sec. 80-1 or 80-IA) no deduction will be admissible Inthe assessment years
subsequent to the tax holiday period. Further in computing the depreciation allowance on any
assets In assessment years following the tax holiday period. lhe written down value of the assets
will he computed as if the assessee had claimed and been allowed the depreciation in accordance
with the provisions of the Act during each one of the
relevant assessment years.
(6) Section lOB is applicable to all eligible undertakings unless the assessee opts out of the
scheme by making a
declaration under sub-section (7) before the due date of furnishing return of income.