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Export Promotion Schemes
After the economic reforms of 1991-92, liberalization of external trade, elimination of duties on imports of information technology products, relaxation of controls on both inward and outward investments and foreign exchange and the fiscal measures taken by the Government of India and the individual State Governments specifically for IT and ITES have been major contributory factors for the sector to flourish in India and for the country to be able to acquire a dominant position in offshore services in the world. The major fiscal incentives provided by the Government of India have been for the Export Oriented Units (EOU), Software Technology Parks (STP), and Special Economic Zones (SEZ).
For the promotion of Software exports from the country, the Software Technology Parks of India was set up 1991 as an Autonomous Society under the Department of Electronics and Information Technology. The services rendered by STPI for the Software exporting community have been statutory services, data communications servers, incubation facilities, training and value added services. STPI has played a key developmental role in the promotion of software exports with a special focus on SMEs and start up units. The STP Scheme has been extremely successful in fostering the growth of the software industry. The exports made by STP Units have grown many folds over the years. Today the exports made by STPI registered unit during 2008-09 are INR 215571 Crores about 90% of total software exports from the Country.
THE STPI Scheme is lauded as one of the most effective schemes for the promotion of exports of IT and ITES. The 51 STPI centres that have been set up since inception of the programme have given a major boost to IT and ITES exports. Apart from exemption from customs duty available for capital goods (with a few exemptions) there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important incentive available is 100 percent exemption from Income Tax of export profits, which has been extended till 31st March 2011. The strength of the scheme lies in the fact that, it is a virtual scheme, which allows, software companies to set up operations in the most convenient and cheapest locations and plan their investment and growth solely driven by business needs. STP Scheme is a pan India Scheme, which has centres spread across India, over 8000 units are registered under STP Scheme.
Benefits under STP Scheme:
- Income Tax benefits under Section 10 A & 10 B of the IT Act upto 31st March 2011.
- Customs Duty Exemption in full on imports.
- Central Excise Duty Exemption in full on indigenous procurement.
- Central Sales Tax Reimbursement on indigenous purchase against from C.
- All relevant equipment / goods including second hand equipment can be imported (except prohibited items).
- Equipment can also be imported on loan basis/lease.
- 100% FDI is permitted through automatic route.
- Sales in the DTA up to 50% of the FOB value of exports permissible.
- Use of computer imported for training permissible subject to certain conditions.
- Depreciation on computers at accelerated rates up to 100% over 5 years is permissible.
- Computers can be donated after two years of use to recognized non-commercial Educational Institutions/Hospitals without payment of duty.
- Export proceeds will be realized within 12 months.
- Units will be allowed to retain 100% of its export earning in the EEFC account.
Click here to visit STPI website -http://www.stpi.in/ (External website that opens in a new window)
In 2005, the Ministry of Commerce, Government of India has enacted the Special Economic Zone (SEZ) Act, with an objective of providing an internationally competitive and hassle free environment for exports. A SEZ is defined as a "specifically demarked duty-free enclave and shall deemed to be foreign territory (out of Customs jurisdiction) for the purpose of trade operations and duties and tariffs". The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006. It provides drastic simplification of procedures and a single window clearance policy on matters relating to central and state governments. The scheme is ideal for bigger Industries and has a significant impact on future Exports and employment
The SEZ Scheme offers similar benefits to SEZ units as compared to those under STPI in respect of indirect taxes, with some minor differences in operational details. There is a however a significant difference, in respect of income tax holiday. In SEZ Scheme the exemption from income tax is tapered down over 15 years from the date of commencement of manufacture. There is 100% exemption of export profits from income tax for the first five years, 50% for the next five years and 50% for the five years subject to transfer of profits to special reserves.
The SEZ policy aims at creating competitive, convenient and integrated Zones offering World class infrastructure, utilities and services for globally oriented businesses. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A few salient features of SEZ scheme are as under:
- Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing and trading for export purposes.
- Sales from Domestic Tariff Area (DTA) to SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption.
- 100% Income Tax exemption on export profits available to SEZ units for 5 years, 50% for next 5 years and 50% of ploughed back profits for 5 years thereafter.
This scheme, which is ideal for bigger Industries, has a significant impact on future Exports & employment. STPI Directors are acting as Development Commissioners for IT/ITeS SEZs. Click here to visit the website - http://www.sezindia.nic.in/ (External website that opens in a new window)