Duty Credit Scrips for Indian Exporters: Explained

Scrip, in the context of the Indian Foreign Trade Policy, serves as an alternative or substitute for legal tender and is particularly denoted as ‘Duty Credit Scrips.’ These scrips function as a notable export incentive provided by the government to support exporters. Essentially, exporters can utilize these scrips to fulfill obligations such as the payment of various taxes and duties to the central government.

Issued by the Director-General of Foreign Trade, Duty Credit Scrips play a pivotal role in facilitating the payment of Customs Duty. Importantly, these scrips are made available to both exporters of goods and exporters of services, operating under diverse schemes outlined in the Foreign Trade Policy. 

The specific value of the scrip is contingent upon the particular scheme in question, leading to variations in the range of 2% to 5%. It is noteworthy that the issuance and utilization of Duty Credit Scrips are integral components of the government’s strategy to incentivize and support the export sector. 

The primary objective of a duty credit scrip is to stimulate and incentivize exports by offering exporters concessions on import tariffs. Typically, the concession granted is a fixed percentage of the export value, providing a tangible advantage to businesses engaged in foreign trade.

An important feature of duty credit scrips, in accordance with the Foreign Trade Policy 2015, is their transferability. This means that exporters have the flexibility to transfer these scrips to other parties, including importers. This transferability aspect adds a layer of flexibility and adaptability to the system, allowing exporters to optimize the utilization of these concessions and potentially collaborate with other entities in the international trade ecosystem.

Types of Duty Credit Scrips

The objective of duty credit scrips is to provide temporary tax exemptions or duty deductions. This strategy aligns with the overarching goal of creating a favourable atmosphere that encourages and supports businesses focused on exports.

SEIS Scrips 

The Service Exports from India Scheme (SEIS) is a government initiative designed to boost the export of services from India. This program offers duty scrip credits as rewards for eligible service exports, aiming to incentivize and promote international transactions by Indian service providers.

To qualify for SEIS, service providers offering notified services must be based in India. Eligibility criteria include having a net free foreign exchange earnings of at least USD 15,000 in the preceding financial year. Additionally, to claim rewards under the SEIS scheme, the service provider must possess an active Import Export Code at the time of rendering the services.

Under the SEIS, eligible service providers are entitled to Duty Credit Scrips at notified rates based on their net foreign exchange earnings. This scheme was formerly referred to as Total Expenses of Foreign Exchange, reflecting its focus on providing additional benefits to encourage and support the growth of service exports from India.

The formula to calculate SEIS Scrips is:

Net Foreign Exchange = Gross Earnings of Foreign Exchange – Total Expenses or     remittance or payment of Foreign Exchange

MEIS Scrips

The Merchandise Exports from India Scheme (MEIS), initiated during the period of 2015–2020 under the Foreign Trade Policy, stands as an incentive program designed to support exporters. Its primary objective is to provide incentives for the export of goods manufactured or produced within India. This is achieved through the issuance of duty credit scrips, providing exporters with a tangible benefit.

Exporters are granted the flexibility to utilize MEIS scrips for the payment of customs duties on imports or inputs. Notably, these scrips can be applied not only for basic customs duties but also for safeguard duty, anti-dumping duty, and other duties outlined in the Foreign Trade Policy 2015–2020. One of the advantageous features of MEIS is its transferability, allowing exporters to engage in transactions involving these scrips.

It’s essential to note that the provision for splitting the scrip is specifically available at ports enabled with Electronic Data Interchange (EDI). In contrast, for non-EDI ports, the scrip cannot be divided once issued. MEIS, as an advanced incentive scheme, addresses and eliminates the structural inefficiencies that may have been present in previous schemes, thereby streamlining and optimizing the support provided to exporters.

How Does Duty Credit Scrips Work?

In India, exporters have the advantageous option of utilizing Duty Credit scrips to fulfil their customs duty obligations. Under the umbrella of the Foreign Trade Policy, exporters can access Duty Credit scrips through various schemes. These schemes serve as strategic frameworks aimed at facilitating international trade and enhancing the competitiveness of Indian exporters. The three primary schemes through which these scrips are allocated provide exporters with diverse opportunities to offset customs duties, thereby fostering a more favourable environment for trade and economic growth.

1. Service Exports from India Scheme (SEIS) for Service Exporters
2. Merchandise Exports from India Scheme (MEIS) for Merchandise Exporters
3. Export Promotion Capital Goods Scheme (EPCG Scheme).
   

Typically, the value hovers between 2% and 5% on the Free on Board (FOB) measure, representing the value in free foreign exchange. Importantly, these scrips are freely transferable, empowering exporters to utilize them for various payments, including basic customs duty, safeguard duty, transitional product-specific safeguard duty, and anti-dumping duty.

It’s crucial to note that these scrips come with a specific validity period, and exporters must employ them within this designated timeframe. It is a customary practice for these scrips to be traded at a discount relative to their face value. For example, if a scrip holds a value of INR 5,00,000, a buyer may procure it for a reduced price, say INR 4,50,000. This underscores the prevalent market trend where these instruments are often exchanged at amounts below their nominal worth. This practice reflects the market dynamics where these instruments are traded at values below their nominal worth.

Conclusion

Duty Credit Scrips play a crucial role in India’s Foreign Trade Policy, offering exporters a valuable incentive to offset customs duties. These scrips, issued under schemes like SEIS and MEIS, empower businesses engaged in both goods and services exports. The transferability of these scrips adds flexibility to the system, allowing collaboration in the international trade ecosystem. With values ranging from 2% to 5%, exporters can fulfil various obligations, fostering a favourable environment for trade. 

The SEIS focuses on service exports, while the MEIS supports merchandise exports, addressing structural inefficiencies. The EPCG Scheme provides an additional avenue for duty credit. Importantly, exporters must utilize these scrips within a specific timeframe, and market dynamics often see them traded below their nominal worth.

Overall, Duty Credit Scrips serve as a strategic tool, stimulating economic growth and competitiveness in the global market. It also serves as a strategic tool to promote import-export business in India.