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 knownas 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 listedon 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 afee 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 certificateor 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 isbetween 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 aforeign 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 mustactually 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 IndiaAs 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 theproperty 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 suchsales 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 salein 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 TaxExemption 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 oflading 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 orderOn 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 prescribedform/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, packingmaterials. 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.ProcedureI. 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 submittedAlong 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/draftagainst 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 entertainedThe 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 TaxExemptions/ Deductions*

DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM PROJECTS OUTSrDE INDIA [SEc 80HHBjAvailable 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 reassessedNotc: 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. 80fIHCjAvailable 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 yearless amount passed on in Indian currency to another hotelier. tour operator or travel agentx Profit as computed under "ProfitsTotal 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 tobusiness 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 convertibleforeign exchange or credlled to a separale account lllainl:Jlncd '01' lhe purpose hy thc asscssc: wilh ~Iny hank outside Indiawith 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 thcNote: "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 eligiblefor 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 profitTotal 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 shallnot 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 alldare received by n Foreign Covernmenr or enterprise outsid{ India, deduction u/s. 8()~O wuuld he available to the personren.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 orbody established outside India, is entitled to deduction.(b) Income of certain professionalsAn 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 employeesAn 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 (ll1c1udmgmedical science) or social scielice or allY other field as the Board may prescribe (\'i:. actuarll>. h~lllkillg. illsurance andjournalism).N.ote: Consultants and retainers arc also deemed as ·employed·. for the purpose of lillS Sl'e'llllilAmount of Deduction: 75% of such remuneration as is brought into India in convertible !urclgn exchange within aperiod 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 thededuction has been co~ectly claimed in accordance with the section.FIVE YEAR TAX HOl-mAY FOR NEWLY ESTABLISHED INDUSTRIAL UNDERTAKIN(;S IN FREE TRADEZONES, 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~ timewithin a period of eight years of commencement of production. This tax concession is availahk tll all tax-raycrs includingforeign 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 ofcomputer programmes) -(a) during the previous year relevant to the assessment year 1981-82 or any subsequcill assessmcilt year in any ofthe free trade zones: or(b) during the previous ycar relcvani to the aS5essment year 1994-95 or any suhscqucllI ;\SSl'ssnlent ycar. in anyelectronic 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 theclient's site abroad.(3) It has also been clarified that though the provisions of this section were amended to include "production ofcomputer programmes" w.e.f. A.Y. 19'94-95. however,'units which export software shall be eligihle for availing thefive-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. itsexports 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 inexistence, except in case of an industrial undertaking referred to in section 338. 111 the ClrClIInst;nces and within theperiod specified in that section.(iv) The industrial undertaking should not have been formed by the transfer to a new bUSiness or machll1ery or plantpreviously used for any purposc, exccpt whcre the machinery or plant is not previously used in india, the machineryor plant is imported and no deduction on accoont of depre~iation in' respect of such machinery or plant has beenallowed or is allowable.Section lOA will be applicable even if the 10(:11 value of the used machinery or plant lIansterrcd to the newundertaking 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 holidayare not, entitled to various other concessions such as unabsorbed depreciationJinvestment allowa~cc/development rebateJcapital expenditure on family planning, set off and carry forward of losses and deductions ufss. 1iOHH/gOHHN80V80IN80J, etc.It is the option of the assessee to choose het ween t~ complete tax holiday under Section lOA and other tax concessionsavailable under the Income Tax Act. [I' the assessee is rA)t interested in availing complete tax huliday under section lOA, heshould before expiry of due date for furnishing the return of income under section 139 (I) furnish to the Assessing Officer adeclaration in writing that the provisions of' Section ICt\ may not be made applic3blc 10 hil'l for any relevant assessmentyears.Note: For the years. when the bellerit or Scetll'f] It)\ IS not opted for, the henefil of deduction under Scction ROHHC canbe claimed.Where the assessee exercises his 0rtion in the thld assessment year the exemrlion call he aV<lilcd of upto the'seventhassessment 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 heclaimed 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 suchby 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 thepurpose 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 asspecified 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 therelevant assessment years.(6) Section lOB is applicable to all eligible undertakings unless the assessee opts out of the scheme by making adeclaration under sub-section (7) before the due date of furnishing return of income.