Small exporters may get tax relief on DEPB

Small exporters with an annual turnover of up to Rs 10 crore can be out of the ambit of income tax on earnings from the sale of scrips of the Duty Entitlement Passbook Scheme with retrospective effect.

The prime minister's economic advisory council headed by C Rangarajan looking into the issue has suggested introduction of a benchmark of Rs 10-crore turnover to differentiate between small and large exporters.

The recovery of income tax on past DEPB cases with effect from 1997 had been temporarily stopped by the government with the matter being referred to the council on April 8, this year. The council had been asked to make its recommendations by the month end.

'The council has suggested that no cases should be opened of small exporters with turnover of Rs 10 crore or less. This has been suggested with a view to reducing harassment for the small exporters who do not mostly maintain proper tax receipts,' an official told Business Standard. The council has submitted its report to the Prime Minister's Office.

If the suggestion of the council is accepted, the recovery can be made with regard to around 4,000 exporters.

There are estimated to be around 75,000 exporters of which only around 4,000 exporters have a turnover of Rs 10 crore and above.

The Duty Entitlement Passbook Scheme (DEPB) was introduced in the Exim policy in 1997.

While initially income tax officials were accepting sale proceeds of the DEPB as export income for computation of the export profit under Section 80 HHC, they had in the recent past stopped accepting it on grounds that DEPB is not included in Section 28 of the Income tax Act.

Consequently several old cases pertaining to 1997 were being opened up for claiming income tax.

Officials said that the council had included a rider that the exemption from recovery of income tax with retrospective effect would also be applicable to exporters with turnover of over Rs 10 crore if they were able to prove that they had only claimed duty drawback and not the DEPB.

"The logic behind the move is that since the DEPB rates have been on an average higher than the drawback rates, then an exporter claiming only drawback would have been worse off then exporters claiming DEPB. Hence, the tax should not be recovered from them," officials said.

Gains for exporters

Exporters with an annual turnover of up to Rs 10 crore can be out of the ambit for recovery of income tax

Of the estimated 75,000 exporters, only 4,000 have a turnover of Rs 10 crore and above

The recovery of income tax on past DEPB cases with effect from 1997 had been temporarily stopped

The PM's council has suggested that no cases relating to small exporters should be opened