Question 1

Are export receipts exempt from income tax even when received in foreign currency?

Accepted Answer

Export proceeds are not automatically exempt from income tax. Units in Special Economic Zones (SEZs) can claim a deduction under Section 10AA of ITA 1961 on profits from export — 100% for the first 5 years, 50% for the next 5, and 50% of the reinvestment amount for the final 5 years — and this deduction is reported in Form 56F certified by a CA. Outside SEZs, export income is taxable as normal business income under Section 28. For TY 2026-27 (ITA 2025), the corresponding provision is Section 10AA which carries forward unchanged.

Question 2

Does GST apply on the export of goods or services under an export contract?

Accepted Answer

Exports of goods and services are zero-rated supplies under Section 16 of the IGST Act 2017. An exporter may either ship under a Letter of Undertaking (LUT) filed in Form RFD-11 without paying IGST and then claim a refund of unutilised input tax credit under Rule 89 of the CGST Rules 2017, or pay IGST at export and claim a refund under Section 54 of the CGST Act 2017. Export of services qualifies as zero-rated only when payment is received in convertible foreign exchange as defined in Section 2(6) of the IGST Act.

Question 3

How does transfer pricing apply when the export contract is with a related foreign entity?

Accepted Answer

When goods or services are exported to an Associated Enterprise (AE) as defined in Section 92A of ITA 1961, the transaction is an International Transaction subject to transfer pricing under Sections 92 to 92F. The arm's length price must be computed using a prescribed method under Rule 10B of the Income Tax Rules 1962. A TP Study must be maintained as contemporaneous documentation, and Form 3CEB certified by a Chartered Accountant must be filed under Section 92E. Failure to maintain documentation attracts a penalty of 2% of the transaction value under Section 271AA.

Question 4

What foreign exchange compliance governs realisation of export proceeds?

Accepted Answer

Under the Foreign Exchange Management (Export of Goods and Services) Regulations 2015 issued under FEMA 1999, export proceeds must be realised and repatriated to India within 9 months from the date of shipment (or invoice date for software/services). The Authorised Dealer bank issues a Bank Realisation Certificate (eBRC) once proceeds are received. Failure to realise within the prescribed period without RBI approval constitutes a contravention under Section 13 of FEMA 1999 and can attract a penalty up to three times the amount involved.

Question 5

Is withholding tax (TDS) deductible when a foreign buyer pays an Indian exporter?

Accepted Answer

A non-resident foreign buyer making payment to an Indian exporter is not obligated to deduct TDS in India. Section 195 of ITA 1961 (Section 393 under ITA 2025 for TY 2026-27 onwards) casts the TDS obligation on a person responsible for paying a sum chargeable to tax to a non-resident — not on the non-resident payer itself. The Indian exporter receiving export proceeds is a resident and is taxed on net income at the time of return filing. However, if a domestic agent or branch of the foreign buyer remits on its behalf, that agent may be treated as the person responsible to deduct under Section 195.

Export Contract Tax

Related Services

Transfer Pricing

FEMA Compliance

GST Refund — Exports & Inverted Duty