Duty Drawback Scheme in India: A Comprehensive Guide for Exporters

If you’re an Indian exporter shipping goods overseas, you’ve likely paid customs duties on imported raw materials or components used in your manufacturing process. These duty costs add to your production expenses, potentially making your export prices less competitive in global markets.

The duty drawback scheme offers a solution by refunding these duties after you export the finished goods, effectively neutralising the tax burden on your export products.

This comprehensive guide breaks down everything you need to understand about the duty drawback scheme.

What Is the Duty Drawback Scheme, and Why Does it Matter for Exporters?

The duty drawback scheme is a government initiative established under Section 75 of the Customs Act, 1962. It helps refund customs and excise duties that exporters pay on imported inputs or domestic duties on inputs used in manufacturing export goods.

The scheme serves several critical purposes for exporters:

• Neutralises Tax Burden: Removes the cost impact of import duties from export prices.
• Aligns with WTO Principles: Supports the international trade principle of ‘zero-rating’. exports.
• Enhances Global Competitiveness: Allows Indian exporters to price products competitively in the international market.
• Improves Working Capital: Returns cash to businesses after export completion.

Without duty drawback, Indian exporters would carry the burden of domestic taxes in their export pricing, making them less competitive against international suppliers who don’t face similar tax costs. The scheme directly impacts profitability by converting what would be a sunk cost into a recoverable expense.

Understanding the Legal Basis: Customs Act, 1962

Now that you know why duty drawback matters for export competitiveness, understanding its legal framework helps you navigate the claim process correctly.

The primary legal foundations include:

• Section 74 of the Customs Act, 1962: Covers re-export of imported goods, allowing refunds up to 98% of import duties paid when goods are re-exported within 18-24 months.
• Section 75 of the Customs Act, 1962: Governs drawback on manufactured or processed goods using imported materials, focusing on value addition before export.
• Central Excise Act, 1944: Provides a supporting framework for excise duty refunds.
• Drawback Rules, 2017: Details operational procedures, documentation requirements, and calculation methodologies.

These regulations ensure systematic refund processes while preventing misuse. Exporters must comply with specific timelines and documentation standards set by these regulations to claim refunds successfully.

What Are the Types of Duty Drawback Available to Exporters?

The legal framework establishes multiple drawback types to accommodate different export scenarios. Each type serves specific business situations, from standardised manufacturing to unique custom products.

Exporters can choose from three main categories based on their export nature and business model. The right choice depends on product type, import patterns, and whether standard rates adequately cover actual duties paid.

All Industry Rate (AIR): The Standardised Approach

All Industry Rates provide pre-published fixed rates per tariff item for specified export articles. The government calculates these rates based on average customs and central excise duties typically paid across an industry.

AIR benefits include:

• Simplified Claims: No need to prove actual duty payments for each export.
• Predictable Refunds: Fixed rates allow accurate cash flow planning.
• Minimal Documentation: Easy to claim with basic paperwork.
• Quick Processing: Automated calculations speed up refunds.

Brand Rate: Tailored for Specific Products

Brand Rate applies when AIR is not available or refunds less than 80% of your actual duties paid. This method calculates drawback based on documented duties actually paid on imported inputs.

Key Brand Rate features:

• Application to Customs: You request a product-specific rate instead of using the standard AIR.
• Actual Duty Basis: The rate reflects the duties you genuinely paid on imported inputs used in your exports.
• Records: Proof of duties paid on imported inputs, Production and consumption details.
• Higher Potential Refunds: Often exceeds AIR for high-duty inputs.

Local Commissioners of Customs review your application, verify the supporting details, and determine the final Brand Rate. In some cases, they may issue a provisional rate first, which is later adjusted once the assessment is complete.

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Duty Drawback on Re-export of Imported Goods (Section 74)

Section 74 drawback applies when you re-export previously imported goods without significant alteration. This commonly occurs with rejected shipments, excess inventory, or goods imported for exhibitions.

Key Features:

• Refund Percentage: You can get back up to 98% of the import duty paid.
• Time Limit: The re-export must usually take place within two years from the date of import.
• Supporting Requirements: You must show proof of duty payment and establish that the exported goods are the same ones originally imported.

Who Is Eligible to Claim Duty Drawback?

Not all exports automatically qualify for drawbacks. Meeting specific eligibility criteria ensures successful claims, while non-compliance leads to rejections or penalties. Understanding these requirements before exporting prevents costly errors.

Fundamental eligibility conditions include:

1. Manufacturing in India: Goods must be manufactured or processed domestically using imported inputs on which customs duties were paid.
2. Duty Payment Proof: Documentary evidence of duties paid on imported inputs through bills of entry.
3. Export Compliance: Adherence to all export regulations, including proper shipping bill filing.
4. Timely Claim Filing: Submission within 3 months from the Let Export Order date.
5. Foreign Exchange Realisation: Export proceeds must be received within RBI’s prescribed timeline of 15 months.
6. No Double Benefits: Cannot claim drawback if already availing other export incentives for the same inputs.

Essential Documents Required for Duty Drawback Claims

Moving from eligibility criteria to practical requirements, proper documentation forms the backbone of successful drawback claims. Missing or incorrect documents cause the majority of claim rejections, making meticulous record-keeping essential.

Mandatory documents for drawback claims include:

• Shipping Bill: Export declaration that often serves as the drawback claim itself.
• Bill of Entry: Proves import duty payment on inputs used in manufacturing.
• Export Invoice and Packing List: Verifies goods exported match drawback claim.
• Duty Payment Receipts/TR6 Challans: Evidence of customs duties actually paid.
• Bank Realisation Certificate (BRC): Confirms foreign exchange receipt within prescribed timelines.
• Manufacturing Details: Required for Brand Rate claims showing input-output ratios.
• Test Reports: May be needed for technical products or specific certifications.

The documents you need vary with the type of drawback. AIR claims are simpler and involve minimal paperwork, but Brand Rate applications demand detailed proof of input duties along with records of your manufacturing process.

How to Calculate Duty Drawback Rates and Amounts

With proper documentation assembled, calculating your drawback amount depends on which method applies to your exports. Each calculation type follows different rules and requires specific information to determine refund amounts.

Here’s a clear way to calculate it:

1. Identify Which Type Applies to You: Identify which type applies to you  AIR, Brand Rate, or Section 74.
2. Find the Applicable Rate
   • For AIR, refer to the current drawback schedule on the CBIC website and pick the correct tariff entry.
   • For Brand Rate, use the approved rate issued by your jurisdictional Customs Commissioner.
   • For Section 74, apply the percentage refund based on how long the goods stayed in India.
3. Identify Eligible Duties
   • Include customs duties and embedded excise-type duties paid on inputs.
   • Exclude ineligible amounts such as GST credits already claimed.
   • Under Section 74, consider only the import duty paid on the exact goods being re-exported.
4. Apply the Rate: Apply the rate to your export value or quantity to calculate the refund amount.
5. Review value addition norms: Check whether your product category has minimum value-addition requirements or maximum refund ceilings, as these can reduce or restrict the final amount you receive.
6. Adjust for time-based reductions when claiming under Section 74: 

Step-By-Step Guide: The Duty Drawback Claim Process for Exporters

The duty drawback claim process is now largely digital, making it easier for you to apply and receive refunds with fewer manual interventions. From preparing your paperwork to getting funds credited into your bank account, each step follows a clear sequence through the Electronic Data Interchange (EDI) system.

Here’s how the process works:

Step 1: Preparing Necessary Documents and Declarations

Begin by assembling all mandatory documents, ensuring each document is complete and accurate. Create clear copies for upload into the electronic system.

Make necessary declarations on shipping bills indicating your intent to claim drawback. Specify whether claiming under AIR or Brand Rate, as this affects subsequent processing.

Step 2: Filing the Shipping Bill Electronically 

At the port, your next task is filing an electronic shipping bill through the EDI system. This step is vital because, in most cases, the EDI-enabled shipping bill itself acts as your duty drawback claim. Once filed, your data flows to customs systems for processing without separate manual forms.

Step 3: Customs Verification and Sanction

Customs authorities verify your claim by matching it against submitted records. They may inspect your goods physically to validate quantity, description, and export value. Once satisfied, they calculate the eligible drawback amount and issue sanction orders for payment.

Step 4: Electronic Disbursal of Refunds

Once customs approves your claim, the sanctioned drawback amount is credited directly into your nominated bank account through electronic transfer. This makes accurate bank details in your declarations essential to avoid rejections or delays. 

The government has also introduced faster settlement mechanisms  in many cases, exporters can receive up to 90% of the refund within three days.

Benefits of the Duty Drawback Scheme for Indian Exporters

Successfully navigating the claim process yields significant advantages beyond simple duty refunds. The scheme creates multiple benefits that strengthen export businesses and improve their market position.

Key benefits for exporters include:

• Reduced Production Costs: Duty refunds lower effective input costs, allowing competitive pricing without sacrificing margins.
• Enhanced Global Competitiveness: Neutral tax treatment matches international competitors who don’t bear import duty costs.
• Improved Cash Flow: Regular refunds provide working capital for business operations and growth.
• Simplified Compliance: AIR system removes complex duty tracking for standard products.
• Support For Growth: Better margins enable investment in quality, technology, and market expansion.

The cumulative impact strengthens India’s export sector by ensuring domestic manufacturers can compete fairly in global markets without tax disadvantages.

Common Challenges in the Duty Drawback Process and How to Avoid Them

Exporters face several challenges that can delay or reduce drawback refunds. Recognising these pitfalls helps you implement preventive measures ensuring smooth claim processing.

Additional preventive measures include:

• Conduct internal audits of drawback claims quarterly
• Consult customs professionals for complex products
• Maintain detailed records for minimum 5 years 
• Update procedures when regulations change

How Razorpay MoneySaver Export Account Enhances Duty Drawback Benefits

While duty drawback refunds improve your bottom line by recovering tax costs, pairing them with efficient international payment collection multiplies the benefit. This is where the Razorpay MoneySaver Export Account fits in; it helps you receive overseas payments at lower cost, settle faster in INR, and maintain cleaner compliance records, ultimately strengthening the gains you make from duty drawback.

Here’s how it helps exporters:

• Lower Cost of Receiving International Payments: With the Razorpay MoneySaver Export Account, exporters can receive overseas payments at reduced charges  up to 75% lower than conventional banking costs  helping you retain more of your export realisation.
• Direct INR Settlement for Clean Reconciliation: Export proceeds received in foreign currency are converted and settled directly into your Indian bank account in INR, removing manual conversion coordination and easing bookkeeping.
• Availability of Inward Remittance Certificates for Compliance Needs: For every inward transfer, the Razorpay MoneySaver Export Account provides eFIRC/FIRA  documents often required for export and banking compliance, helping you maintain cleaner records.
• Improved Working Capital: MoneySaver Export Account enables faster receipt of export proceeds, improving liquidity. This means your duty drawback refund adds to an already healthy cashflow rather than compensating for delays.

Conclusion

The duty drawback scheme remains a key support system for Indian exporters, helping you stay competitive by reducing embedded tax costs. Knowing the different types, eligibility rules, and claim process puts you in a stronger position to recover what you are entitled to. The real value lies in discipline, accurate records, timely filings, and smart financial planning ensure you unlock the full benefit. When you treat drawbacks as a planned part of your export strategy, you boost margins, improve cashflows, and build a more stable export business over time.

FAQs

1: Is duty drawback considered taxable income under GST?

No, duty drawback is a refund of duties and taxes and is not treated as taxable income under the GST regime in India.

2: What is the validity period for claiming duty drawback?

The validity period for claiming duty drawback is generally within three months from the “Let Export Order” date.

3: What is the time limit for filing duty drawback claims?

Exporters must typically file duty drawback claims within three months from the “Let Export Order” date.

4: What steps can exporters take if a duty drawback is not received on time?

If duty drawback is not credited within the expected timeframe, exporters can file a grievance with the relevant customs authorities. 

5: How long does the duty drawback claim processing usually take?

Under the duty-drawback scheme in India, once you file a complete claim, the authorities are expected to credit at least 90% of the drawback amount within around 3 working days, with the remaining amount (if applicable) typically processed in T + 2 days.

6: What factors influence the calculation of duty drawback rates?

Key factors include the applicable AIR or Brand Rate, the actual customs and excise duties paid on imported inputs, the type of goods exported, and the time elapsed between import and export.

7: Is duty drawback allowed for exports to Nepal and Bhutan?

No, duty drawback is generally not admissible for exports to Nepal and Bhutan, especially for goods exported without payment of convertible foreign exchange.