Advance Authorisation Scheme: Your Guide to Duty-Free Exports in India

India aims to become a $2 trillion export economy by 2030, and the Foreign Trade Policy plays a crucial role in achieving this target. To support exporters, the government continuously refines and expands its incentive schemes.

Among these initiatives, the Advance Authorisation Scheme (AAS) is a key pillar. It allows exporters to import inputs duty-free, provided they are used in the production of goods meant for export. Unlike refund-based mechanisms, this is a direct duty exemption that lowers manufacturing costs upfront and strengthens price competitiveness for Indian products in global markets.

This guide covers eligibility criteria, application steps, compliance requirements, and practical strategies to maximise benefits while avoiding common pitfalls.

What is the Advance Authorisation Scheme and How Does it Benefit Exporters?

Defining Advance Authorisation: Duty-Free Imports for Export Production

The Advance Authorisation Scheme operates as a duty-exemption mechanism under India’s Foreign Trade Policy, designed to reduce export production costs. Unlike refund-based schemes that refund duties later, this programme prevents duty payment upfront, preserving working capital for exporters.

The scheme also covers auxiliary inputs like packaging material, fuel, oil, and catalysts that are consumed during production, allowing them to be imported duty-free.

When the policy says inputs must be physically incorporated, it means they should form part of the final export product. For example, fabric used in stitching a garment or metal used in making a machine.

The scheme also allows normal wastage, which covers material lost during cutting, processing, or chemical reactions. This recognises that perfect utilisation is rarely possible in manufacturing.

Key Benefits: How AAS Boosts Export Competitiveness

1. Significant cost savings: Duty exemption reduces the landed cost of raw materials.
2. Enhanced pricing power: Lower production costs enable more competitive quotes in international markets.
3. Better input access: Import specialised materials unavailable domestically without duty burden.
4. Cash flow advantages: Preserve working capital by avoiding upfront duty payments.

Which Duties Are Exempted Under Advance Authorisation?

The scheme covers multiple duty waivers, but these apply only when conditions are met.

1. Basic Customs Duty (BCD): Exempt
2. Additional Customs Duty: Exempt
3. Education Cess: Exempt
4. Social Welfare Surcharge: Exempt
5. Anti-dumping Duty (ADD): Exempt
6. Safeguard Duty: Exempt
7. IGST: Conditionally exempt, subject to pre-import conditions per Supreme Court ruling
8. Compensation Cess: Conditionally exempt, similar conditions as IGST exemption

Who Is Eligible to Apply for an Advance Authorisation?

The scheme accommodates various exporter categories with specific eligibility criteria.

Understanding Manufacturer vs. Merchant Exporters

Manufacturer exporters produce goods in their facilities using duty-free inputs. They maintain direct control over production processes and quality standards.

Merchant exporters source finished goods from supporting manufacturers for export. They must establish formal tie-ups with manufacturers and ensure compliance flows through the supply chain.

What Types of Supplies Qualify for Authorisation?

1. Physical exports: Garments to USA buyers, engineering goods to European markets
2. Intermediate supplies: Auto components to vehicle exporters, fabric to garment exporters
3. Deemed exports: Software to SEZ units, equipment to foreign-funded infrastructure projects
4. Vessel stores: Supplies for foreign-going vessels or aircraft where eligible items fall under defined SION

What Items Can Be Imported Duty-Free Under the Scheme?

Under Advance Authorisation, you can import a wide range of inputs without paying customs duty, provided they are used to manufacture goods meant for export.

Inputs commonly allowed

1. Primary inputs: Raw materials and components physically incorporated into export products with normal wastage allowances
2. Production consumables: Fuel, oil, energy, and catalysts consumed during manufacturing
3. Mandatory spares: Components, mandatory spares, and packaging materials exported with the final product, generally up to 10% of the CIF value of the authorisation
4. Specialised imports: Certain spices can be imported duty-free only for real processing work like grinding or sterilising, not for basic tasks like cleaning, sorting, or repacking

Quick reference: conditions

1. Raw materials: Must form part of final export product; normal wastage permitted; as per notified norms
2. Fuel and oil: Must be consumed or utilised in production; allowed where justified in process norms
3. Mandatory spares: Must accompany exported product; up to 10% of CIF value
4. Catalysts: Allowed for notified processing activities; subject to scheme conditions

How Do Standard Input Output Norms (SION) and Other Bases Determine Authorisation?

Import allowances depend on norms that determine input-output ratios. DGFT provides multiple pathways for establishing these norms.

Standard Input Output Norms: The Baseline

SION covers pre-set norms published by DGFT that specify how much input is allowed for producing a unit of output. These norms reflect industry standards for each product category.

If a matching norm exists, using SION is usually the simplest and fastest route for approval.

Self-Declaration and Norms Committee Fixation

1. Self-declaration process: Submit technical details, production flowcharts, and consumption data
2. Committee review: Authorities verify declarations against industry benchmarks
3. Documentation needs: DGFT DSC, IEC, ANF-4A application, and supporting documents
4. Ad-hoc approval: Norms Committee may fix custom norms for innovative or specialised products

The Self-Ratification Scheme for AEO Exporters

1. Instant approval: AEO certificate holders can self-certify norms without committee review
2. Conditions apply: Used when no SION or valid ad-hoc norms exist, or when extra inputs are needed beyond notified SION
3. Post-verification: Random audits validate declared norms against actual consumption
4. Time savings: Reduces authorisation processing from weeks to days

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Fulfilling Export Obligation and Calculating Value Addition (VA)

Securing your authorisation is the start. Export obligation fulfilment and value addition calculations determine compliance success.

Export obligation represents your binding commitment to export specified quantities or values within prescribed timelines.

Standard requirements

1. Timeline: 18 months from the authorisation issue date for EO completion
2. Calculation basis: CIF import value determines minimum export requirements
3. Value addition: Minimum 15% for most products, and 50% for tea exports
4. Documentation: Shipping bills, invoices, and realisation certificates prove compliance
5. Consequences: Non-fulfilment triggers duty recovery with interest and penalties

Value Addition formula

VA = [(FOB value of exports – CIF value of imports) / CIF value of imports] × 100

Understanding your export obligation

Export obligations safeguard against duty-free input diversion to domestic markets. Your authorisation specifies the exact export quantities or values you must achieve.

Missing deadlines can trigger duty recovery with interest. Maintain accurate export documentation for smooth authorisation closure.

Non-fulfilment may lead to full duty payment on imported inputs, interest charges, and possible debarment from future authorisations.

How to calculate value addition

Step-by-step:

1. Determine FOB value: Total export invoice value excluding freight and insurance
2. Calculate CIF imports: Landed cost of all imported inputs, including freight and insurance
3. Apply formula: Subtract CIF from FOB, divide by CIF, multiply by 100
4. Include free supplies: Add notional value of buyer-supplied materials to both CIF and FOB

Example with free inputs:

FOB exports: ₹10,00,000 (includes ₹2,00,000 free fabric from buyer)
CIF imports: ₹6,00,000 (includes ₹2,00,000 free fabric value)
VA = [(10,00,000 – 6,00,000) / 6,00,000] × 100 = 66.67%

Key exceptions to the minimum 15% value addition:

1. Tea exports: 50% value addition
2. Spice processing: product-specific requirements may apply
3. Deemed exports: project-specific norms may apply

Understanding the Validity Period and Actual User Condition

Every Advance Authorisation comes with timelines and rules on who can use it. These conditions ensure duty-free imports support real export production, not resale or diversion.

When does your authorisation expire?

1. Standard validity: 12 months from the date DGFT issues the authorisation
2. Deemed exports: Validity may align with the project execution period
3. Revalidation: One extension for an additional 12 months may be available, subject to DGFT approval and conditions

The importance of the actual user condition

Advance Authorisation is meant to support genuine manufacturing for export, not resale or trading. Both the authorisation and the imported materials remain non-transferable. Only the approved exporter can use them.

This condition does not end after you meet your export obligation. Post-EO utilisation requires records proving continued use for export production. Diversion to domestic sales can attract full duty liability plus penalties.

Applying for Advance Authorisation: A Step-by-Step Guide

Applying through the DGFT digital platform is easier when prerequisites are in place.

Essential prerequisites

1. IEC registration: Mandatory for import-export activities
2. DSC: Class 3 digital signature for online submission and legal validity
3. RCMC: Membership in export promotion councils for sector benefits
4. MSME or SSI certificate: Can support preferential processing and fee concessions
5. Bank account: AD bank account for forex transactions

DGFT online application steps

1. Login to DGFT portal using IEC and DSC
2. Select ANF-4A form for Advance Authorisation
3. Fill exporter details
4. Specify export product: HS code, description, quantity, FOB value
5. Enter input requirements based on SION or self-declared norms
6. Select port of registration
7. Upload supporting documents: IEC, RCMC, and export evidence if applicable
8. Submit with DSC
9. Track status via portal dashboard

Recent policy updates affecting your application

DGFT permits advance authorisations for goods shipped before licence issuance in certain cases. A key requirement often referenced is that the Bill of Entry should align with the authorisation conditions to claim duty exemptions.

This helps exporters who secure orders before completing authorisation formalities. Maintain clear documentation showing shipment dates versus authorisation timelines for compliance checks.

Common Challenges and Best Practices for AAS Compliance

Advance Authorisation offers strong cost savings, but compliance requires discipline. Many exporters face documentation gaps, timeline slippages, or misinterpretation of norms.

Avoiding common compliance pitfalls

1. Quantity management risks: Importing more inputs than needed can create duty liability on unutilised quantities
2. Product matching gaps: Inputs not aligning with authorised specifications can trigger scrutiny
3. Timeline pressure: Delays in completing exports within the 18-month window can cause non-compliance
4. Declaration errors: Incorrect product details or values raise cancellation or investigation risk
5. Penalty exposure: Breaches can trigger duty recovery with interest and fines

Strategies for record-keeping and monitoring

1. Track everything: Map import consignments, consumption, and exports to each authorisation
2. Set alerts: Monitor export obligation and validity dates
3. Keep evidence ready: Store shipping bills, consumption records, and CA certificates to support closure

The Advance Authorisation Redemption Process

Once you meet your export obligation, you must apply to close the authorisation by submitting proof of exports and consumption. This is done through ANF 4F to the DGFT regional authority, which reviews documents and confirms redemption, formally closing the authorisation.

How Razorpay MoneySaver Export Account Complements Duty-Free Exports

To ensure duty-free inputs translate into stronger margins, exporters also need to retain more value from export receipts. Razorpay MoneySaver Export Account supports this by simplifying collections and compliance documentation.

Key advantages:

1. No FX markup: Converts export proceeds at live exchange rates without additional markup
2. Low-cost bank transfers: International bank transfers are priced competitively (often referenced around 1%)
3. Global reach and multi-currency capability: Collect from 180+ countries across 135+ currencies
4. Unified dashboard visibility: Collections across methods appear in one view for easier reconciliation
5. Automated compliance documentation: Digital FIRC or eFIRC and settlement records accessible online
6. India-based support: Assistance for dispute resolution and merchant queries

Conclusion

The Advance Authorisation Scheme remains one of India’s most practical export incentives, helping businesses lower manufacturing costs and compete globally. By enabling duty-free access to essential inputs, it supports pricing power, product quality, and working capital efficiency.

To maximise benefits, treat compliance as a discipline. Track timelines, maintain documentation, and use structured monitoring to prevent costly errors. When managed well, Advance Authorisation becomes a strategic advantage that strengthens margins and supports long-term export growth.

FAQs

1. What is the primary purpose of the Advance Authorisation Scheme?

The scheme allows duty-free import of inputs, including packaging materials, fuel, oil, and catalysts used in producing export goods, reducing production costs.

2. Who is eligible to apply for an Advance Authorisation?

Manufacturer-exporters and merchant exporters tied to supporting manufacturers can apply.

3. How long is an Advance Authorisation typically valid?

It is generally valid for 12 months from the date of issue.

4. Which duties are exempted under the Advance Authorisation Scheme?

It exempts various duties on imported inputs, including Basic Customs Duty and other specified duties. IGST and Compensation Cess may be conditionally exempt, subject to applicable conditions.

5. What is the minimum value addition required under Advance Authorisation?

A minimum value addition of 15% is generally required, with exceptions for specific products such as tea, which commonly requires 50%.

6. Is the Advance Authorisation transferable?

No. The authorisation and imported materials are non-transferable under the actual user condition.