RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/IND/9
11 September 2000
(00-3510)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from the UNITED STATES1
Regarding the New and Full Notification of INDIA2
The following communication, dated 28 August 2000, has been received from the Permanent
Mission of India.
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Income Tax Exemption for Export Profits under Section 10A, 10B, and 80 HHC of the Income
Tax Act
This programme exempts profits earned on  exports from the corporate income tax.
Export profits are deducted from taxable income before computation of the income tax owed.
Q1. What is the corporate income tax rate?  To estimate the magnitude of this subsidy, it is
necessary to know the corporate tax rate.
Reply
Corporate income tax is the rate at which companies are taxed in India.  At present, the rate of
corporate tax for the assessment year 2000-1 is as follows:
Domestic companies: 35 per cent + 10 per cent surcharge + 10 per cent on dividend
declared/distributed (with a surcharge of 10 per cent)
Foreign companies: 48 per cent.
Q2. Would the Government of India please ex plain why the following programmes were not
included in its notification?  In addition, pl ease provide the full name of the subsidy, the
enabling legislation, the reason for the subsidy, to whom the subsidy is granted, the amount of
the subsidy, and the trade effects of the subsidy.
• Export Promotion Capital Goods Scheme (EPCGS)
Under this scheme, capital goods may be imported duty free provided the importer can
meet an annual export obligation over a five-year period.
                                                     
1 G/SCM/Q2/IND/8
2 G/SCM/N/38/INDG/SCM/Q2/IND/9
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• Export Oriented Units Scheme (EOU) and Export Processing Zone (EPZ) Scheme
Companies undertaking to export their entire production may be set up as one of the
above schemes.  In fact, these companies m ay sell a small percent of production in the
domestic market.  Under these schemes, companies may import free of duty all types of
goods, including capital goods.
• Pre-shipment Export Financing (PSEF)
Preferential short-term financing is provid ed to companies based on export purchase
orders presented to banks as proof that the company intends to purchase inputs to
produce for export.
• Post-shipment Export Financing (POSEF)
Post-shipment short-term financing is provided  to companies based on invoices issued to
foreign buyers.  Banks issue short-terms loans based on these export invoices to enable
companies to extend credit terms to overseas buyers.
• Export Trading Houses, Star Trading Houses, and Superstar Trading Houses
Depending on their level of exports, companie s qualify as one of these types of trading
houses.  The main benefit received under th is programme appears to be the receipt of
Special Import Licences (SIL) valued as a perc ent of total exports for the year.  With an
SIL, a company may import restricted merchandise to be used or sold on the domestic
market.
• Exemption from Interest Tax on Export Credits
Under this programme, interest paid on ex port credits (short-term export financing) is
exempt from the interest tax.
• Duty Entitlement Passbook Scheme (DEPBS)
Exporters may earn credits upon export based on the deemed import content of the
export product as per standard input/output norms.  These credits may then be used in
payment of duties on imported inputs.
• Advance Licences
Advance licences are granted to a merchant-exporter (trading house) and to
manufacturer-exporters for the import of inputs required to manufacture goods without
payment of basic customs duty.  The licence holder has an obligation to export a certain
quantity of finished product within a certain period based on the standard input-output
norms published by the Director General of Foreign Trade.
Reply
India has not included these programmes in its notification because they are not subsidies and
only provide for remission of duties or taxes borne by the exported product, or exemption of dutiesand taxes on inputs used in the exported product, or deferral of duties on goods until they leave
customs bonded areas.  In the case of export credit, it is provided at rates higher than those availableG/SCM/Q2/IND/9
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internationally and is therefore not a subsidy.  As for exemption of export credits from interest tax, it
may be mentioned that the application of interest tax itself has been terminated with effect from
1 April 2000.
Pre-shipment and post-shipment export financing schemes are administered by the Reserve
Bank of India and the export credit is made available to the exporters by the commercial banks.
Interest rates on such export credits are announced by the Reserve Bank of India from time to time.
All the other schemes referred to in Question 2 are administered by the Directorate General of
Foreign Trade of the Government of India.  Details regarding these schemes are available at the
website of the Director General Foreign Trade at http//dgft.delhi.nic.in/exim/2999.
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