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Understanding Service Export Incentive Scheme

The scheme is an incentive and is in addition to benefits under GST. The exporters can claim benefit both under GST and the scheme for the same service.

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The service sector is a significant contributor to the Indian Economy. The estimated forex earnings from service sector for FY 2018-19 was $ 204.43 billion. The Government recognises the role the service sector plays in earning forex earnings and generating employment. The Government with a view to incentivise the service exports introduced the Service Export Incentive Scheme (SEIS) in Foreign Trade Policy for 2015-20. 

What is this scheme? 

As the name suggests, SEIS is a scheme which provides an incentive for exporting services. The scheme covers services provided from India to any other country and services provided to the foreign consumer. The scheme provides a list of services (Appendix 3D) and the exporter can claim the incentive if the service is covered therein. 

The scheme is an incentive and is in addition to benefits under GST. The exporters can claim benefit both under GST and the scheme for the same service. 

How is the incentive given? 

The incentive is given in the form of a duty scrip. The duty scrips can be used for payment of import duty and GST or can be sold in the market. The amount of duty scrips ranges from 5 per cent to 7 per cent of Net Foreign Exchange depending on the nature of service. 

What is Net Foreign Exchange? 

Net Foreign Exchange is the difference between gross earnings of foreign exchange and total expenses/payment/remittances of foreign exchange. Say, an outsourcing company exports services of $ 10,000 and forex expenses of $ 2,000. The company will have an NFE of $ 8,000 (i.e., $ 10,000 less $ 2,000). Assuming, a rate of 7 per cent, the company will be entitled to SEIS of $ 560 subject to realisation. There is no incentive in case the NFE is negative. 

How does the scheme help? 

The duty scrips can be used for payment of import duty and GST. In case the duty scrips are used for payment of GST, an input tax credit of such GST is not available. 

Alternatively, the scrips are freely transferrable, and the exporter can sell the duty scrips in the market. The scheme provides a unique opportunity to service exporters to earn cash on sale of the scrips. Also, there is no GST on the sale of the scrips.  

How to apply for the scheme? 

The incentive can be claimed by filing an online application with the Directorate General of Foreign Trade. The application is processed based on self-declaration and a chartered accountant certificate. The application is filed annually. Currently, applications can be filed for exports made for FY 2016-17 and onwards. 

Are there any conditions to claim the benefit? 

The scheme is open to all however, the Government has laid certain conditions on claiming the benefit. The main ones are listed below. 

Exporters who are operating as STPIs / EOUs are not eligible; 

The exporter should have an active Importer Exporter Code (IEC) at the time of exporting services; 

The minimum NFE for claiming the benefit is $ 10,000 for individual service providers and $ 15,000 for others. 

What is the way forward? 

Service exporters should list and make a note of their services to compare it with Appendix 3D. If eligible, the exporter should calculate his benefit and apply with the authority. The policy provides a time frame of three working days however, the process may take longer depending on complexity and quantum involved. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Anuj Kakkar

Anuj Kakkar is the Founder of Vriddhi Advisors

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