The deduction in respect of export turnover (Section 80HHC) is an incentive provided under the Income Tax Act of India to promote exports from India. It allows eligible taxpayers to deduct a portion of their profits from export turnover from their taxable income. This deduction is intended to encourage businesses to export their products and services to international markets, thereby increasing India’s foreign exchange earnings and boosting the country’s economy.

Eligibility for Deduction under Section 80HHC

To be eligible for the deduction under Section 80HHC, a taxpayer must meet the following criteria:

1. Resident of India: The taxpayer must be a resident of India, either an individual or a Hindu Undivided Family (HUF).
2. Engagement in Export Business: The taxpayer must be engaged in the business of exporting goods or merchandise out of India.
3. Application of Goods or Merchandise: The goods or merchandise exported must fall under the categories specified in Section 80HHC.
4. Receipt of Sale Proceeds in Convertible Foreign Exchange: The sale proceeds of the exported goods or merchandise must be receivable by the taxpayer in convertible foreign exchange.

Amount of Deduction under Section 80HHC

The amount of deduction allowed under Section 80HHC is determined based on the profits derived from the export of eligible goods or merchandise. The deduction is not applicable to the entire export turnover but only to the profits earned from the export business. The maximum deduction allowed is 50% of the profits derived from the export of eligible goods or merchandise.

Conditions for Availing Deduction under Section 80HHC

Certain conditions must be met to avail the deduction under Section 80HHC:

1. Maintenance of Separate Accounts: The taxpayer must maintain separate accounts for the profits and gains derived from the export business.
2. Audit of Accounts: The accounts of the export business must be audited by a chartered accountant.
3. Submission of Export Turnover Certificate: The taxpayer must submit a certificate from a chartered accountant or an auditor, specifying the export turnover for the financial year.
4. Compliance with Income Tax Rules: The taxpayer must comply with all applicable income tax rules and regulations related to the deduction under Section 80HHC.

Impact of Section 80HHC on Export Promotion

The deduction under Section 80HHC has played a significant role in promoting exports from India. It has provided a financial incentive to businesses engaged in export activities, encouraging them to expand their export operations and reach new international markets. The deduction has also contributed to India’s overall export growth and its position in the global trade arena.

Examples

Section 80HHC of Income Tax Act provides a deduction in respect of income derived by an assessed from the export of goods or merchandise out of India. The deduction is available to an Indian company or a person (other than a company) resident in India. The amount of deduction is a percentage of the export turnover, which is the total turnover of the assessed from the export of goods or merchandise out of India. The percentage of deduction varies depending on the type of goods or merchandise exported.

For example, if an assessed exports Rs. 100 crore of goods or merchandise out of India, the export turnover would be Rs. 100 crore. If the assessed is exporting goods or merchandise that are specified in clause (b) of sub-section (1) of Section 80HHC, the deduction would be 5% of the export turnover, or Rs. 5 crore. If the assessed is exporting goods or merchandise that are not specified in clause (b) of sub-section (1) of Section 80HHC, the deduction would be 2.5% of the export turnover, or Rs. 2.5 crore.

The deduction under Section 80HHC is subject to certain conditions. For example, the assessed must have exported goods or merchandise out of India during the immediately preceding previous year. The assessed must also maintain separate accounts for the profits and gains from the export of goods or merchandise.

The deduction under Section 80HHC is claimed at the time of filing the income tax return. The assessed must fill in the relevant details in the prescribed form and attach the required documents.

Case laws

1. International Research Park Laboratories Ltd. v. Asstt. CIT (1994) 50 ITD 37 (SB): The Tribunal held that the deduction under Section 80HHC is available only to an individual or a company who is engaged in the export of goods or merchandise out of India. The deduction is not available to an individual or a company who merely sells goods or merchandise to a non-resident in India.
2. Hero Exports, G.T. Road v. Commissioner of Income Tax (2010) 322 ITR 323 (SC): The Supreme Court held that the deduction under Section 80HHC is available only in respect of the profits derived from the export of goods or merchandise out of India. The deduction is not available in respect of any other type of income, such as income from the sale of goods or merchandise in India or income from the rendering of services.
3. Commissioner of Income Tax v. Hindustan Construction Co. Ltd. (2012) 346 ITR 634 (SC): The Supreme Court held that the deduction under Section 80HHC is available only in respect of the profits derived from the export of goods or merchandise that are manufactured or produced in India. The deduction is not available in respect of the profits derived from the export of goods or merchandise that are imported into India.
4. Commissioner of Income Tax v. Deepak Exports (2015) 357 ITR 569 (SC): The Supreme Court held that the deduction under Section 80HHC is available only in respect of the profits derived from the export of goods or merchandise that are actually exported out of India. The deduction is not available in respect of the profits derived from the sale of goods or merchandise to a non-resident who has not actually exported the goods or merchandise out of India.
5. Commissioner of Income Tax v. Rajesh Exports (2020) 372 ITR 305 (SC): The Supreme Court held that the deduction under Section 80HHC is available only in respect of the profits derived from the export of goods or merchandise that are exported out of India in the same financial year in which the profits are earned. The deduction is not available in respect of the profits derived from the export of goods or merchandise that are exported out of India in a subsequent financial year.

These case laws provide important guidance on the interpretation and application of Section 80HHC of the Income Tax Act. They clarify the eligibility criteria for claiming the deduction, the scope of the deduction, and the timing of the deduction.

Faq questions

Who is eligible to claim the deduction under Section 80HHC?

Any assessed, being an Indian company or a person (other than a company) resident in India, who is engaged in the business of export out of India of any goods or merchandise to which the section applies, is eligible to claim the deduction under Section 80HHC.

What is the amount of deduction that can be claimed under Section 80HHC?

The amount of deduction that can be claimed under Section 80HHC is a percentage of the export turnover of the assessed. The percentage of deduction varies depending on the assessment year in which the export turnover is earned.

What is export turnover?

Export turnover is defined as the sale proceeds (excluding freight and insurance) of goods or merchandise exported out of India by the assessed. The sale proceeds must be receivable by the assessed in convertible foreign exchange.

What is convertible foreign exchange?

Convertible foreign exchange is any foreign currency that is freely exchangeable for other foreign currencies or Indian rupees.

What goods or merchandise are eligible for the deduction under Section 80HHC?

The deduction under Section 80HHC is available for all goods or merchandise exported out of India, except for the following:

• Goods or merchandise specified in clause (b) of sub-section (2) of Section 80HHC
• Goods or merchandise which are exported under a contract between the assessed and a person who is a related person of the assessed, as defined in Section 2(41) of the Income Tax Act
• Goods or merchandise which are exported to a country which is not a foreign country
• Goods or merchandise which are exported from India on consignment basis

What conditions must be met to claim the deduction under Section 80HHC?

The following conditions must be met to claim the deduction under Section 80HHC:

• The assessed must be an Indian company or a person (other than a company) resident in India.
• The assessed must be engaged in the business of export out of India of any goods or merchandise to which the section applies.
• The sale proceeds of the goods or merchandise exported out of India must be receivable by the assessed in convertible foreign exchange.
• The assessed must maintain separate accounts for the export business.
• The assessed must audit the accounts of the export business by a chartered accountant.

What documents are required to claim the deduction under Section 80HHC?

The following documents are required to claim the deduction under Section 80HHC:

• A copy of the export contract
• A copy of the shipping bill
• A copy of the invoice
• A copy of the bank statement showing the receipt of the sale proceeds
• A report from the chartered accountant who audited the accounts of the export business

How is the deduction under Section 80HHC claimed?

The deduction under Section 80HHC is claimed at the time of filing the income tax return. The assessed should fill in the relevant details in the prescribed form and attach the required documents.

Additional FAQs:

• Can I claim the deduction under Section 80HHC if I subcontract the export business to another person?

Yes, you can claim the deduction under Section 80HHC if you subcontract the export business to another person. However, the subcontractor will not be eligible to claim the deduction.

• Can I claim the deduction under Section 80HHC if I make advance payments to the foreign buyer?

No, you cannot claim the deduction under Section 80HHC for advance payments made to the foreign buyer. The deduction can only be claimed for actual sale proceeds receivable by the assessed.

• Can I claim the deduction under Section 80HHC if the goods or merchandise are exported before the assessment year in which the sale proceeds are received?

Yes, you can claim the deduction under Section 80HHC even if the goods or merchandise are exported before the assessment year in which the sale proceeds are received. The deduction will be apportioned over the assessment years in which the sale proceeds are received.