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What is the Duty Drawback scheme? Know meaning, types, benefits, and process

The Duty Drawback scheme refunds customs duties and taxes on imported goods used to manufacture export products from India. Learn more in the blog.

Reducing costs can improve profitability for e-commerce exporters. Among the many government initiatives that support this goal is the Duty Drawback scheme. This scheme is designed to refund duties and taxes paid on imported input used in the production of exported goods. By easing the cost burden on exporters, the scheme plays a vital role in enhancing global competitiveness and encouraging international trade.

Understanding the meaning, types, benefits, and claiming process of duty drawback can benefit businesses engaged in international trade. This blog post provides a comprehensive guide to the scheme, covering eligibility criteria, required documentation, and a step-by-step process to claim refunds.

What is the Duty Drawback scheme?

The Duty Drawback scheme is a government initiative designed to refund customs duties paid on imported goods that are later exported. It helps businesses reduce costs, improve cash flow, and stay competitive in global markets. It applies to various export scenarios, such as re-exporting imported goods without modification, using imported raw materials to manufacture export products, and supplying goods to Special Economic Zones (SEZs). By offsetting the cost impact of import duties, it enables Indian exporters to compete on an equal footing with international rivals who may have access to cheaper raw materials.¹

Duty Drawback scheme: Customs Act 1962

The provisions for the Duty Drawback scheme are described under Section 74 and Section 75 under the Customs Act, 1962. If the imported goods are re-exported within two years from the date of payment of duty on the importation, exporters can claim 98% of the duty paid.

The government fixes a rate of drawback (for different types of goods) to be paid per unit of the final product at the time of exports. This rate depends on how verified the mode of manufacturing is, raw materials used, amount of duty paid on inputs and standards of making the final product are.

Duty drawbacks might not be allowed under the following conditions:

● Export value of products is less than the value of imported products.
● Sale proceeds of the finished products are not received by the exporter within the allowed time under FEMA.²

Types of duty drawback

Some key types of duty drawback available to exporters are:

1. Direct identification manufacturing:

This applies when imported materials are used to produce goods that are later exported.

2. Substitution manufacturing:

This applies when goods of the same kind and quality are both imported and already present in inventory — even if it’s unclear which were used in the export product.

3. Unused merchandise (direct identification):

This applies when imported items are re-exported without being used in any manufacturing process.

4. Unused merchandise (substitution):

This applies when imported goods that are commercially interchangeable with exportable items in the inventory go unused.³

Goods eligible for Duty Drawback scheme

The following are some categories of goods that qualify for the Duty Drawback scheme:

● Goods that were imported into India and are exported without being used.

● Goods that were imported, used in India, and then exported.

● Goods manufactured or produced using imported materials.

● Goods manufactured or produced using indigenous (domestically sourced) materials.

● Goods manufactured or produced using a combination of imported and indigenous materials.⁴

Eligibility criteria for Duty Drawback scheme

The following are some conditions that need to be met to qualify for Duty Drawback scheme on export:

● You should be the legal owner of the goods at the time the goods are exported.

● You must have documentation proving that customs duty was paid on the imported goods.

● Claims should be filed within the stipulated period. Generally, claims should be submitted within three months of the date of export.⁵

Documents required for Duty Drawback scheme

Some documents required to claim duty drawback are:

● Shipping bill: Shipping bill is a mandatory document required for customs clearance that contains all relevant details of exported goods.

● Bill of entry: A bill of entry is filed when goods are imported, it provides evidence that the import duties were paid.

● Export invoice and packing list: Export invoice and packing list documents verify the value and specifics of the goods being exported.

● Copy of duty payment receipts: Serves as evidence that import duties have been paid on inputs used for manufacturing.

● Duty drawback declaration form: A self-declaration form by the exporter stating eligibility and request for duty refund.

View export documentation requirements on Export Navigator

Export Navigator is a one-stop dashboard that provides Indian exporters with guidance on compliance across five key areas — export registration, product documentation, shipping documentation, tax documentation, and payment reconciliation. Exporters can use the dashboard to understand regulatory requirements for their business and get end-to-end support from third-party service providers to obtain the necessary documents. Export Navigator is available to all Indian exporters, including those not registered on Amazon.

Explore the dashboard

Duty drawback claiming process: A step-by-step guide

Claiming a duty drawback refund involves multiple steps. Here’s how exporters can ensure a smooth process:

Step 1: Prepare necessary documents

Gather all essential documents, including invoices, shipping bills, and proof of duty payment.

Step 2: File the shipping bill

Submit an electronic shipping bill at the customs port of export. Declare the intention to claim a drawback on the shipping bill.

Step 3: Submit the duty drawback claim

Claim the duty drawback through the Electronic Data Interchange (EDI) system or manually.

Step 4: Get customs verification

Customs officials verify the claim based on submitted documents. Physical verification may be conducted to confirm the exported goods match the declaration.

Step 5: Processing and approval

The duty drawback amount is calculated based on drawback rates. Once verified, the claim is approved for disbursement and the refund is credited to the exporter’s bank account.

Advantages of Duty Drawback scheme

Some advantages of the Duty Drawback scheme include:

● Reduced cost: Lowers production costs by refunding duty payments.

● Enhanced competitiveness: Enables exporters to offer competitive pricing.

● Improved cash flow: Provides additional working capital for business expansion.

Disadvantages of Duty Drawback scheme

Some disadvantages of the Duty Drawback scheme are:

● Complex documentation: Requires extensive paperwork for claims.

● Delayed refunds: Processing times after approval can be lengthy.

● Strict eligibility criteria: Not all goods qualify for duty drawback in export.⁹

Rates of Duty Drawback

The government determines drawback rates based on industry norms and actual duties paid. The different rates include:

All Industry Rate (AIR)

AIR is a fixed percentage refund set by the government, applicable to a wide range of exported goods. It is published annually in the Drawback Schedule by the Directorate General of Foreign Trade (DGFT).¹⁰

Brand Rate

The brand rate is applicable when AIR is inadequate or unavailable. It is calculated based on the actual duty paid on imported materials. It requires submission of detailed duty payment records.¹¹

How to calculate duty drawback rates

Duty drawback rates can be calculated through the following steps:

● Identify eligible duties: Compile all duties applicable, such as customs duty, central excise duty, and service tax.

● Collect documents: Gather all necessary documentation such as invoices, proof of duty payments, and export declarations.

● Determine the rate applicable: Determine whether AIR or brand rates are applicable.

● Calculate the amount: Calculate the amount based on the government percentages or the actual duties paid.

Conclusion

The Duty Drawback scheme plays a vital role in promoting exports by refunding duties paid on imported materials. By reducing costs for exporters, it enhances global competitiveness and ensures businesses remain financially viable. Understanding the eligibility criteria, types, and claiming process can help maximize benefits under this scheme.

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce export program, Amazon Global Selling provides support and guidance at every step of your export journey, connecting you to Amazon’s Service Provider Network for tailored compliance, payments, and logistics support.

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Frequently Asked Questions

1. Is duty drawback taxable under GST?

No. Since duty drawback is a refund and not profit, it is not taxable.

2. What is the validity period of duty drawback?

The Duty Drawback scheme remains valid for exports made within one year of importation.

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

Exporters must file claims within three months from the date of export, with extensions available in special cases.

4. What happens if duty drawbacks are not received?

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

5. How long does duty drawback take?

The duty drawback process typically takes 3 to 6 months, depending on documentation accuracy and customs verification.

6. What are the factors affecting the calculation of duty drawback?

Key factors include drawback rates, duty paid on imports, and product classification.

Published on July 12, 2022.
Updated on June 05, 2025.

Sources:
1. https://www.indiafilings.com/learn/duty-drawback-scheme/
2. https://taxguru.in/income-tax/duty-drawback-customs-act-1962.html#:~:text=Under%20section%2074%20of%20the,on%20export%20of%20manufactured%20articles
3. https://www.credlix.com/blogs/what-is-the-duty-drawback-a-comprehensive-guide-for-importers-and-exporters
4. https://www.indiafilings.com/learn/duty-drawback-scheme/
5. https://www.indiafilings.com/learn/duty-drawback-scheme/
6. https://www.shiprocket.in/blog/duty-drawback/
7. https://www.mygstrefund.com/duty-drawback-scheme-for-export-eligibility-types/
8. https://www.dripcapital.com/en-us/resources/blog/what-is-duty-drawback
9. https://www.fedev.org/focus-areas/export-hurdles-assessing-limitations-duty-drawbacks/
10. https://www.mygstrefund.com/air-duty-drawback/
11. https://www.mygstrefund.com/duty-drawback-scheme-for-export-eligibility-types/
12. https://blog.pazago.com/post/how-to-calculate-duty-drawback-on-export#:~:text=The%20drawback%20is%20calculated%20based,more%20than%206%20months%3A%2085%25

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