Tax experts have called for urgent clarification from the Central Board of Direct Taxes (CBDT) on the scope of “export incentives” under the newly implemented Income-tax Act, 2025 (ITA 2025). They warn that the broader wording could unintentionally widen the tax net and trigger fresh disputes.
The concern stems from Section 26 of the new income tax law, which replaces the more specific provisions under Section 28 of ITA 1961. Earlier, only certain export-linked incentives — such as duty drawback, Remission of Duties and Taxes on Exported Products (RoDTEP), and similar scrip-based benefits actually received by exporters — were explicitly taxable as business income. However, the new law uses the wider expression “any other export incentives”, raising apprehensions that even indirect or notional benefits could be brought within the tax ambit.
For context, the RoDTEP scheme refunds embedded taxes and duties to exporters to make Indian goods competitive globally. The Export Promotion Capital Goods (EPCG) scheme allows businesses to import capital goods at zero or concessional Customs duty, subject to export obligations. Similarly, the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) scheme permits deferred Customs duty on imported inputs used in manufacturing, improving cash flows for businesses. Experts say the shift from a scheme-specific to a principle-based approach, aimed at simplifying the law, risks creating interpretational ambiguity.
According to an tax expert, the broader reference to export incentives under Section 26 could signal a change in tax position, at least in law. “While the intent may be to streamline provisions rather than alter policy, the absence of clear boundaries risks expanding the tax net to benefits that may not have been meant to be taxed,” he said. He pointed out that notional benefits — such as savings in Customs duty under EPCG or interest and cash-flow advantages under MOOWR — could now come under scrutiny. “A timely clarification from the CBDT would help ensure consistency and avoid unintended disputes,” he added.
Echoing similar concerns, CA (Adv) Bimal Jain founder at A2Z Taxcorp LLP, said the use of a broad expression like “export incentives” introduces uncertainty around the taxability of indirect or non-monetary benefits. “In the absence of explicit legislative intent, extending the scope to duty foregone or financial/timing advantages may not align with established principles of income taxation,” he said. Jain added that clarification from the CBDT would ensure uniformity in implementation, reduce litigation, and provide certainty to exporters making business decisions.
According to secretary general of the Federation of Indian Micro and Small & Medium Enterprises (Fisme), India’s policy regime has not been consistent for exports. If terming the specific schemes for refund of indirect taxes and levies as income was not bad enough, expanding the definition of “export incentives” to include notional or indirect benefits risks deviating from settled principles of income taxation and may conflict with the logic underpinning World Trade Organisation (WTO)-consistent schemes. For micro, small and medium enterprises (MSMEs), this could translate into taxation of unrealised gains, undermining both competitiveness and policy intent, Bhardwaj said.
Another tax expert said: “This broader formulation aligns with the objective of simplification and may help reduce litigation around unlisted entitlements.” However, he cautioned that clarity is still needed on whether such benefits should be treated as revenue or capital receipts, an issue that has historically led to disputes.
According to former CBDT member, the government should issue a timely clarification, as any ambiguity in the provisions could adversely impact exporters and lead to avoidable disputes.
Concerns raised
- New law raising apprehensions that even indirect or notional benefits could be brought within the tax ambit.
- Clarification from CBDT would ensure uniformity in implementation, reduce litigation, and provide certainty to exporters making business decisions, say experts
- May conflict with the logic underpinning WTO-consistent schemes.
- For MSMEs, this could translate into taxation of unrealised gains, undermining both competitiveness and policy intent
