Mon - Sat: 10:00 am - 06.00pm
Curated EximCurated EximCurated Exim
(Mon - Sat)
info@curatedexim.com

Bank guarantees in export schemes under Advance License 

 
India’s export-driven policies, such as pre-licensing and EPCG (Export Promotion Capital Goods) scheme, allow exemption of duties on imported goods intended for re-export. Support the country’s exporters. These plans require bank guarantees. The exporter fulfils its financial insurance export obligations. According to the latest statistics, more than 60% of Indian exporters use trade incentives provided by the government to reduce operating costs and remain competitive in the global market. The spread of bank guarantees highlights their importance. However, exemptions exist to facilitate compliance for eligible exporters. 

(References: Economic Times, Ministry of Commerce) 

Why are bank guarantees important for exporters? 

Bank guarantees are financial instruments that assure the government that exporters using advanced licenses and EPCG schemes will meet their export obligations. If the exporter defaults on its obligations, the government can demand this guarantee to recover the duty exemption granted. Although these guarantees are necessary, the government also offers discounts to reduce compliance burdens for exporters with clear records or special status. 

A bank guarantee is required under the Advance Licensing Scheme. 

The advanced licensing program allows exporters to import duty-free inputs used in the production of export goods. However, duty-free imports include an obligation to deliver the finished goods within a specified period. 

Bank guarantees ensure that the government can recover abandoned tariffs if the exporter defaults on its export obligations. This provision is generally mandatory, especially for first-time or small exporters. 

Advance License: Special Exemptions for High Performers 

Status Holders 

Exporters with “status” recognition, such as One Star, Two Star, and higher Star Export Houses, may qualify for full or partial exemption from the bank guarantee requirement. This recognition is based on export performance and provides a level of trustworthiness to these entities. 

Government Undertakings and PSUs 

Public sector undertakings (PSUs) and government-backed entities are typically exempt from bank guarantees, given their high credibility and established compliance. 

Established Export Houses 

Large Export Houses or those with a high export turnover may receive exemptions. These exemptions incentivize exporters with significant contributions to the national export output. 

High Compliance Record 

Exporters with a proven history of meeting export obligations under previous licenses are often exempted from providing bank guarantees. This exemption is a reward for consistent compliance and encourages other exporters to maintain similar standards. 

Companies in government-approved cluster special economic zones 

Group Members and SEZ Participants: Due to the increased scrutiny and compliance of the masses, companies operating within government-sponsored industrial clusters or special economic zones (SEZs) can benefit from reduced or waived bank guarantees. 

ECGC insured exporter ECGC Supported Exporters  

Reduce Credit Risk Exporters who receive insurance coverage from the Export Credit Guarantee Corporation of India are eligible for discounts. This reduces the exporter’s risk and provides additional protection to the government—a subsidiary of a large export company that provides custom designs.  

Subsidiaries with a proven parent company  

Subsidiaries of multinational corporations or large export entities with a consistent history of meeting their obligations are partially exempt based on their results—the parent company’s operations. 

Exporter with a long history of exporting Decades of Compliance 

Companies with a track record of 10 years or more of continuous exports without defaults or penalties may qualify for automatic exemption due to long-standing trust. 

ISO certified manufacturer ISO 9001 and ISO 14001 Certified Exporter  

Companies with international certificates indicate standards of quality and environmental management. They are often eligible for exemption. Such certification signals compliance and adherence to high-performance standards.  

High-value export projects Government-sponsored projects  

Exporters involved in high-value or strategically important export projects, such as those related to defence or renewable energy, may qualify for special exemptions. These projects are under strict government supervision, which reduces the bank guarantee requirements. 

Companies with high exports  

Companies with consistently high export values ​​year after year, eligibility for exemption, it is based on contribution to the national economy and a proven track record. Export units approved under Make in India Make in India Accredited Units: Companies aligned with the ‘Make in India’ initiative and have been recognized by the government for their contributions. Also, they benefit from exemptions, demonstrating their role in strengthening the country’s manufacturing sector. 

Exporters under bilateral or multilateral trade agreements Trade Agreement Benefits  

Exporters operating under specific bilateral and multilateral agreements promoting international trade and cooperation are exempted. These agreements often include provisions for reducing trade barriers and providing financial guarantees.  

Exporters in priority areas Projects of national importance  

Exporters in areas of high importance to national development, such as high technology, Sustainable energy and critical infrastructure, May be eligible for exemption from bank guarantees. These projects often receive government support to support strategic goals.  

Government Contract Holder 

An exporter who holds a long-term contract with a government agency or agency. Especially those involved in large public projects. This may be exempted due to security and regulatory requirements related to such agreements. 

Companies with an excellent social compliance record Social Responsibility and Compliance 

Exporters who can demonstrate a high level of social responsibility, including compliance with labour laws, Ethical Guidelines, and sustainability initiatives, may be considered for a discount as part of government efforts to promote responsible business practices.  

Green and Environmentally Certified Exporter Environmentally Focused Companies 

 Exporters certified according to recognized environmental standards (such as Green Business Certification) are eligible for rebates because they comply with environmentally friendly practices, thus promoting sustainable exports. Exporters receive special support from state governments.  

State-sponsored exemptions 

Some state governments may have policies that provide discounts to exporters or reduce bank guarantees. These policies are part of a regional development project aimed at promoting trade and the growth of local industry.  

Industry-specific exemptions Sector-based policies 

Specific industries, such as pharmaceutical or electronics manufacturing, may have tailored policies that offer discounts or reduced bank guarantees. This depends on the nature of key exports and expected global competition.  

Exporters with proven supply chain security measures AEO and Supply Chain Certification 

Exporters certified as Authorized Economic Operators (AEO) or with recognized supply chain security standards may be eligible for exemption. These certifications indicate a high level of confidence and safe practices in the handling of goods, reducing the perceived risk. 

Startups Accepted under government programs Government-Backed Startups 

Startups accepted by government programs such as Startup India benefit from policy initiatives that reduce financial and procedural barriers. This may lead to the exemption of some bank guarantees.  

Exporters Involved in Humanitarian or Relief Efforts Special Purpose Exemption  

Companies exporting goods for humanitarian purposes or as part of relief efforts (e.g., medical supplies, emergency equipment) are eligible for an exemption to ensure the timely and continuous passage of essential supplies. 

Exemption based upon Export Turnover of Rs.1 Crore 

Manufacturers and exporters or service providers registered with GST with an export value of Rs.1 crore or more in the preceding financial year and consistent exports over the past two years are exempt. 

Exemption based the payment of GST of Rs.1 Crore 

GST-registered manufacturers or service providers who paid Rs 1 crore or more as GST in the previous financial year are also eligible for this exemption. 

Compliance: key points in risk-free trading 

For exporters, a bank guarantee can represent a significant financial obligation. Understanding when discounts apply can reduce this burden. This results in smoother business operations and increased cost efficiency. Key points of risk associated with compliance and bank guarantees in advance licenses and EPCG schemes include: 

Refund upon Fulfilment of Obligation:

Bank guarantees are generally refundable once the exporter successfully fulfils its export obligations. 

Penalty for non-compliance:

If the obligation is not fulfilled within the specified period. The government may require a bank guarantee. This leads to financial recovery and additional penalties. 

Renewal Requirements:

Periodic renewal and verification of compliance with bank guarantees are necessary to avoid penalties. 

Curated Exim: Your trusted guide to bank guarantee compliance. 

With a focus on proactive guidance and risk mitigation, Curated Exim helps exporters maintain smooth operations. Help them confidently and efficiently take advantage of tax exemptions. Our dedication to timely support and dispute resolution ensures that businesses Remain compliant while focusing on their core export activities, making Curated Exim a key partner in optimizing trade profitability. 

Leave A Comment