Advance Authorization Scheme vs. IGST Exemption: Which One is More Beneficial?

You would have come across both the Advance Authorization Scheme & the IGST Exemption on Imports if you’re an exporter in India. Both are powerful tools that can drastically cut import expenses. But, which one will benefit your business more?

Though they vary in terms of eligibility criteria & conditions, both schemes aim to ease the burden on exporters by providing tax relief on imported inputs. 

IGST exemption helps reduce upfront cash outflow, while Advance Authorization allows for duty-free import of raw materials used in export production.

We will help you choose the scheme that is more beneficial for your export strategy by outlining the key differences. Let’s simplify the comparison so you can make the most informed choice for your business.

The Advance Authorization Scheme is a popular duty exemption scheme under India’s Foreign Trade Policy. The Directorate General of Foreign Trade administers it. 

It allows exporters to import raw materials or inputs without paying customs duties, including Basic Customs Duty & IGST.

So, why is it a big deal? Because it helps exporters reduce upfront costs as well as stay globally competitive by easing the pressure on working capital.

You need to be an exporter or a manufacturer-exporter to qualify. You can apply either for physical exports or deemed exports.

However, there is a mandatory export obligation. You must export finished goods worth a certain percentage of the imported inputs within a specified time frame. The authorization is valid for 12 months for imports & 18 months to fulfill the export obligation.

Although there is plenty of paperwork involved, many businesses recommend it due to the significant duty savings it provides. The Advance Authorization Scheme has the potential to transform your export operations if utilized wisely.

The IGST Exemption is a valuable relief available to importers. Exporters holding Advance Authorization or EOU licenses are allowed to import goods without paying IGST at the time of customs clearance. 

This benefit is backed by specific notifications issued under the GST & Customs laws. This makes it a legitimate way to reduce cash outflow as well as avoid blocking working capital in tax payments.

The great thing about this scheme is that it provides instant relief. There’s no need to pay IGST first & claim input tax credit later, unlike the regular import process.

You’ll need to submit certain documents, like a valid Advance Authorization or EPCG license, to avail of this exemption. Ensure your import aligns with the license conditions. Ensure that your license allows IGST-free imports before applying or updating it.

This frees up capital for operations, which is particularly beneficial for exporters whose imports are high-volume or high-value. The IGST exemption is a viable option that can help your company save money.

The Advance Authorization Scheme offers better value for manufacturers’ money because it encompasses not only IGST but also BCD & other duties. However, it comes with stricter compliance, such as export obligations & detailed documentation.

The IGST exemption is to be more convenient & expedited if you’re a merchant exporter or dealing with time-sensitive shipments. It requires a valid license & an LUT, which can significantly improve cash flow without waiting for refunds.

However, IGST exemption is more flexible for general import-export requirements, while AA is more complex, making it better suited for businesses with a large volume. Avoiding compliance difficulties requires submitting the correct documentation promptly & accurately.

Your export strategy or operational requirements will determine which of the two options —IGST Exemption or the Advance Authorisation Scheme —is best for you. 

Although it comes with stricter export duties & compliance requirements, Advance Authorisation is an effective choice for manufacturers seeking maximum duty savings. 

The IGST exemption might be a more intelligent choice for merchant exporters that value efficiency & improved cash flow.

Both schemes aim to help exporters, so selecting the right one for your timeframe & process is essential. Making the correct decision might result in substantial cost savings as well as an easier export process.