Understanding Duty Drawback for New Online Sellers Expanding Globally

Every small business person who operates an online business and intends to sell products to the international market should have a basic understanding of the duty drawback. This is a program of governments that facilitates the exporters to get rebates on the customs duties that they incurred while importing some of the raw materials that are in their export products. As for the advantage of this strategy, it means that you could minimize your total cost of production and thus maximize your total earnings in the global environment.

This guide is perhaps one of the simplest yet most comprehensive guides on duty drawback you will ever come across. It will be very useful for anyone, whether he/she is a small-scale seller or a rapidly developing company, to check up this level to move their exports to the next level.

What Is Duty Drawback?

Duty drawback is defined as a refund received by a firm which imported products that paid customs duties on the products, when these products or articles manufactured from them are exported. In simple words, if you import raw materials or packaging material to manufacture products and export the products from India, the government gives back the import tax.

This scheme is offered under the Customs Act, 1962, and helps exporters become more competitive in the international market.

There are two main types of duty drawback:

• Section 74 – Refund of duty on goods exported as-is without use.
• Section 75 – Refund of duty on imported materials used to manufacture export goods.

Why Does It Matters for Small Exporters?

For small and medium exporters, every rupee counts. Customs duties can add to your total cost of production. The drawback scheme allows you to recover that cost and use the funds to invest back in your business.

Benefits include:

• Lower cost of production
• Higher profit margin
• More competitive pricing in foreign markets
• Better cash flow for marketing, shipping, or inventory

Who Can Apply for Duty Drawback?

The scheme is designed for all types of exporters—whether you’re an individual seller, a startup, or a registered business. If you are:

• Importing raw materials or packaging
• Manufacturing or assembling goods in India
• Exporting the final products to another country

Step-by-Step Process to Claim Duty Drawback

Here is a simple process to claim duty drawback:

1. Register as an Exporter
   You need to have an Import Export Code (IEC). You can apply through the Directorate General of Foreign Trade (DGFT).
2. Import Raw Materials or Components
   Maintain records of duty paid during imports. Keep your Bill of Entry and duty receipts safe.
3. Manufacture or Assemble the Final Products
   Use the imported items in your production process or as packaging material.
4. Export the Final Products
   File the shipping bill and mention that you’re claiming duty drawback. Submit it at the time of export.
5. Submit Required Documents
   You will need:

• Bill of Entry (for imports)
• Shipping Bill (for exports)
• Export Invoice
• Packing List
• Bank Realization Certificate (BRC)
• Declaration for use of imported goods

1. Track Refund Status
   Once your documents are verified by customs officials, the refund is credited directly to your bank account.

Duty Drawback Rates and How They Work

There are two ways the refund is calculated:

• All Industry Rate (AIR): The government publishes fixed rates for common goods. If your product is listed, you can claim this standard rate.
• Brand Rate: If your product is not listed or your duty paid is different, you can apply for a special rate by showing actual data.

The rates are declared by the Central Board of Indirect Taxes and Customs (CBIC). You can check current rates.

Important Tips for First-Time Exporters

• Always file for drawbacks when submitting your shipping bill.
• Use proper product codes (HS codes) for your exports.
• Maintain all import/export records for at least five years.
• Check if your product is eligible for AIR. If not, go for Brand Rate.

Also, digital filing is preferred. Use ICEGATE portal for submitting documents:

How It Helps Global Business Growth

When you’re expanding your business globally, you’ll face international competition. If your cost of production is high due to import duties, you may not be able to price competitively. With the duty drawback refund, you can reduce your expenses and invest in better packaging, faster shipping, or more marketing—all of which help your business grow globally.

Easy Next Steps for New Exporters

If you’re just starting out, here’s how to begin:

1. Apply for IEC code on DGFT portal
2. Complete KYC with export promotion councils if needed
3. List and upload your products on international marketplaces
4. Start exporting and keep all records
5. Submit drawback claims at time of export
6. Track your refund and use funds to scale

Fulfilment Services (FBA)

If you’re using fulfilment services where products are stored, packed, and shipped on your behalf, duty drawback is still applicable. However, it is important that your name is mentioned as the exporter, and you have proof of import and export transactions.

For sellers using third-party fulfilment services, it is advised to coordinate with your logistics provider and make sure all shipping documents are filed in your name.

Final Thoughts

Duty drawback is not just for large businesses. It’s a practical tool for small online sellers and individuals who want to grow in the global market. By recovering the duties paid on imports, you can cut costs and reinvest the money into your business.

As a new exporter, knowing this scheme puts you one step ahead of others. It helps you grow faster, smarter, and more profitably—without needing any extra investment.