Duty Drawback Scheme: Eligibility, Rates & How to Claim

Exports may look highly profitable from the outside, but ask anyone in the industry, and they’ll tell you there’s a lot happening behind the scenes. From production and procurement to shipping and logistics, the costs stack up at every stage. Add to it customs duties on imported inputs, and you'd be looking at hefty bills before you even receive payment for your exports.

The government introduced the duty drawback scheme to address this. It refunds the customs duties you paid on imported raw materials or components, once you export the finished goods.

The goal is simple: to make sure taxes paid on inputs don’t end up increasing the final cost of your products for international buyers.

This guide covers everything you need to know about the duty drawback scheme: eligibility, rates, types, and more.

• The duty drawback scheme refunds customs duties paid on imported inputs, once you export the finished goods. It is administered by CBIC under the Customs Act, 1962.
• There are two types of drawback: Section 74 covers the re-export of imported goods, and Section 75 covers manufactured goods. AIR and Brand Rate are the two rate mechanisms under Section 75.
• To qualify, the goods must be manufactured in India using imported inputs on which customs duty has been paid. You must also receive the export payment within 15 months, as required by the RBI.
• In many cases, duty drawback claims are rejected due to incomplete documentation, missed deadlines, or HSN code mismatches between import and export records.

The duty drawback scheme, managed by the Central Board of Indirect Taxes and Customs, helps exporters recover duties paid on imported materials used in export production. In simple terms, it helps ensure that these taxes do not increase the final price of your exports.

Why does this matter for exporters? Let's understand this with a simple example.

Say a textile manufacturer in Surat imports raw cotton from Egypt. They use it to make bed linens and ship them to a retailer in the US. At the time of export, they file a drawback claim with the customs authorities, submitting import invoices, the shipping bill, and related documents.

Once the documents are verified, the exporter receives a refund of the customs duty paid on the imported cotton. In some cases, that refund can even help cover international shipping costs.

This scheme is important because without it, Indian exporters would end up bearing extra taxes that many foreign competitors don’t have to pay, making Indian products more expensive in global markets.

In India, the duty drawback scheme operates under the Customs Act, 1962. Two sections of this law are especially important for exporters:

1. Section 74

It covers situations where you import goods and export them again without making major changes to them. If the re-export happens within two years, you can get back up to 98% of the import duty paid.

In April 2026, the Central Board of Indirect Taxes and Customs confirmed that goods purchased from an SEZ unit can qualify for drawback under Section 74 if customs duty was paid when the goods were cleared into the Domestic Tariff Area and later re-exported.

2. Section 75

It is for exporters who use imported materials to manufacture or process goods before exporting them. You can claim back the customs duty paid on those imported inputs. But if the export payment is not received within the prescribed time, the refund may be withdrawn.

There are two types of duty drawback in India. Which one applies to you depends on your product and how much duty you've paid.

1. All Industry Rate (AIR)

This is the standard option. The government publishes a drawback schedule with fixed refund rates for thousands of products, based on their HSN codes. These rates are worked out on the average customs and excise duties paid across an industry.

The biggest advantage here is that you don't need to prove exactly how much duty you paid on each input. You just need to file your shipping bill, and the refund is calculated automatically. For most exporters with standard products, AIR is the simpler, faster route.

If your product is made using a mix of duty-paid and duty-free inputs, you can still claim AIR on the full product. AIR is based on average duty incidence across an industry, not on whether every single input attracted duty.

2. Brand Rate

This can be used in two situations:

• Your product isn't listed in the AIR schedule.
• The AIR rate covers less than 80% of what you actually paid in duties.

In either case, you can apply to your jurisdictional Customs Commissioner for a Brand Rate.

You'll need to submit detailed records, including input-output ratios, duty payment proofs, and manufacturing details.

To claim duty drawback, you need to meet a few basic conditions:

• To qualify, the goods should be made or processed in India using imported materials on which customs duty was paid.
• You must have documentary proof of that duty payment, typically through bills of entry.
• The export must follow all applicable export regulations, including correct shipping bill filing.
• Your claim must be filed within 3 months of the Let Export Order date.
• Export proceeds must be received within the RBI's prescribed timeline of 15 months.
• You cannot claim a drawback on inputs for which you're already receiving benefits under another export incentive scheme.
• If you ship through a courier service or India Post, you can still claim duty drawback. CBIC extended this benefit to courier shipments from September 12, 2024, and to postal shipments from January 15, 2026. However, you'll need to file your Shipping Bill through ICEGATE to claim it.

Documentation requirements for filing a duty drawback claim depend on the type of claim. AIR claims are straightforward and need minimal documentation. However, brand rate claims require detailed input-output records and proof of the actual duties paid on each imported input. Here's what you'll typically need:

• Triplicate copy of the Shipping Bill
• Bill of Entry
• Import invoice and proof of duty payment
• Copy of Bill of Lading or Airway Bill
• Bank Certified Invoices
• Export invoice and packing list
• Bank Realization Certificate (BRC)
• Freight and insurance certificate
• Test report of goods, where applicable
• DEEC Book and license copy, where applicable
• A worksheet showing the drawback amount claimed

Today, the duty drawback process is mostly online and handled through the ICEGATE portal. Here’s how the process works:

Step 1: File the shipping bill

Start by filing your shipping bill on ICEGATE and declaring your intent to claim drawback. Make sure you select the correct Drawback Serial Number from the current schedule. Any mistake here will lead to a lengthy amendment process later.

Step 2: Electronic processing

Once the Let Export Order (LEO) is issued and the carrier files the Export General Manifest (EGM), the system automatically moves your shipping bill into the drawback queue. For AIR claims, you don't need any separate manual application at this stage.

Step 3: Responding to queries

The Customs EDI system may sometimes raise questions about your product classification or the FOB value declared in the shipping bill. You must resolve them with proper technical justification before the claim moves forward. If you're unsure how to respond, you can take help from a duty drawback consultant.

Step 4: Credit to your bank account

Once the drawback department clears your shipping bill, the refund amount is credited directly to the bank account linked with your ICEGATE profile.

Indian exporters have access to three different refund mechanisms - duty drawback, RoDTEP, and GST refund. However, it is easy to confuse them. Here's how they differ:

Duty drawback

This scheme refunds the customs and central excise duties paid on imported inputs used to manufacture exported goods. It is administered by CBIC and is WTO-compliant. The refund is credited directly to your bank account.

RoDTEP (Remission of Duties and Taxes on Exported Products)

It covers taxes that were previously not refundable under any scheme. For example, mandi tax, VAT on fuel, electricity duties, etc. It replaced the earlier MEIS scheme and was introduced partly to bring India in line with WTO norms. Unlike duty drawback, RoDTEP benefits are not credited to your bank account. They come as transferable electronic scrips that can be used to pay customs duties or transferred to another registered exporter.

GST refund

This applies when you have paid more GST than required or are eligible to claim a refund under the law. For exporters, it generally covers IGST paid on exports and unused input tax credit.

Most duty drawback rejections are avoidable. Here are the most common reasons claims get rejected:

1. Incomplete or incorrect documentation

Missing or incorrect documents are one of the biggest reasons duty drawback claims get delayed or rejected. Even a small mismatch in the paperwork can create problems during processing.

2. Filing outside the time limit

A claim filed even one day after the deadline is invalid, regardless of how accurate the paperwork is. Many exporters only realize they're eligible for drawback after it's too late. By this time, some of their eligible shipments have already aged out.

3. Wrong product classification or valuation

The HSN code on your export documents must match what was declared at the time of import. A mismatch can lead to rejection. Similarly, if the declared value of your imported goods is inaccurate, your refund amount may be reduced or denied.

4. Failure to link imports and exports

Customs needs to see a clear connection between what was imported and what was exported. If your records don't establish this link clearly, the claim won't hold up.

5. Claiming on ineligible goods

Not every export qualifies for duty drawback. Goods that entered under duty-free schemes or on which no customs duty was actually paid are not eligible. Note that goods sourced from SEZ units are not automatically excluded. However, if customs duty was paid at the time of clearance into the DTA and the goods can be identified, they may qualify under Section 74.

Once your duty drawback claim is filed, it is important to receive your export proceeds on time. A delayed or missing payment from an overseas buyer can put your drawback entitlement at risk.

This is where Xflow helps.

Xflow gives Indian exporters a receiving account that lets international buyers pay via their local bank transfer, which is faster and cheaper than international wire transfers. You get notified when a payment comes in, and funds reach your Indian bank account within one business day.

A few things that make it practical for exporters:

• Payments in 25+ currencies, with withdrawals to your INR or EEFC account.
• Free FIRA issued by an RBI-authorized bank for every withdrawal.
• FX rates linked to inter-bank rates, so you know exactly what you'll receive in INR before you withdraw.
• No restrictions on withdrawal amounts or frequency.

Over the past year, exporting from India has become more expensive, with rising costs across raw materials, logistics, and tariffs. In that context, the duty drawback scheme is one of the more practical tools available. It puts money back into your business that would otherwise be absorbed as a sunk cost.

The exporters who benefit most are the ones who treat it as an active part of their financial planning, not just a compliance checkbox. Know your AIR rate, keep your documentation in order, and make sure your export proceeds come in on time.

If you’re looking for a faster and more reliable way to collect international payments, book a demo with Xflow.