Circular No. 562

What it does

Lets protocol exporters claim the section 80HHC deduction even though they are paid in Indian rupees. Section 80HHC gives a deduction by reference to export turnover where the sale proceeds are receivable in convertible foreign exchange. In protocol exports, made under Government to Government credits, the exporter realises his money from the Government of India in Indian currency, while the bills are settled between the two Governments under the bilateral agreement by adjustment against the credit, which is realised in foreign exchange later. After examining the matter with the Ministry of Commerce, the Board clarifies that such exporters are eligible for the section 80HHC deduction irrespective of the fact that they receive Indian currency.

Why it was issued

Representations were received that exporters making protocol exports under Government to Government credits should be eligible for section 80HHC.

Who it reaches

Exporters shipping goods under Government to Government credit lines
Assessing Officers testing the convertible foreign exchange condition in section 80HHC
Assessees whose section 80HHC claim was refused for receipt in rupees

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80HHC	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

551. Whether receipts of sale proceeds in respect of protocol exports eligible for deduction
1. Section 80HHC of the Income-tax Act provides for a deduction in the computation of taxable income with reference to the export turnover of certain goods or merchandise out of India in cases where the sale proceeds are receivable in convertible foreign exchange.
2. Representations have been received that exporters engaged in making ‘protocol exports’, i.e., exports under Government to Government credits, should be eligible for claiming deduction under section 80HHC of the Income-tax Act. Under protocol exports, the realisation of sale proceeds in the hands of exporter is from the Government of India and the mode of payment is in Indian currency. Bills sent to foreign parties are settled between the Government of India and the other Government in accordance with the bilateral agreement by adjustment against the credit allowed, which is realised in foreign exchange later.
3. The Central Board of Direct Taxes have examined the matter in consultation with the Ministry of Commerce and after examining all the aspects of protocol exports, clarify that the assessee exporting goods or merchandise under Government to Government credits are also eligible for claiming deduction under section 80HHC of the Income-tax Act irrespective of the fact that the sale proceeds of such exports are realised in their hands in Indian currency.
Circular : No. 562, dated 23-5-1990.

What to watch

The relaxation is only about the currency in which the exporter is paid; every other condition of section 80HHC continues to apply.
It is confined to protocol exports under Government to Government credits, where the foreign exchange comes in later on the inter-Government settlement, and not to any rupee export sale.
Section 80HHC was phased out and the receipt-of-foreign-exchange conditions were rewritten more than once after 1990, so read this against the text of the section for the year in issue.

Where you meet it

In an assessment or appeal on a section 80HHC claim where the export was made under a Government credit line and payment came from the Government of India in rupees.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 1 — 558. Guidelines regarding filing of auditor’s report in old format of Form No. 10CCAC, along with the return, in place o 17 January 2001
Circular No. 729 — 557. Whether profits derived from export of cut and polished dimensional blocks, granite or other rocks is eligible for 1 November 1995
Circular No. 693 — 556. Whether profits derived from export of cut and polished dimensional blocks, granite or other rocks is eligible for 17 November 1994
Circular No. 680 — Sections 115J & 115JA 21 February 1994
Circular No. 624 — 555. Clarification regarding reopening of assessments on account of retrospective amendment made in section 80HHC in res 23 January 1992
Circular No. 600 — 554. Profits retained for export business in the case of tax-payers engaged in the business of growing and manufacturing 23 May 1991

← Circular No. 564 · Circular No. 563 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is