Circular No. 575

What it does

Reiterates that convertible foreign exchange, for the purposes of sections 80HHB, 80HHC and 80-O, includes amounts received in non-convertible rupees from bilateral account countries and receipts in Indian rupees under Government to Government credit, but does not include remittances from Nepal and Bhutan. Those sections each require the receipt to come in convertible foreign exchange: consideration for a foreign project and at least 50 per cent of its profits under section 80HHB, export sale proceeds under section 80HHC, and royalty, commission or fees under section 80-O.

Why it was issued

The Board had issued circulars, instructions and press notes from time to time on amounts received in non-convertible rupees from bilateral account countries, and restated the position to remove doubts.

Who it reaches

Contractors executing foreign projects claiming deduction under section 80HHB
Exporters claiming deduction under section 80HHC
Persons receiving royalty, commission or fees from abroad under section 80-O
Businesses paid from Nepal or Bhutan, who are outside the concession

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.80	s.121, s.138, s.139, s.140, s.141, s.142, s.143
s.80HHB	no counterpart recorded
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.

545. Whether ‘convertible foreign exchange’ does not include remittances from Nepal and Bhutan
1. One of the conditions for allowing deduction under section 80HHB is that the consideration for the execution of a foreign project/work is payable in convertible foreign exchange and at least 50 per cent of the profits and gains derived from the business of execution of foreign project/work is brought into India in convertible foreign exchange within a specified time. Likewise, deduction under section 80HHC is allowed to an exporter only if the sale proceeds are received in or brought into India in convertible foreign exchange. Similarly, one of the conditions for allowing deduction under section 80-O is that the royalty, commission, fees etc., should be brought into India in convertible foreign exchange.
2. The Central Board of Direct Taxes have, from time to time, issued Circulars/Instructions/Press Notes regarding the treatment of the amounts received in non-convertible rupees from bilateral account countries for the purpose of deduction under sections 80HHB, 80HHC and 80-O of the Income-tax Act.
3. With a view to removing any doubts in this regard, it is reiterated that the expression "convertible foreign exchange" in the abovementioned provisions of the Income-tax Act, also includes the amounts received in non-convertible rupees from bilateral account countries and receipts in Indian rupees under Government to Government credit. However, it does not include remittances from Nepal and Bhutan.
Circular : No. 575, dated 31-8-1990.

What to watch

The exclusion of Nepal and Bhutan is the sting; receipts from those two countries do not count however the payment is routed.
Rupee receipts help only where they arise from a bilateral account country or a Government to Government credit.
Sections 80HHB, 80HHC and 80-O have all since been phased out of the statute, so the clarification bears mainly on old years.

Where you meet it

A disallowance of an export or foreign project deduction on the ground that the sale proceeds did not come in convertible foreign exchange.

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.

Notification No. 53/2025 [F. No. 370142/16/2025-TPL] / GSR 356(E) — Ministry of Finance 30 May 2025
Notification No. 50/2025 [F. No. 370142/14/2025-TPL] / GSR 352(E) — [भाग II—खण् ड 3(i)] भारत का रािपत्र : असाधारण 3 29 May 2025
Notification No. 51/2025 [F. No. 370142/17/2025-TPL] / GSR 353(E) — [भाग II—खण् ड 3(i)] भारत का रािपत्र : असाधारण 3 29 May 2025
Circular No. 13/2023 — Condonation of delay under clause (b) of sub-section (2) of section 119 of the Income-tax Act, 1961 for returns of incom 26 July 2023
Notification No. 72/2020 [F. No.178/111/2009-ITA-1]/ SO 3035(E) — Ministry of Finance 8 September 2020
Notification No. 29/2019/ F.No. 178/8/2015-ITA-I]/SO 1465(E) — Ministry of Finance 28 March 2019

← Circular No. 577 · Circular No. 576 →

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