Recognizing Export Incentives in FY 2024–25 – A Guide to Avoid Tax Misstatements

By CA Surekha Ahuja

A scheme-wise guide to timing recognition of incentives like Duty Drawback, RoDTEP, PLI, and subsidies – with full impact on FY 2024–25 income tax reporting

Introduction

For export-oriented and manufacturing businesses, government incentives play a pivotal role in financial performance. In Financial Year 2024–25, schemes such as Duty Drawback, RoDTEP, EPCG benefits, Production Linked Incentive (PLI), and various state subsidies are commonly availed.

A recurring question during audit or finalization is:

Should these incentives be accrued as income (provision) in the books, or recognized only upon actual receipt?

This blog presents a clear answer based on Indian Accounting Standards, ICAI guidance, and the practical realities of FY 2024–25.

Key Incentives Relevant in FY 2024–25

The schemes actively availed during FY 2024–25 include:

• Duty Drawback under the Customs Act, 1962

• RoDTEP (Remission of Duties and Taxes on Exported Products)

• EPCG Scheme (Export Promotion Capital Goods)

• PLI (Production Linked Incentive Scheme) across key sectors

• State Subsidies – including electricity, SGST refund, interest reimbursement

• Interest Equalization Scheme for MSME exporters

Note: MEIS/SEIS are discontinued and generally not applicable unless past-year claims are pending.

Applicable Accounting Standards

a. AS 9 – Revenue Recognition (for non-Ind AS entities)
Under AS 9, income can be accrued when it is measurable and collectability is reasonably certain. Uncertainty in entitlement or collection defers recognition.

b. Ind AS 20 – Accounting for Government Grants
For Ind AS-compliant entities, Ind AS 20 permits recognition only when:

• Conditions attached to the grant will be complied with, and

• Receipt of the grant is reasonably assured

ICAI Guidance (Applicable in FY 2024–25)

The ICAI Guidance Note on Accounting for Government Grants supports:

• Accrual of income when entitlement arises, supported by documents or statutory approval

• Deferral of income recognition if any material condition remains unfulfilled

Visual Matrix – Incentive Recognition Logic for FY 2024–25

This decision matrix simplifies the accounting treatment of major incentives under current schemes:

Incentive / Scheme	Eligible Activity Completed	Claim Filed / Documentation	Assurance of Receipt	Recognize Income in FY 2024–25?
Duty Drawback	Yes	Yes	Yes	✅ Accrue (Provision)
RoDTEP	Yes	ICEGATE ledger updated	Yes	✅ Accrue (Provision)
EPCG Scheme (Capital Goods)	Yes	Yes	Not a direct income	❌ No P&L income – amortize benefit
PLI Scheme	Yes	Application filed	Approval pending	❌ Defer till approved
State Subsidy – Revenue	Yes	Sanction letter available	Yes	✅ Accrue (Provision)
Interest Equalization	Yes	Bank confirmation available	Yes	✅ Accrue (Provision)
MEIS / SEIS (Legacy only)	Possibly (prior FY)	Claim pending or litigated	Case specific	⚠️ Recognize only if enforceable

When to Accrue and When to Defer

Accrue income in FY 2024–25 when:

• Export or activity completed

• Claim is filed and trackable

• Reasonable assurance exists (ledger credit, sanction letter, bank endorsement)

Defer income to later year when:

• Verification is pending

• Sanction or approval not received

• Benefit is subject to audit or cancellation risk

• Performance thresholds (e.g., PLI) not yet validated

Disclosure Requirements for FY 2024–25

Entities must ensure proper disclosure in financial statements, including:

• Nature of each government incentive

• Whether recognition is accrual or receipt-based

• Any unfulfilled conditions or clawback clauses

• Accounting policy note in “Significant Accounting Policies”

Audit working papers should include:

• ICEGATE entries for RoDTEP

• Claim forms and acknowledgment receipts

• Sanction letters or email confirmations

• Past-year realization history (where relevant)

Real Example – FY 2024–25

XYZ Exports Pvt Ltd completed eligible exports and capital imports in FY 2024–25. Its incentives:

• ₹12 lakh Duty Drawback – claim filed

• ₹8 lakh RoDTEP – ledger credit reflected by 31 March 2025

• ₹3 lakh power subsidy – sanctioned by state nodal agency

• ₹15 lakh PLI – application submitted, review pending

Accounting Treatment:

• Recognize Duty Drawback, RoDTEP, and Power Subsidy in FY 2024–25

• Defer PLI incentive to FY 2025–26 (subject to approval)

Strategy for FY 2024–25

For Financial Year 2024–25:

• Duty-based and invoice-traceable incentives (e.g., Duty Drawback, RoDTEP) are eligible for provisioning

• Performance-based schemes (e.g., PLI) require a conservative approach

• Documented entitlement and government interface evidence are key

• Align recognition with AS 9 or Ind AS 20 and ICAI's guidance note

• Ensure robust audit trail and transparent disclosure