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Foreign Trade Policy


With an objective of the overall development of India’s foreign trade, the Foreign Trade Policy 2004 – 2009 (“FTP”) has been framed by the Government of India under the aegis of Foreign Trade (Development and Regulation) Act, 1992. One of the means to achieve this objective is by providing thrust to exports. In this regard, the FTP contains provisions relating to various export promotion measures that, interalia, provides tax and duty benefits.

The Software Technology Park (“STP”) Scheme contained the FTP is a 100% Export Oriented Scheme for undertaking development of software and other IT enabled services for export. Such exports could either be through data communication link or in the form of physical exports. Unit undertaking to export their entire production, except permissible sales in Domestic Tariff Area (DTA), may be set up under the STP Scheme for development of software or rendering of IT enabled services.

Activities Permitted

The following activities are permitted under the STP Scheme:

(i) Development of Enterprise Application Software
(ii) Development of Technology Software
(iii) Any other category of software development
(iv) I.T. Enabled Services


Direct Taxes

As per the provisions of the Income Tax Act, 1961, the STP unit is eligible for tax holiday upto the financial year 2009 – 2010, i.e., profits earned upto year ending March 31, 2010.

Indirect Taxes
  • Central Excise duty – The STP unit will be eligible to procure goods indigenous free of central excise duty
  • Customs duty –  The STP unit will be eligible to import eligible capital goods free of applicable customs duty
  • Central Sales Tax (CST) – The STP unit will be eligible for reimbursement of CST paid on inter-state purchases of goods manufactured in India, subject to production of a statutory form, viz., Form C
  • Additionally, the Sales Tax Law of the appropriate State may also provide certain exemptions from local sales tax

Export Obligation

The objective of Central Government in providing the these benefits is to facilitate STP units in boosting exports for India. Consequently the STP unit is cast with an export obligation to be achieved viz: the STP unit should be a positive Net Foreign Exchange Earner (NFE). This very briefly described, the foreign exchange earnings should exceed the aggregate of foreign exchange outgo. Non-fulfillment of export obligation will render STP unit to penal consequences.

Sales in DTA

A domestic tariff area (“DTA”) refers to a business undertaking established within India. The entire production of STP unit should be exported, subject to the following:
  • STP unit may sell goods in DTA upto 50% of FOB value of exports, subject to fulfillment of positive NFE, on payment of applicable duties / taxes
  • Within the entitlement of DTA sale, the STP unit may sell in DTA its products similar to the goods, which are exported or expected to be exported
  • Prior approval of the concerned authority is required to effect sales in DTA.

There exists a policy for BTP and EOU under the FTP on the same lines as STP. The only difference being:

1) Industry segment where BTP is for industries engaged in bio-technology and EOU is for all other industries
2) The admnistrative authorities are different for STP, BTP and EOU is most cases

For more details, please log on to the following useful sites:

Ministry of Finance –
Central Board of Excise and Customs -;
Central Excise Authority -
Service Tax Authority -
Director General of Foreign Trade -
Cochin Special Economic Zone -
STPI Bangalore -

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