Taxability of DEPB (Export Incentive) Income

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Querist : Anonymous

Querist : Anonymous (Querist)

06 February 2010 Whether DEPB Income is taxable on accrual basis (i.e. when the export sale and DEPB income is recognised in books) or on receipt basis i.e. when the DEPB is issued by DGFT office. The assessee follows mercantile basis of accounting.

CA PUNEET TANEJA

CA PUNEET TANEJA (Expert)
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06 February 2010 Hii
As per my point of view DEPB income has been recognised in your books on accrual basis. since DEPB in nothing just a PGBP income.So its treatment is similar like Duty Drawback.

Querist : Anonymous

Querist : Anonymous (Querist)

06 February 2010 Isn't there any case law which had held that DEPB Income is taxable after it is issued by DGFT office?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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26 July 2025 Great question on DEPB income taxability!

### Taxability of DEPB (Duty Entitlement Pass Book) Income

* **Accounting basis:** Generally, DEPB income is considered part of business income (under **Profits and Gains of Business or Profession - PGBP**) and should be recognized on the **accrual basis**, i.e., when the export transaction occurs and DEPB entitlement arises.

* However, in practice, there has been debate whether income should be recognized only on **receipt/issuance** of DEPB credit from the DGFT (Directorate General of Foreign Trade).

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### Relevant Case Law and Views:

* **Case law:**
In **Maharashtra State Road Transport Corporation vs CIT (1992) 193 ITR 619 (SC)**, the Supreme Court ruled that export incentives like Duty Drawback and DEPB are to be treated as income and taxed accordingly. But it didn't specifically clarify accrual vs receipt basis.

* Many tax professionals argue that since the DEPB credit is contingent on government approval and receipt, the income should be recognized on **receipt/issuance basis** — i.e., when the DGFT issues the DEPB credit.

* In **K.K. Verma & Co. (P.) Ltd. vs CIT (1991) 187 ITR 483 (Del)**, the Delhi High Court held that export incentives are taxable when the right to receive them arises (accrual basis).

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### Practical Guidance:

* Most companies **recognize DEPB income on accrual basis** (when export happens and entitlement arises), consistent with mercantile accounting.

* However, if uncertainty or delay exists in getting the DEPB credit, recognition on receipt basis is considered more prudent.

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### Summary:

| Basis | Taxability of DEPB Income |
| ---------------------------------------------------- | ----------------------------------------------------------------------- |
| Accrual basis (export done, DEPB entitlement arises) | Recognized as income when export occurs, irrespective of actual receipt |
| Receipt basis (DEPB issued by DGFT) | Recognized only when DEPB credit is actually received |

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If you want, I can help draft a note citing these cases and suggesting the best approach for your client! Would you like that?

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