Exporters frequently encounter situations where Customs or CHA question a wide profit margin between local purchase cost and export invoice. These challenges often stem from misinterpretation of regulations. Understanding the precise rules—and knowing how to respond—can help exporters protect both their margins and reputation.
What the rules actually say (and don’t say)
Contrary to popular belief, there is no law in India that restricts how much profit an exporter can make. What Indian Customs actually regulates is the accuracy and verifiability of the export transaction value—not how much margin you choose to earn.
Here are the actual rules that govern export valuation:
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Section 14 of the Customs Act, 1962 – Defines how transaction value is assessed, focusing on the declared price at which goods are sold internationally.
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Customs Valuation (Determination of Value of Export Goods) Rules, 2007 – Supports Section 14 by laying out methods for determining value when the transaction value is rejected.
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Shipping Bill and Bill of Export (Form) Regulations – Governs proper documentation, but has no reference to limiting profit margins.
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FTP (Foreign Trade Policy) Export Incentive Rules – Yes, the government does place FOB-based caps on per-unit export incentive claims under schemes like RoDTEP, RoSCTL, and earlier MEIS. But these caps are incentive-related and not a limit on how much an exporter can profit. Incentives are capped to prevent inflated FOB values for claiming undue benefits—not to restrict business margins.
Why CHA or Customs may demand "extra funds"
In practice, exporters have reported that:
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Some CHA agents exploit confusion, claiming exporters are “over-invoicing” and that Customs may penalize or block shipments—unless extra money is paid.
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Certain Customs officers, particularly where documentation is weak or pricing appears inconsistent, may question large margins—but often without quoting a specific legal basis.
This creates unnecessary fear among exporters, even when they are fully compliant.
What exporters should do in such cases
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Ask for the rule in writing:
If a CHA or official claims your margin is “too high,” ask them to cite the exact rule or section. Unless they refer to valuation doubts under Section 14 or the 2007 rules, there's no legal basis.
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Justify your price through a cost-sheet:
Break down product cost, including:
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Raw material purchase
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Processing and labor
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Technical features (e.g., 0.1% impurity, 10µm coating, 20,000-cycle durability)
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Testing and certifications
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Packing and logistics
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Profit
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Consider a two-entity approach (for clarity, not avoidance):
Many exporters legally structure business as:
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Entity A: Procures goods locally, adds overhead and markup.
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Entity B: Buys from A and exports at declared FOB value.
This allows smoother explanation of value addition and keeps accounting clean—especially when margins are high.
The bigger picture: why high profits are good
Every country—including India—wants its exporters to earn more. High-margin exports bring in valuable foreign exchange, increase tax revenue, and create jobs.
As long as the value is honest and the paperwork is clear, there is no restriction on how much profit you earn. In fact, it reflects competitiveness, quality, and value-addition—all key to India’s global trade aspirations.
Conclusion
To sum up:
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There is no legal cap on profits for exports under Indian Customs law.
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The only caps that exist are on incentives, not your margin.
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If CHA or Customs questions your pricing, ask them to cite the rule.
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Prepare defensible cost sheets and maintain clear documentation.
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If necessary, structure procurement and exports through two companies to clarify value build-up.
Strong profit margins should be encouraged—not penalized. Exporters must know their rights, stay compliant, and never surrender to informal demands masked as regulatory requirements.
For more guidance, visit site:exportimport.guru or reach out directly via WhatsApp for expert support: https://wa.me/918128111191.
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