eGovernance in India

Improving eGovernance in INDIA


Posted by egovindia on July 15, 2006


STP scheme is a 100% Export Oriented Scheme (100% EoU) for the development and export of computer software using data communication links or in the form of physical media including export of professional services. STP can be a virtual software development unit or can be infrastructural complex set-up for providing necessary support for the STP units.

H I G H L I G H T S Approvals are given under single window clearance scheme. An STP project may be set up anywhere in India. Director STP is empowered to approve projects with an investment of Rs. 100 million ($ 2.5 million) 100% Foreign equity is permitted and are approved under the Automatic Route delegated powers to The Director STPI. All the imports of Hardware & Software in the STP units are completely duty free. Import of second hand capital goods are also permitted. Simplified Minimum Export Performance norms i.e., US$ 0.25 million or 3 times CIF Value of imported goods whichever is higher & positive Net Foreign Exchange Earnings against Export Earnings. Use of computer system for commercial training purposes is permissible subject to the condition that no computer terminals are installed outside the STP premises. The sales in the Domestic Tariff Area (DTA) shall be permissible upto 50% of the export in value
terms. STP units are exempted from payment of corporate income tax upto 2010. The capital goods purchased from the Domestic Tariff Area (DTA) are entitled for the benefits like levy of Excise Duty & Reimbursement of Central Sales Tax (CST). Capital invested by Foreign Entrepreneurs Know – How Fees, Royalty, Dividend etc., can freely be repatriated after payment of Income Taxes due on them if any. Domestic projects will not attract any local levies. Repartition of foreign currency for payments can be freely done

What is the Registration for ?
For establishing a 100% Export Oriented Unit engaged in development computer software for export.

Following activities are covered under the scheme:

Manufacture/development of software in India for exports

Onsite consultancy services for development of software at the client’s site abroad.

Supply of services / value added services from India to any other country and supply of service to the service consumer of any other country in India is also covered under the scheme,” provided payments for such services are received in free foreign exchange”.

Sales in the domestic market are also permitted to a limited extent under certain conditions.

Who can Register:

A sole proprietary concern.

A partnership firm.

An Indian company.

An Indian subsidiary of a foreign company.

A branch office of the foreign company

An existing software company operating in India.

Conversion of an existing DTA unit to STP unit is also permissible.

If an industrial unit is operating both as a domestic unit as well as an STP unit, it shall have two distinct identities with separate accounts. But all the transactions of the imports and exports or supplies effected relating to the 100% EOU activity of the STP unit shall be kept distinctly separate from those made by the other domestic unit of the company.

How to register:
Submit the following documents to the Director, STPI, Guwahati:

Application duly signed by the authorized signatory setting the official seal along with the copy of the Board Resolution nominating the authorized signatory in case of limited companies otherwise with Director’s signatures.

In three copies where the approving authority is Director, STPI. Otherwise in six copies for approval by the IMSC, New Delhi.

Project Report, justifying the ability of the enterprise as to the potential in manpower expertise, technology segment marketing and customer support arrangements, business plans, type of software development envisaged, profile of balance sheet, profit and loss a/c, cash flow statement, profitability statement etc.

Document evidencing sole proprietory concern/partnership firm/company registration certificate, memorandum of association, memorandum of articles.

Copy of agreement/MOU/purchase order/letter of intent with the overseas customer (if any) in support of the business potential.

Lease deed/sale deed of the premises.

In case of an existing unit:
Product line to be specified, copy of the audited annual accounts for the last 2 years to be furnished.

D.D for Rs.2500 drawn in favour of STPI. However in cases falling under S.No.2 & 3 of the the table below two demand drafts to be submitted as follows Rs.1500 in favour of the STPI, Guwahati and Rs. 1000 in favour of PAO, Department of Industrial Development, Ministry of Industry drawn on SBI, New Delhi.

In case of foreign collaboration, technical/financial, agreements thereof

For cases involving foreign investment

Board’s resolution in support of the foreign investment.

Certificate regarding the previous financial collaboration, if any.

If the foreign investment is covered under the RBI automatic route copy of intimation sent to RBI for the investment already made to be furnished.

Approval By Whom – How Soon
Sl. No.
Approved by
How Soon
Where value of total imported capital goods <= Rs.100 crores and foreign investment if any is covered under the automatic route of RBI.
Director STPI
2 weeks
Where value of total imported capital goods > Rs.100 crores and foreign Investment if any is covered under the automatic route of RBI.
IMSC (New Delhi)
2 Months
Cases involving foreign Investment requiring approval FIPB*
FIPB (New Delhi)
2 Months
* Note :Foreign Investment- Automatic Route of RBI
Foreign Investment Upto 100% in IT Industry Permissible. Allotment of shares is against receipt of money. Upper limit of investment is Rs. 600 Crores. RBI to be intimated after allotment.

Terms of Operation
The period of operation is 5 years. It can be further extended to 10 years.

100% EOU Status
Steps to achieve 100% EOU Status under the STP Scheme:
Upon approval, the unit has to submit the willingness letter.

Execute legal agreement in the prescribed form on Rs.100 stamp paper duly signed by the authorized signatory.

Pay Rs. 45,000 as advance towards annual service charges (for initial three years).

STPI will adjust as per the following scale:

Scale for annual service charges
Up to Rs 50 Lakhs
Rs. 15,000
> Rs. 50 Lakhs & < 3 Crores
Rs. 50,000
> Rs. 3 Crores
Rs. 1.00 lakh
Upon executing the legal agreement, the unit attains the status of 100% export oriented unit under the STP Scheme and it has to fulfill the obligation as set forth in the legal agreement such as, commencement of production within the stipulated period, fulfillment of export obligation etc.

Commencing Operations
Apply for IEC code to the DGFT, Guwahati.

Furnish to STPI a list (in triplicate) of capital goods to be imported, indigenous equipments required for the manufacture/development of the software.

STPI will endorse the list for filing with Customs and Central Excise.

Obtain clearance from STPI, Guwahati for custom bonding license. Apply to Customs and Central Excise department for license.

Furnish documents evidencing the owned/leased premises proposed to carry the operations along with the floor plan of the premises.

License is granted in two weeks.

Furnish copy of the above license to STPI, Guwahati.

If STPI datacommunication link is required, please apply for the same at STPI.

Forms are available in STPI Guwahati City Centre at Panbazar and in The Earth Station at Borjhar.

For imports of capital goods, apply to STPI, Guwahati in the prescribed form enclosing the proforma invoice of the seller, for issue of import license.

If import of items is on loan basis, please furnish supporting documents.
Second hand capital goods can also be imported.

Leasing of capital goods can be sourced from domestic / foreign leasing companies.

Import / indigenous procurement of office equipments permitted upto 20% of the total value of the capital goods installed.

How to Export Onsite Consultancy Projects and Sales in Domestic Market

Software can be exported through Data Communication link / physical media, or software can be developed at customer site abroad by deputing software professional of the unit.

Export of software developed in India :

Through Data communication Link : Obtain a softex form from R.B.I. Fill in the same and submit it in triplicate to STPI for clearance along with the following documents. Invoice (3 copies), Customers agreement /W.O. /P.O., Project details in the form prescribed by STPI, Data transmission details in support of the export of software.In case of using the data communication link from VSNL, certificate in the prescribed form to be furnished.

Physical Media : Obtain GR form from RBI and submit the same, duly filled in , along with the customers agreement, invoices in duplicate and shipping bills in triplicate to STPI, Guwahati, for clearance.After clearance, the documents should be presented to the Post office for dispatch.

Onsite Consultancy Projects: Submit to STPI, application in the prescribed Form A (in triplicate) along with copy of agreement /W.O./P.O from the customer abroad before deputing the software professionals abroad for development of software. The form will be cleared and signed, one copy being returned to the unit and another to the RBI.
After completion of the project or as soon as payment in respect of consultancy services is received, submit to STPI information in the prescribed Form B (in triplicate), along with invoice, and the FIRC. After clearance from STPI a copy of FORM B will be returned to the unit for submitting the same to the authorized banker.

Sales in Domestic Market :

After the export of the Software to the minimum extent (known as Export Obligation) is achieved for the financial year, the unit may obtain from STPI specific permission for sales in the Domestic Tariff Area to the extent of 50% of the value of Export made and money realised.

Domestic sales made by the unit for which payment is realised in foreign currency is also treated as export income. Specific approval of STPI has to obtained for this purpose.

Sub-contracting : STP units may sub contract part of the work/process through job works on the DTA units or to other EOU/EPZ/EHTP/STP units after obtaining necessary permission from the Assistant Commissioner of Customs.

Use of Computer System for Training
STP units may also be allowed to use the computer systems for training purpose after obtaining necessary permission from the Assistant Commissioner of Customs and Central Excise subject to export obligation and that no computer terminal shall be installed out side the bonded premises for the purpose.

Debonding of Equipment, Obsolete Equipment
Debonding of Equipment If an STP unit is not able to utilise the imported equipment /goods, it can re-export or dispose
them in DTA on payment of applicable duties.
Obsolete Equipment The equipment may be disposed off in DTA subject to payment of customs duty on the depreciated value.If such equipment is destroyed with the permission of Assistant Commissioner of Customs and Central Excise, no duty is payable.
Going out of the Scheme The period of operation for STP unit would normally be 5 Years. The Director, STPI would permit debonding of the STP unit if it has met the export obligation and other conditions of letter of approval.

In case the unit has not fulfilled the Export obligation and other conditions of the letter of approval , the case would be forwarded to the DGFT for taking Penal action for non-fulfillment of the condition of the letter of approval. The units would also be required to pay the customs duty, Central Excise duty and it will be liable for levy of liquidated damages.
What are the Unit’s obligations – Do’s and Don’ts

The development / production of the unit under the scheme shall be carried on in a customs bonded area. For this purpose a warehouse bonding licence from the Customs and Central Excise Department has to be obtained and renewal of the licence on time has to be ensured.

Commencement of production within the gestation period is allowed under the scheme and exports started from the first day after the expiry of the gestation period. Intimate STPI of the date of commencement of commercial production of exports.

The unit shall be a net foreign exchange earner. Minimum Net Foreign Exchange Earnings as Percentage of exports (NFEP) and minimum Export Performance (EP) shall be achieved as specified here under:

Minimum NFEP (Value addition) – 20% Minimum export performance over the period of 5 years : US $ 2,50,000, or 5 times the CIF value of the capital goods imported, whichever is higher.

The unit shall realise the amounts due for the exports made within 180 days from the date of export, or the due date under the contract, whichever is earlier.

If the unit fails to fulfil the export and other obligations under the scheme, it will be liable to pay the customs duty and excise duty on the goods procured and such other penalties and liquidated damages as may be decided by the Government.

In case external commercial borrowings are resorted to, necessary permission from Ministry of Finance is to be obtained.

In case of import of US controlled items, please comply with the relevant provisions.

Maintain separate accounts for the operations under the scheme.

Maintain prescribed records and documents.

Furnish copies of customer’s contracts for Software development to STP for registration.

Pay the dues to STPI on time.

Submit the Quarterly Annual performance reports in the prescribed form on time.

At the time of debonding of the unit after the expiry of the period of export obligation, the unit has to pay the following:

Customs duty on the depreciated value of capital goods at the rate enforced on the date of payment of duty.

Customs duty on unused raw materials and components on the value at the time of import and at the rate enforced on the date of clearance.

In respect of excisable goods, duty to be paid on the value without allowing depreciation and at the rate applicable on the date of clearance.

Apply to STPI for clearance in the following cases

For any change of address, change of name or constitution of the unit.

For extension of premises for carrying out the operations.

For shifting of equipment from the bonded warehouse for repairs, temporary transfer, permanent transfer, inter unit transfer, disposal, etc.

For exporting the imported equipment for repairs/replacement.

For re-export of equipments imported on loan basis.

For enhancing the limit of capital goods to be imported.

For obtaining permission for sales in DTA .

For debonding of the equipment of the unit.

For reimbursement of CST.

For sale of imported capital goods and materials.

For disposal of obsolete equipment.

For donation of obsolete equipment.


Please do not utilise the equipment procured duty free for any activity not covered under the scheme.

Please do not carry on any operation not covered under the scheme in the customs bonded warehouse premises.

Data circuit is meant exclusively for the purpose of transmission of data between two designated locations and sub-lease to any company or re-engineering to any other

location is strictly prohibited.

Data circuit should not be used for voice purpose on PSTN, as per the Indian Telecom Act.

Compliance with rules and regulations
The various steps / procedures / requirements enumerated above are as per the relevant provisions in the rules and regulations mentioned below and the same have to be complied with by the units.
The STP scheme and the terms and conditions given in the 100% EOU approval letter and the annexure thereto and the legal agreement.

Provisions in the Import / Export policy and procedures, the Foreign Trade Regulation Act, Customs and Excise Regulations and Any other Govt. rules / instruction , orders of STPI etc. may be applicable.



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