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What is DFIA?

Published in International Trade 2 mins read

A Duty Free Import Authorisation (DFIA) is a license issued in India that allows duty-free import of raw materials, components, and consumables required for manufacturing products to be exported.

In simpler terms: It's a permit that lets companies import goods without paying import duties, as long as those goods are used to create products that will be exported. This is designed to boost exports by reducing production costs.

Key Features of a DFIA:

  • Purpose: To encourage exports by reducing the cost of imported inputs.
  • Coverage: Covers raw materials, components, consumables, and even fuel, energy, and catalysts used in production, accounting for normal wastage.
  • Export Obligation: A key condition is that the holder must export finished goods within a specified time period to offset the duty-free imports. This export obligation is usually expressed as a multiple of the CIF (Cost, Insurance, and Freight) value of the imported inputs.
  • Transferability: DFIA authorizations, and the items imported under them, are often freely transferable (subject to certain conditions) to other parties, providing flexibility to businesses.
  • Validity: A DFIA typically has a validity period for both import and export fulfillment.

How a DFIA Works:

  1. Application: A manufacturer-exporter applies for a DFIA based on their export plans and the required inputs.
  2. Authorization: Upon approval, the Directorate General of Foreign Trade (DGFT) issues the DFIA.
  3. Duty-Free Import: The manufacturer can then import the specified inputs without paying basic customs duty, additional customs duty, or other specified duties.
  4. Manufacturing & Export: The imported inputs are used to manufacture export products.
  5. Export Obligation Fulfilment: The manufacturer must fulfill the export obligation within the stipulated time frame, proving that the imported inputs were indeed used in the export products.

Benefits of DFIA:

  • Reduced Production Costs: Eliminates import duties, making products more competitive in the global market.
  • Increased Exports: Encourages exports by making it more profitable for manufacturers.
  • Simplified Procedures: Streamlines the import process for exporters.

Example:

Imagine a textile company wants to export shirts. They need to import cotton. With a DFIA, they can import the cotton duty-free, manufacture the shirts, and then export them. The export value of the shirts must be a certain multiple of the imported cotton's value.