Paragraphs 4 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Paragraph 4.08 gives the formula for value addition under an Advance Authorisation, paragraph 4.09 sets the minimum, paragraph 4.10 allows mandatory spares to be imported without payment of duty up to a limit, and paragraph 4.19 allows the authorisation where the foreign buyer supplies inputs without charge. Paragraph 4.11 of the Handbook adds an endorsement that stops remittance for such material.
This article is based on the chapter-wise text of the Foreign Trade Policy, 2023 published on the DGFT website, as consulted on 2 October 2026; the copy carries no "updated up to" date. The procedure is taken from Chapter 4 of the Handbook of Procedures, 2023 as published on the DGFT website (file of July 2026), consulted on 2 October 2026. Later Notifications and Public Notices should be checked. A GST refund on exports is a separate matter; see our GST refund on exports page.
Value addition is worked out as FOB value of export realised (A) less the CIF value of inputs covered by the authorisation plus any other input on which drawback is claimed (B), divided by B, times a hundred (paragraph 4.08). The minimum is 15%, 50% for tea and 25% for spices (paragraph 4.09). Mandatory spares may be imported without payment of duty up to 10% of the CIF value of the authorisation (paragraph 4.10).
Paragraph 4.08: the value addition formula
Value addition for the purpose of Chapter 4, except for the gems and jewellery sector, for which value addition is prescribed in paragraph 4.37 of the Policy, is worked out as follows.
- A is the FOB value of export realised, or the FOR value of supply received.
- B is the CIF value of the inputs covered by the authorisation, plus the value of any other input used on which the benefit of drawback is claimed or intended to be claimed.
- Value addition (VA) equals A minus B, divided by B, multiplied by a hundred, expressed as a percentage.
In words: the difference between what the export realised and what the covered inputs cost, as a share of the cost. If A is 1.15 times B, the value addition is 15%. The formula counts the CIF value of inputs under the authorisation and any other input on which drawback is claimed; other inputs on which drawback is not claimed do not enter B. For the apparel scheme, paragraph 4.04A fixes the value of such other inputs, as explained in our article on Advance Authorisation for spices and apparel.
Paragraph 4.09: minimum value addition
| Sub-paragraph | Rule |
|---|---|
| (i) | Minimum value addition required under an Advance Authorisation is 15% |
| (ii) | Export products where value addition could be less than 15% are given in Appendix 4D (named only) |
| (iii) | Minimum value addition for the gems and jewellery sector is given in paragraph 4.60 of the Handbook |
| (iv) | In the case of tea, minimum value addition is 50% |
| (v) | In the case of spices, minimum value addition is 25% |
Appendix 4D lists the products for which a lower value addition is accepted; this article names no product and no percentage from it. For the wider guide, see our article on Advance Authorisation inputs, SION and minimum value addition.
Paragraph 4.10: mandatory spares
Import of mandatory spares that are required to be exported or supplied with the resultant product is permitted without payment of duty to the extent of 10% of the CIF value of the authorisation. The limit is a share of the CIF value of the authorisation, not of the value of the inputs or of the export. The paragraph does not define "mandatory spares" beyond saying they go out with the resultant product.
Paragraph 4.19: inputs supplied without charge by the foreign buyer
An Advance Authorisation is also available where some or all inputs are supplied without charge to the exporter by the foreign buyer. In such cases, the notional value of the input supplied without charge is added to the CIF value of import and to the FOB value of export for the purpose of computing value addition. However, realisation of export proceeds is equivalent to an amount excluding the notional value of that input.
So the notional value goes into both sides of the formula (A and B), but the money the exporter must realise from the buyer leaves it out. The paragraph does not say how the notional value is fixed.
The heading of paragraph 4.19 carries a different one-word label for this arrangement; this article calls it supply of inputs without charge.
What the Handbook requires: paragraph 4.11
For authorisations granted in terms of paragraph 4.19 of the Policy, the Regional Authority makes a specific endorsement in the condition sheet of the Advance Authorisation disallowing remittances for the material being supplied without charge. All imported inputs, excluding wastage, are utilised in manufacturing the export product. Policy paragraphs 4.08 to 4.10 and 4.19 are made under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 and name no other section; see our article on section 5 of the FTDR Act. The Handbook paragraph rests on the Director General's power described in our article on section 6 of the FTDR Act.
A worked example
Orbit Tea Traders Private Limited, an invented merchant exporter tied to a supporting manufacturer, exports blended tea. Under paragraph 4.09(iv) the minimum value addition for tea is 50%, so A must be at least one and a half times B on the formula in paragraph 4.08. A second firm, Pioneer Pumps, exports pumps under an Advance Authorisation; its foreign buyer supplies the castings without charge. Under paragraph 4.19 the notional value of the castings is added to the CIF value of import and to the FOB value of export for value addition, but Pioneer realises export proceeds only for the amount excluding that notional value. The Regional Authority endorses the condition sheet under paragraph 4.11 of the Handbook so that no remittance is made for the castings. Pioneer also imports mandatory spares that will be shipped with each pump, within 10% of the CIF value of the authorisation.
Need help with value addition on an export?
Computing value addition wrongly can put an export obligation at risk. Our team can review the working with you, and the refund side through our GST refund on exports service.
Key takeaways
- Value addition is (A minus B) divided by B, times a hundred, where A is FOB or FOR value realised and B is CIF value of covered inputs plus other inputs on which drawback is claimed (paragraph 4.08).
- Minimum 15%; tea 50%; spices 25% (paragraph 4.09).
- Mandatory spares up to 10% of the CIF value of the authorisation (paragraph 4.10).
- Buyer-supplied inputs: notional value counted in the formula, excluded from realisation (paragraph 4.19).
- The Regional Authority endorses disallowing remittance for such material (Handbook paragraph 4.11).
Read next
- Paragraph 4.07 of the Foreign Trade Policy, 2023: Advance Authorisation for annual requirement
- Paragraph 4.11 of the Foreign Trade Policy, 2023: self-declared authorisations and entitlement
- Advance Authorisation inputs, SION and minimum value addition
- Duty drawback: rates, claim process and brand rate
Disclaimer: Based on the chapter-wise text of the Foreign Trade Policy, 2023 and the Handbook of Procedures, 2023 published on the DGFT website, and on the later Notifications named in this article, as consulted on 2 October 2026. The copies carry no "updated up to" date. Notifications, Public Notices, Trade Notices, the ITC(HS) schedules, Appendices and forms change often; the current text on the DGFT website should be checked before acting. This article is general information, not legal advice; check the official text before acting.