Introduction: Export of services is a crucial aspect regulated under FEMA, encompassing rules from various authorities like RBI, DGFT, and the Foreign Trade Policy. In this article, we delve into the FEMA perspective on the export of services, examining key regulations and compliance requirements.

1. No declaration under FEMA: Section 7 (1)(3): Every exporter of services will furnish such declaration as required by RBI. Presently, there is no declaration required for service exporter.

2. No IEC Code: There is no requirement of having IEC code for service exporter, unless the exporter wishes to avail benefits under Service Exports from India Scheme (SEIS).

3. FEM (Export of Goods and Services) Regulations 2015 has following relevant regulations:

Repatriation:

  • Reg 4 (3): Exporter of services will be liable to realise due and accrued amount of foreign exchange and repatriate the same to India;
  • Reg 9(1): Full export value shall be realised with 9 months from the date of export;
  • Reg 9 (b): RBI or AD Bank may extend the period of realisation from 9 months to 15 months.

Guarantee:

  • 17 (2): In case guarantee is given prior to post award approval, it may be given by AD Bank or resident Indian exporting company for performance of project outside India or for availing credit facilities. But the contract/Letter of Award must stipulate it.

4. FEMA (Manner of Receipt and Payment) Regulations 2000:

Modes of Receipts :Payment for export of services can be received in following modes-

  • Bank drafts, pay orders, banker’s cheques or personal cheques;
  • Foreign currency notes, foreign currency traveller’s cheques from the buyers during their personal visit to India;
  • Payment out of funds as held in FCNR or NRE Accounts as maintained by the buyers in India;
  • International credit cards of the buyers.

5. Projects and Services Export:

  • Project exports means exports of the engineering goods on deferred payment terms and for execution of turnkey projects or civil construction contract outside India
  • The export shall obtain permission from AD Bank or EXIM Bank before undertaking any execution of project on the basis of deferred payment.
  • AD Bank or EXIM Bank are permitted to consider post approval and monitor the project.
  • Inter-project transfer of machinery is allowed under the monitoring of bank or EXIM Bank. No need to recover the market value.
  • Inter-project transfer of funds is allowed in any currency or country but the bank or EXIM Bank need to monitor.
  • Deployment of temporary cash surplus which is generated outside India, is allowed to be invested in short term investment (less than 1 year) with branches or subsidiaries outside India of the banks located in India

Export of Services

6. Master Direction on Export of  Services:  Relevant portions:

  • AD Banks are permitted to issue guarantees on behalf of exporter clients on account of exports, subject to stipulated conditions.
  • Export proceeds to be realised in freely convertible currency, except export proceeds against specific exports may be realised in Indian rupees. But it should be through a freely convertible Vostro account of non-resident bank situated in non-ACU or other than in Nepal or Bhutan.
  • AD Bank is allowed to offer the facility of repatriation of export related remittances by entering into standing arrangements with Online Payment Gateway Service Providers (OPGSPs) subject to certain conditions.
  • Ordinary resident Indian are permitted to open, hold and maintain Exchange Earners Foreign Currency Account (EEFC). It is non-interest-bearing current account. No credit facility will be available against balances held in this account.
  • All categories of foreign exchanges can be credited in EEFC A/c and all accruals at the last date of succeeding calendar month will be converted into Rupees. This facility will save conversion/transaction costs.
  • Eligible credits in case of services export in EEFC A/c will include inward remittance received through normal banking channel.

Conclusion: Understanding the FEMA perspective on the export of services is vital for businesses to navigate regulations seamlessly. From the absence of certain declarations to the flexibility in payment methods, compliance ensures a smooth process. The Master Direction on Export of Services provides valuable insights, emphasizing the importance of AD Banks in guaranteeing and facilitating repatriation.

In case you have any concern and queries or need any support in FEMA compliance,  you may like to contact us.

Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com

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Qualification: CA in Practice
Company: KPAM & Associates
Location: South West Delhi, Delhi, India
Member Since: 07 Nov 2023 | Total Posts: 25
The writer is an expert in the areas of compliance and government approvals in India. He writes very often on regulatory matters in areas of DPIIT, RBI, FDI, MCA, International taxation, GST, Valuation-SFA, NRI and other similar areas. View Full Profile

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