As per Master Direction – Export of Goods and Services issued by RBI (FED Master Direction No. 16/2015-16)
Realization and repatriation of proceeds of export of goods / software / services
It is obligatory on the part of the exporter to realize and repatriate the full value of goods / software / services to India within a stipulated period from the date of export, as under:
(i) It has been decided in consultation with the Government of India that the period of realization and repatriation of export proceeds shall be nine months from the date of export for all exporters including Units in Special Economic Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) until further notice.
RBI Master Direction – Export of Goods and Services
(ii) In view of the outbreak of pandemic COVID-19, it has been decided, in consultation with the Government of India, to increase the period of realization and repatriation to India of the amount representing the full export value of goods or software or services exported, from nine months to fifteen months from the date of export, for the exports made up to or on July 31, 2020.
(iii) For goods exported to a warehouse established outside India, the proceeds shall be realized within fifteen months from the date of shipment of goods.
Counter-Trade Arrangement
Counter trade proposals involving adjustment of value of goods imported into India against value of goods exported from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party through an Escrow Account opened in India in US Dollar will be considered by the Reserve Bank subject to following conditions:
(i) All imports and exports under the arrangement should be at international prices in conformity with the Foreign Trade Policy and Foreign Exchange Management Act, 1999 and the Rules and Regulations made there under.
(ii) No interest will be payable on balances standing to the credit of the Escrow Account but the funds temporarily rendered surplus may be held in a short-term deposit up to a total period of three months in a year (i.e., in a block of 12 months) and the banks may pay interest at the applicable rate.
(iii) No fund based/or non-fund based facilities would be permitted against the balances in the Escrow Account.
(iv) Application for permission for opening an Escrow Account may be made by the overseas exporter / organization through his / their AD Category – I bank to the Regional Office concerned of the Reserve Bank.
Export of Services
It is clarified that, in respect of export of services to which none of the Forms specified in these Regulations apply, the exporter may export such services without furnishing any declaration, but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of such export, and to repatriate the same to India in accordance with the provisions of the Act, and these Regulations, as also other rules and regulations made under the Act.
Set-off of export receivables against import payables
AD category –I banks may deal with the following requests received from their Exporter/Importer constituents for allowing set-off of outstanding export receivables against outstanding import payables:
i. Set-off of outstanding export receivables against outstanding import payables from/to the same overseas buyer/supplier.
ii. Set-off of outstanding export receivables against outstanding import payables with their overseas group/associate companies either on net basis or gross basis, through an in-house or outsourced centralized settlement arrangement.
The set-off shall be subject to the following conditions:
a. The arrangement shall be operationalized/supervised through/by one AD Category – I bank only
b. AD Category – I bank is satisfied with the bonafides of the transactions and ensures that there are no KYC/AML/CFT concerns;
c. The invoices under the transaction are not under investigation by Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency;
d. Import/export of goods/services has been undertaken as per the extant Foreign Trade policy
e. The export / import transactions with ACU countries are kept outside the arrangement; (China is not in ACU countries list as per RBI)
f. Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa.
g. AD Category – I bank shall ensure that import payables/export receivables are outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year.
h. In case of bilateral settlement, the set-off shall be in respect of same overseas buyer/supplier subject to it being supported by verifiable agreement/mutual consent.
i. In case of settlement within the group/associates companies, the arrangement shall be backed by a written, legally enforceable agreement/contract. AD Category – I bank shall ensure that the terms of agreement are strictly adhered to;
j. Set-off shall not result in tax evasion/avoidance by any of the entities involved in such arrangement.
k. Third party guidelines shall be adhered to by the concerned entities, wherever applicable;
l. AD Category – I bank shall ensure compliance with all the regulatory requirement relating to the transactions;
m. AD Category – I bank may seek Auditors/CA certificate wherever felt necessary.
n. Each of the export and import transaction shall be reported separately (gross basis) in FETERS/EDPMS/IDPMS, as applicable.
o. AD Category – I bank to settle the transaction in E/IDPMS by utilizing the ‘set-off indicator’ and mentioning the details of shipping bills/bill of entry/invoice details being settled in the remark column (including details of entities involved).
Export of Services as per Memorandum of Instructions on Project and Service Exports (PEM)
General
C.1 (i) Contracts for export of consultancy, technical and other services by Indian companies/firms generally fall in the following categories:
(a) Preparation of project/feasibility reports, drawings, designs, etc.
(2) Supply of technical know-how/engineering services in different fields.
(3) Operation, maintenance and supervision of manufacturing plants, buildings and structures, etc.
(4) Management contracts for commercial concerns.
Export of services may also involve supply of some associated mechanical wherewithals, consumables and spares e.g. contractors may generally have to procure tools and instruments for their own personnel for performing their jobs. They may sometimes be called upon to give performance guarantees but the scope of such guarantees would be limited to their own work, i.e. satisfactory performance of the personnel provided and/or technical etc. services rendered.
(ii) Indian exporters of services have normally to undertake overseas contracts on “cash” terms. Overseas service contracts undertaken on “cash” terms do not require prior clearance of Reserve Bank or the Working Group if no facilities are required. Resident individuals, firms and companies may, therefore, freely provide consultancy/technical/management services to overseas clients subject to the condition that the income earned abroad minus expenses will be promptly repatriated to India through normal banking channels. Individuals/firms/companies executing service contract in computer software should, however, repatriate to India income equivalent to atleast 30% of contract value and the balance income upto 70% of contract value could be retained for meeting contract-related expenses abroad. Indian companies/firms executing service contracts abroad, requiring facilities like opening of foreign currency bank accounts and site offices abroad, etc. will need approval from Authorised Dealer/Exim Bank/Working Group at the post-award stage. In the case of exporters executing software service contracts abroad, authorised dealers may permit remittances towards maintenance expenses of the persons deputed abroad to execute such contracts, out of receipts of advance/down payments in respect of the contract from the overseas client and on submission of a declaration by the exporter that the aggregate exchange facilities already availed of / to be availed of for execution of the contract would be within the overall ceiling of project related expenses viz. 70% of the contract value.
Documents & compliances that every exporter needs to keep in mind
In terms of the GST law services qualify as ‘export’ where:
1. Supplier of service is located in India;
2. Recipient of service is located outside India;
3. Place of Supply (‘POS’) of service is outside India;
4. Payment for such service has been received by the supplier of service in convertible foreign exchange; and
5. Supplier of service and the recipient of service are not merely establishments of a distinct person
For cross-border transactions, unless specifically mentioned the default POS for services is the location of the recipient of service i.e. outside India. For specified services, POS is as follows:
- For services in relation to immovable property (eg. renting, construction, designing etc.) – POS is the location of such immovable property;
- For performance based services (eg. training programs, repair maintenance of goods or tour and travel) – POS is the place where such services are performed;
- For events – POS is where the event is conducted
It is relevant to note that in case of points a, b and c above in case the POS is in India, GST would be attracted even if the recipient of service is located outside India.
Another specified service is that where the supplier acts as an ‘intermediary’/ agent. POS in such cases is the location of the ‘intermediary’/ agent i.e. in India, accordingly same would also be eligible to GST. The concept of intermediary has opened a Pandoras box where most of the captive units exporting services have to face the wrath of litigations.
Accordingly, a service exporter should ensure documentation and compliance with respect to the following:
- Furnish a LUT or Bond in case exports are intended to be made without payment of taxes
- Ensure that a robust Agreement/ Purchase Order is entered into with the recipient of services for export of services;
- Issue a tax invoice typically containing the following details:
- Endorsement stating “supply meant for export on payment of integrated tax” or “supply meant for export without payment of integrated tax”;
- Name, address and GSTIN of the supplier
- Invoice No. and date;
- Name and address of the recipient;
- HSN code of the services along with description
- Total value of services
- Signature of the supplier of the authorised signatory.
It must be ensured that the payments are received in convertible foreign exchange within the prescribed time period (typically one year from the date of export), else GST would be payable on the transaction. Further, robust documentation to prove the receipt of such payment (such as Foreign Inward Remittance Certificate, Bank Realisation Certificate etc.) should be maintained.
Further, exporters of notified services are also entitled for Duty Credit Scrip under the Services Exports from India Scheme (‘SEIS’) at a prescribed percentage (3%/5%/7%) of Net Foreign Exchange [i.e. Gross Earnings of Foreign Exchange minus Total expenses / payment / remittances of Foreign Exchange]. In addition, the benefit of refund under GST may also be explored. Further, although IEC is not a pre-condition for service exporters, however IEC is a pre-condition in case the exporter intends to claim benefit under SEIS.
It is therefore recommended that an exporter of goods/ services should ensure that complete and robust trail of documentation should be maintained to ensure that benefit of tax incentives granted by the Government for exports from India can be claimed.
Export Procedure
In general, an export procedure flows as stated below:
Step 1. Receipt of an Order
The exporter of goods is required to register with various authorities such as the income tax department and Reserve Bank of India (RBI). In addition to this, the exporter has to appoint agents who can collect orders from foreign customers (importer). The Indian exporter receives orders either directly from the importer or through indent houses.
Step 2. Obtaining License and Quota
After getting the order from the importer, the Indian exporter is required to secure an export license from the Government of India, for which the exporter has to apply to the Export Trade Control Authority and get a valid license. The quota is referred to as the permitted total quantity of goods that can be exported.
Step 3. Letter of Credit
The exporter of the goods generally ask the importer for the letter of credit, or sometimes the importer himself sends the letter of credit along with the order.
Step 4. Fixing the Exchange Rate
Foreign exchange rate signifies the rate at which the home currency can be exchanged with the foreign currency i.e. the rate of the Indian rupee against the American Dollar. The foreign exchange rate fluctuates from time to time. Thus, the importer and exporter fix the exchange rate mutually.
Step 5. Foreign Exchange Formalities
An Indian exporter has to comply with certain foreign exchange formalities under exchange control regulations. As per the Foreign Exchange Regulation Act of India (FERA), every exporter of the goods is required to furnish a declaration in the form prescribed in a manner. The declaration states:-
I. The foreign exchange earned by the exporter on exports is required to be disposed of in the manner specified by RBI and within the specified period.
II. Shipping documents and negotiations are required to be done through authorised dealers in foreign exchange.
III. The payment against the goods exported will be collected through only approved methods.
Step 6. Preparation for Executing the Order
The exporter should make required arrangements for executing the order:
I. Marking and packing of the goods to be exported as per the importer’s specifications.
II. Getting the inspection certificate from the Export Inspection Agency by arranging the pre-shipment inspection.
III. Obtaining insurance policy from the Export Credit Guarantee Corporation (ECGC) to get protection against the credit risks.
IV. Obtaining a marine insurance policy as required.
V. Appointing a forwarding agent (also known as custom house agent) for handling the customs and other related matters.
Step 7. Formalities by a Forwarding Agent
The formalities to be performed by the agent include –
I. For exporting the goods, the forwarding agent first obtains a permit from the customs department.
II. He must disclose all the required details of the goods to be exported such as nature, quantity, and weight to the shipping company.
III. The forwarding agent has to prepare a shipping bill/order.
IV. The forwarding agent is required to make two copies of the port challans and pays the dues.
V. The master of the ship is responsible for the loading of the goods on the ship. The loading is to be done on the basis of the shipping order in the presence of customs officers.
VI. Once the goods are loaded on the ship, the master of the ship issues a receipt for the same.
Step 8. Bill of Lading
The Indian exporter of the goods approaches the shipping company and presents the receipt copy issued by the master of the ship and in return gets the Bill of Lading. Bill of lading is an official receipt which provides the full description of the goods loaded on the ship and the name of the port of destination.
Step 9. Shipment Advise to the Importer
The Indian exporter sends shipment advice to the importer of the goods so that the importer gets informed about the dispatch of the goods. The exporter sends a copy of the packing list, a non-negotiable copy of the Bill of Lading, and commercial invoice along with the advice note.
Step 10. Presentation of Documents to the Bank
The Indian exporter confirms that he possesses all necessary shipping documents namely; Marine Insurance Policy The Consular Invoice Certificate of Origin The Commercial Invoice The Bill of Lading Then the exporter draws a Bill of Exchange on the basis of the commercial invoice. The Bill of Exchange along with these documents is called Documentary Bill of Exchange. The exporter then hands over the same to his bank.
Step 11. The Realisation of Export Proceeds
In order to realise the proceeds of the export, the exporter of the goods has to undergo specific banking formalities. On submission of the bill of exchange, these formalities are initiated. Generally, the exporter receives payment in foreign exchange.
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