FEMA Guidelines and Its Impact on the Export Business?

As an exporter, your business life is guided by specific laws and guidelines for foreign trade. This is in keeping with the laws of the land and ensures that you have the support of the relevant authorities in case of any issues and that your business complies with the FEMA guidelines.

What is the FEMA act?

The Foreign Exchange Management Act, or FEMA, is a replacement for the Foreign Exchange Regulation Act (FERA) and was passed by the Indian parliament in 1999. FEMA was brought in to consolidate and amend the foreign exchange-related law to keep up with the government’s pro-liberalization policies.

A law that is in line with the WTO (World Trade Organization) framework for international trade was needed, which is where FEMA had been implemented. The FEMA framework also supported the implementation of the Prevention of Money Laundering Act of 2002, which came into effect in 2005.

What are the FEMA guidelines that exporters should know about?

FEMA was implemented as a way forward for foreign trade, to enable cross-border remittance, and pervades all aspects of international trade. The Directorate General of Foreign Trade and its regional offices regulate export trade.

Goods and services export

FEMA guidelines for export realization for Indian exporters state that they must realize the value of goods and services to India within nine months of the export date, which is the prescribed time. Exports must be carried out in a currency that can be freely converted unless the exporter has explicit consent from RBI.

Export declaration

Exporters must provide the customs authorities with an export declaration form (EDF) with a complete description of the goods or services being exported. The description should detail the nature, value, and payment terms of the exported goods or services.

Realization of export value

The proceeds from the export transaction need to be collected and moved to Indian shores within the stipulated time. If this is not possible within the prescribed time, the exporter must get an extension from RBI

Advance payment

Exporters can receive advance payment for the export transaction and must ensure that shipments against such advances occur within 12 months of receiving the advance amount. If there’s a delay beyond 12 months, the exporter must get explicit consent from RBI.

Third-party export trades

Often, exporters may subcontract the production of goods or the delivery of services to another business entity. This is permitted under FEMA as long as the payment is in convertible currency.

Foreign currency dealings

By the nature of their business, exporters have permission to deal in foreign currencies but only through authorized dealers (banks). Moreover, exporters must comply with the various rules of FEMA when dealing with foreign currencies.

Credit for export

Exporters can avail of credit facilities from Indian banks and other related financial institutions. Depending on their business needs, they can choose either pre-shipment credit or post-shipment credit.

Reporting and compliance

Exporters must submit reports to the relevant authorities at regular intervals to showcase their compliance with export laws.

What are FEMA’s guidelines for inward remittance?

1. Authorized channels: Exporters must go through banks and institutions that are authorized dealers for inward remittance

2. Remittance modes: For the remittance to be valid, exporters must route the payment through accepted modes and ensure no room for manipulation

3. Purpose of remittance: Exporters have to ensure that they provide the purpose of remittance with details like order details, buyer details, their agreement, and other details for inward remittance

4. Conversion and repatriation: The remittance amounts must be deposited into a foreign currency account and converted into INR within a specified time

5. Document and declare: Exporters have to document the process of inward remittance, provide FIRC (Foreign Inward Remittance Certificate), and declare the details to RBI and FEMA

6. Reporting to RBI: Since foreign currency is involved, exporters must report the transaction to RBI

7. Use of inward remittance: If the inward remittance is related to export trade, the exporter must use the fund for related activities

8. Taxation guidelines: The income derived from the inward remittance will be taxed under the local taxation laws related to export-related trade

If you are looking for a platform to help you with remittance, you are at the right place. Visit LeRemitt to learn more about how we can help you.