Fema- advance received towards export of services

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SSOHAN R BAGGMAR (Querist)
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16 July 2013 Dear Colleagues!!

If a software company receives advance payment from clients outside India whether there is provsion in FEMA regarding the same.

As for Export of Goods 12 months is the time available for exporter to export else he has to return the money.

How about Advance money received for services to be rendered for clients outside India.

Regards

Ssohan

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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17 July 2013 Advance Payments against Exports

(1) In terms of Regulation 16 of Notification No. FEMA 23/2000-RB dated May 3, 2000, where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that –

the shipment of goods is made within one year from the date of receipt of advance payment;

the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points; and

the documents covering the shipment are routed through the AD Category – I bank through whom the advance payment is received.

Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank.

(2) ‘AD Category- I banks may allow exporters to receive advance payment for export of goodswhich would take more than one year to manufacture and ship andwhere the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the following conditions:-

i. the KYC and due diligence exercise has been done by the AD Category –I bank for the overseas buyer;

ii. compliance with the Anti Money Laundering standards has been ensured;

iii. the AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bona-fide transaction;

iv. progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;

v. the rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;

vi. there should be no instance of refund exceeding 10% of the advance payment received in the last three years;

vii. the documents covering the shipment should be routed through the same authorised dealer bank; and

viii. in the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank.’

(3) AD Category – I banks may allow the purchase of foreign exchange from the market for refunding advance payment credited to EEFC account only after utilizing the entire balances held in the exporter’s EEFC accounts maintained at different branches/banks.

received the FIRC FROM BANKER AND SUBMIT SDF IN BANKER.

When goods have been exported on consignment basis, the AD Category-I bank, while forwarding shipping documents to his overseas branch/ correspondent, should instruct the latter to deliver them only against trust receipt/undertaking to deliver sale proceeds by a specified date within the period prescribed for realization of proceeds of the export. This procedure should be followed even if, according to the practice in certain trades, a bill for part of the estimated value is drawn in advance against the exports.

(ii) The agents/consignees may deduct from sale proceeds of the goods expenses normally incurred towards receipt, storage and sale of the goods, such as landing charges, warehouse rent, handling charges, etc. and remit the net proceeds to the exporter.

(iii) The account sales received from the Agent/Consignee should be verified by the AD Category – I banks. Deductions in Account Sales should be supported by bills/receipts in original except in case of petty items like postage/cable charges, stamp duty, etc.

(iv) In case of goods exported on consignment basis, freight and marine insurance must be arranged in India.

AD Category – I banks may allow the exporters to abandon the books, which remain unsold at the expiry of the period of the sale contract. Accordingly, the exporters may show the value of the unsold books as deduction from the export proceeds in the Account Sales.

MUST READ : RBI/2012-13/14
Master Circular No. 14/2012-13 DTD 02.07.2012

Ritesh Jain

Ritesh Jain (Expert)
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24 October 2017 china ltd ( a foreign co. in china) has received an order from india ltd( indian co. in india) for supply of a particular item @ 1 lakh USD. China ltd in turn places the order on bharat ltd( another indian co in india) for supplying the same item at the work place of india ltd @ INR 45 lakh .

India ltd will pay to china ltd in USD (conversion ratio assumed to be Rs 60 per USD) i. e total outflow of Rs 60 Lakh.

Whether as per FEMA or any other act is there in prohibition in such transaction as because the ultimate transaction is within country but indian outflow is Rs 15lakh extra for the goods to foreign party.

Please state whether such transactions are allowed as per indian acts such as fema etc.

Whether the case is different if china ltd has a establishment in india and they raises a invoice in INR instead of USD.

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