22 June 2016
if indian company receives amount in INR from the foreign entity towards service provded by Indian co. then indian co.'s bank will issue foreign inward remittance certificate...?
p.s.
1. invoice is raised by Indian co. in INR
2. foreign co. converts the foreign currency (say usd) into INR from their bank..hence Indian company receives directly INR in it's bank.
25 July 2024
In the scenario you described, where an Indian company receives payment in INR from a foreign entity for services provided, typically a Foreign Inward Remittance Certificate (FIRC) is not issued by the bank. Here's why:
1. **Payment in INR:** The foreign entity is converting the foreign currency (USD, in your example) into INR and directly remitting the INR amount to the Indian company's bank account.
2. **No Conversion by Indian Bank:** Since the foreign entity is converting the currency before remitting it to the Indian company, the Indian bank does not handle the foreign currency directly. Instead, the Indian bank receives INR and credits it to the Indian company's account.
3. **FIRC Requirement:** FIRC is generally issued by the bank when foreign currency is directly converted into INR by the Indian bank upon receipt of foreign remittance. However, in your case, because the remittance is already in INR when it reaches the Indian bank, there is no foreign currency involved in the transaction at the Indian bank's end. Therefore, an FIRC is not issued by the bank in such scenarios.
4. **Proof of Payment:** Even though an FIRC may not be issued, the Indian company should maintain other documentation to substantiate the receipt of payment. This includes: - Copies of the invoice raised in INR. - Bank statement showing the credit of INR. - Correspondence or agreement with the foreign entity indicating the nature and terms of the service provided and payment received.
5. **Tax Compliance:** The Indian company should ensure proper documentation for tax compliance purposes. The income received in INR for services rendered would need to be reported correctly in the Income Tax Return (ITR) of the Indian company.
In summary, since the payment is received in INR and not involving direct conversion of foreign currency by the Indian bank, an FIRC is typically not issued. The Indian company should maintain alternative documentation to support the receipt of payment and ensure compliance with tax regulations. If in doubt, consulting with a tax advisor or chartered accountant would provide specific guidance based on your company's circumstances.
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