FOREIGN INCOME

How much is the Money Received?

 I am not sure about which specific section/rules govern receipts from abroad.But since amount involved is quite huge there must be provision/law  may be in FEMA to get prior approval from RBI

 The income is taxable in India and Related expenses can be claimed

U HAVE TO PAY TAX .UR ENTIRE INCOME IS TAXABLE UNDER THE HEAD BUSINESS OR PROFESSION

First u say where u convert that Foreign currency in RS?

U have to show that from where u get that? But, there r no, strict rule in this case.  if u want foreign currency to make payment outside then there is long procedure. and u also have shown in your return this income on basis of AS-11.

You do not need any permission from RBI as far as FEMA is concerned. However, you must register with service tax and claim exemption if you receive in foreign exchange.

Dress designer is a specified profession. Therefore you need to get your books audited by your CA for receipts over 10 lakhs per annum.

In this kind of transaction, 100% of your receipt is a gross profit from which you claim indirect expenses. The only instance where your gross profit is reduced is when you are sub contracting and paying for the same designing work on which you receive from your client to someone else, then that gets reduced and you claim expenses (audited accounts) to be maintained.

Initially, for the Anti Money Laundering Act , as the amount is huge, your bank will further extend its KYC enquiries beyond what they did to open your account. They may ask you your qualifications and reasons you receive the money. You may have to produce a copy of your agreement to them and also your invoices before they credit money to your account and issue FIRC. Remember to open current account and do these transaction even if in personal name. A service tax registration helps to prove your bonafides for such receipt.

Precautions: Ensure the name and address of remitter, their bank and account details is properly written in the SWIFT MT103 that your customer will use to send you your money. Per FEMA and AMLA the money will not be credited to you without the required information. These are safeguards RBI takes to ensure your clean source of funds and be certain that source is not tainted or proceeds of crime. You will be hassled a couple of times by your bank, but remember that they are doing their job for which they are responsible. Do not get hassled and give everything to establish your bonafides. Once your bank sees regularity, they will not say anything. But when you change your bank you will have to go through all this again.

Depending on rules of country in force or DTAA with the country, there may be witholding tax on your payments that your remitter will have to deduct and pay at his country. That will depend on which of the provisions are most beneficial for you. By law some countries may waive the witholding tax based on submission of forms. You will have to submit it to your remitter. If any witholding tax is deducted from the payment you will have to claim relief as per DTAA under the relevant sections to the extent of tax witheld or the Indian income tax on that income, whichever lower.

I also suggest you take IEC Code and register with Export Promotion Council for service exporters. This may help you avail of any duty benefits government may give to service providers who need to import any items for use in their services.

HI Sunil,

You seem to be quite knowldgble on the issue. I am a  software developer and provide software services provider and get forign remittances from abroad. Since this comes under export of services i don;t charge any service tax. I have recently opened a current account for all payements from abroad.

However should i also get a service tax registration and IEC code ? Also do i have to take care of any other formality like submitting  FIRC with RBI ?

Should i get a FIRC for each payment or simply the accoutn statment is enough as proof of receipt of foriegn exchange ?

thanks

sidharth

Sidarth,

You have to register with Service Tax once you cross 9 lakhs even though there is no tax on the exports.

I suggest you take IE Code. In case you need to physically import anything, even free of charge, you need an IEC Code number.In case govt. ever gives you a benefit of concessional import duty against your export of services, you can avail of such schemes whenever available. IEC costs only 1000 if I am not mistaken.

FIRC is helpful to prove foreign exchange receipt to service tax when you claim exemption.