Lawyers at VakilSearchshed some light
In the service tax regime, most tech entrepreneurs have been covered. The list includes people who provide software consulting, development and allied services (which covers about 40% of all neo entrepreneurs in this country).
And a lot of this work involves providing services to foreign clients, i.e. clients based outside India.
Now, there is a benefit given to ‘exporters’ of service, wherein you need not pay any duty on the export of service. But to enjoy this benefit, there are some procedures to be complied with. And a major procedure is getting yourself an IEC, or an Import Export Code.
What is the Import Export Code?
The Import Export Code is a 10 digit special code provided by the Director General of Foreign Trade, Ministry of Commerce, Government of India.
Technically speaking, an IEC is necessary for any person looking at making an import into India or exporting a product or service out of India. So technically speaking, if I create even one software program and sell it to a party based in the United States, it is an export and I need to get an IEC.
Practically speaking however, you only need an IEC if you are going to be making sizeable exports and your income from export of services is more than Rs. 9 lakhs. In this case, getting an IEC will make you eligible to get a service tax exemption.
What documentation is necessary to get an Import Export Code?
In order to get an Import Export Code, you need the following documentation:
- A Covering Letter on the official letter head for issue of new IEC Code Number.
- Two copies of the application in prescribed format for submission to the regional Jt. DGFT Office.
- A Rs 250.00 Bank Receipt (in duplicate)/Demand Draft/EFT details showing payment of the application fee.
- Certificate from the Banker of the applicant firm as per Appendix 18A.
- Self certified copy of PAN issuing letter or PAN (Permanent Account Number) Card issued by Income Tax Authority.
- Two passport size photographs of the applicant duly attested by your Banker.
- Self addressed envelope with Rs. 25/- stamp for delivery of IEC certificate by registered post.
Can I get my IEC Application online?
Yes, there is a Government initiative to enable you to apply for the IEC Code online. The process involves filling form ANF2A.
Along with this application form, you also need to submit Appendix 18 B which has been attested by your Banker on the Bank’s letter head.
The ubiquitous passport size photo makes a re-appearance. 2 of them are necessary.
What if I am importing a service from a foreign service provider?
Here, something called the reverse-charge mechanism applies. The reverse charge mechanism is slightly complex and the explanation will be further elucidated in the next part.
But the principle is this: If you import a service (for instance, if you obtain the service of a U.S. based designer and pay him 1000 dollars for his service), the Government treats it as if you had exported the service, and makes you liable to pay service tax. Hence the name ‘reverse-charge’
As mentioned earlier, this is slightly complex and counter-intuitive, so suffices to say for now that even if you are importing a service, you need to pay Service Tax as if you were providing the service.
This will be explained in more detail in the next part.
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