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Government Laws for Exporting Goods from India

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Export Duties, Basic Requirements, steps to Export

Exporting-Importing is a major global economic activity with the highest profits amongst all industries. It helps the nation build economic trade routes and relations with other countries and businesses to flourish beyond national borders. However, multiple technicalities are involved in the initiation of the export process. This article will help you with all the steps you need to follow to start an exports business and tell you about the existing import-export rules.

The export-import laws in India regulate the export-import activities in India. These laws are according to our Foreign Trade Policy that the Union government notifies under section 5 of the foreign trade (Development and Regulation) Act of 1992. These days, the Foreign Trade Policy rolled out in 2015-20 is effective.  

What is an Export?

As per India’s import and export regulations, one can consider export to be an act that takes goods out of India by sea, land, or air involving proper monetary transactions.

How to Start Exporting?

The process of exporting is complicated and involves detailed preparations as per the export-import law. You need to take several permissions and carry out necessary compliance checks according to the government of the country you are residing in and the country you plan to trade with.  If you want to start an export business, follow the steps outlined below following the export-import Act.

Export-Import Regulations

1. Establishment of an organisation

Those looking to get into the export business must first set up a sole proprietary or partnership firm or company according to the legal procedure with a proper name and logo.

2. Opening of bank accounts

Entities need to open a bank account in a scheduled bank that is authorised to deal with matters relating to foreign exchange.

3. Obtaining PAN or Permanent Account Number

You need to apply for a permanent account number on the NSDL portal owned by the Government of India and obtain a PAN card.

4. Obtain your own IEC or Importer-Exporter Code number

According to the policy on foreign trade, one is required to obtain an IEC for exporting from India. You need to register using your PAN card. One needs to apply for their IEC online by logging onto www.dgft.gov.in, according to ANF 2A, followed by an online application fee payment of Rs. 500. After this, you need to submit the required documents as per the application form.

5. Obtain RCMC or the Registration and Membership Certificate

Suppose you want to get authorised to export. In that case, businesses are mandated to procure an RCMC issued by the appropriate council for Export Promotion Councils/ Commodity Boards/FIEO or any other concerned authority.

6. Selecting the product

As per the export-import regulations, there is no major restriction on the product type. It states that one can export all items freely subject to restrictions on items used for illegal purposes or are specifically banned domestically or internationally.

7. Selecting the desired markets

As per the export-import regulations, businesses must choose an overseas market after engaging in proper research regarding the market size, the extent of competition, quantity and quality requirements, terms of payment, export duties, etc. They can also study export markets of other countries to gain more insights. One can hire promotion agencies, Indian export missions abroad, and other associates to know more about the market situation.

8. Finding the right buyers

To hit the right spot with your lead audience, you must participate in various trade fairs, meetings of buyers and sellers, trade exhibitions (B2C or B2B), surf the net, and explore effective tools to reach out to your potential customer base. Indian export missions abroad, EPCs, and international chambers of commerce will be good sources of help. You can create a multilingual landing page or official website with your detailed product catalogue, terms of payment, prices, and any other information related to your business that could help.  

9. Sending samples

You can provide customised samples as per the demands of all foreign buyers. It will help in gaining the trust of your customers, leading to more consistent export orders. As per the Foreign Trade Policy of 2015-2020, you’re required to send out bonafide trade exports and technical samples of free exportable goods. There is no limit to the amount that one can sample.

10. Price or cost

The export-import regulations in India emphasise the adoption of fair pricing for the products that have to be exported. As a business, you must focus on capturing the buyers’ attention and also promoting sales in light of the international competition to adopt fair pricing. This element of planning is termed ‘product pricing’.

As per the laws, If you take into consideration the expenses you incurred from sampling till the point of realisation of all export proceeds considering the basis of terms of sale; you should calculate the price as per the following:

  • Sample Cost,
  • Free on Board (FOB),
  • Insurance & Freight (CIF), etc.
  • Cost & Freight(C&F), etc.

It helps establish export costing, sell maximum quantity at a competitive rate, and obtain the top profit margin.  For every export product, you need to prepare an export costing sheet.

11. Negotiate with buyers

Once you have captivated buyers’ interest in your product, automatically, your prospects and business continuity are some things that get determined. Amid all this, you can also consider the demand for providing a reasonable allowance or any discount in price.

12. Covering your risks through ECGC

International trade often deals with payment risks arising from the buyer’s insolvency. Such a risk can be well covered by the Export Credit Guarantee Corporation (ECGC). It is a good idea to obtain a credit limit on that international buyer from ECGC to save yourself from the risk of non-payment. In this way, when the buyer places an order and doesn’t pay in advance or show an opening letter of credit by the EDGC, you can decline to proceed.

Steps Involved in Processing an Export Order

As per the regulation of the imports and exports act, the following are the steps involved in processing an export order.

  • Confirming the order
  • Final procurement of the goods
  • Quality and quantity control
  • Finance checklist
  • Packaging, labelling, and marking process
  • Insurance formalities
  • Delivery/dispatch
  • Procedures of customs and duties
  • Interaction with customs house agents
  • Required documentation
  • Submitting the requisite documents to the bank
  • The monetary realisation of all export proceeds within a period of not exceeding nine months (90 days)

What is Export Duty?

While understanding the export laws in India, we must understand what an export tax or export duty is. It is the amount payable by the exporting agency to the Government of India as tax. As per the import and export procedure under Customs Act, India follows a zero levy procedure, which means that no CGST is applicable to exported goods apart from the export duty rate. Earlier, there was the system of duty drawback concerning taxation for the export of exempted goods.

How is Export Duty Calculated?

In India, Custom duties are mostly calculated based on a specific/ ad valorem basis which means the direct value of goods. The principal value of the goods is calculated under Rule 3(i) from the Customs Valuation (Determination of Value of Imported Goods) Rules of 2007.

Conclusion

Once the final step of realising the proceeds is taken care of within the prescribed nine months (as mentioned above), one can say that the cycle of the export activity is complete. Exports form an essential part of India’s economic surplus-building, and hence the government encourages all kinds of export businesses. As a business, if you understand all the legalities and formalities of the export process well, it will save you from legal complications while you run your business. Learning about the laws that govern your business area is of paramount importance as it will make you a more responsible and aware entrepreneur. Make sure you have the right guidance and support around these aspects while you proceed to establish your export business.  

Also read:

1) The Indian Import-Export Scene
2) How Can I Start Spice Export Business In India?
3) How Can You Start An Import Business In India?
4) Types of Direct & Indirect Taxes in India
5) OkCredit: Simple, Paperless & Secure solution for businesses

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FAQs

Q. What are the products that India’s export-import laws prohibit?

Ans. In India, the central government has laid down several notifications that prohibit exporting of sensitive goods that are as follows:

  • Coins,
  • Waste paper in printed form that contains pages from any of the holy books,
  • Obscene books,
  • Armoured guard,
  • Explosives,
  • Fictitious stamps,
  • Narcotic drugs,
  • Saccharine
  • Rock salt etc.

Q. Is obtaining IEC mandatory to start an Export business?

Ans. An (IEC) or Importer -Exporter Code is a business's identification number. The law mandates firms properly to acquire an IEC. The law strictly provides that any export or import made by a person without obtaining an IEC would be illegal unless specifically exempted by the law.

Q. How to apply for an IEC, and what is the cost?

Ans. The cost of an application form ( Form ANF-2A) required to obtain an IEC Fee Rs 250.00. If you want to save time and receive the IEC instantly, you should submit the form instantly and pay only via electronic fund transfer.

However,  you can physically apply as well, wherein you must send the required documents such as ID and address proof, bank details, etc., to the  DGFT RLA  within 15 days of the online submission of the form. In this case, your IEC should be generated within a week.