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Import Export Code (IEC)

What is Import and Export?

An import is a good or service bought in one country that was produced in another.

Export refers to a product or service produced in one country but sold to a buyer abroad.

Imports and exports are the components of international trade.

What is Import and Export Code (IEC)?

An Importer -Exporter Code (IEC) is a key business identification number which mandatory for export from India or Import to India. IEC is a 10-digit alphanumeric registration number issued by DGFT (Directorate General of Foreign Trade). No export or import shall be made by any person without obtaining an IEC unless specifically exempted. For services exports however, IEC shall be not be necessary except when the service provider is taking benefits under the Foreign Trade Policy.

Consequent upon introduction of GST, IEC being issued is the same as the PAN of the firm. However, the IEC will still be separately issued by DGFT based on an application. The nature of the firm obtaining an IEC may be any of the follows- Proprietorship, Partnership, LLP, Limited Company, Trust, HUF, Society.

Requirement of IEC.

IEC is required for various purposes, following are some key purposes where is required:

Import and export – No importer/exporter can import/export any goods or services in course of his or its business. In easy words we can say that IEC is a prerequisite for import and export.

Shipment clearance –Shipment is the final step to export goods; one needs to show IEC in order to succeed in shipment clearance

Custom clearance-it is a verification check process of the goods imported. Custom department is sole authority to conduct custom clearance. The person importing the goods has to furnish IEC for successful custom clearance.

Payments in respect of import and export-An importer needs to furnish IEC while making payments, on the other hand exporter needs to furnish IEC while receiving payments.

Benefits of IEC

Practically IEC is a bouquet of benefits to its holders, especially for exporters, some of the benefits are specified as follows:

Global Competitiveness- A person holding IEC is free to import and export subject to compliance of other terms and conditions, he can compete in global market with others, so in this manner IEC provides global competitiveness to its holders

Benefits of government schemes- Export plays an important role in development of economy of a nation, that’s why government of India always provides various benefits in order to promote more and more export from India. Government of India provides benefits in form of custom duty exemption, GST exemption, Duty drawback, Rebate and deduction under income tax and through various other means.

Zero maintenance– A person holding IEC feels very convenient in such a way that IEC do not require any periodic maintenance like annual compliances or annual filing.

Life time validity unlike other registrations, IEC is valid for life time. There is no requirement of periodic renewal at all.

Worldwide market reach– IEC enables the businesses to reach worldwide market and to grab opportunities to establish business in international markets by way of export of their products globally.

How to Apply for Import Export Code — Know the Process Step by Step

An Import Export (IEC) Code is a 10-digit number given to that person who do import or export goods and services from abroad which provided by Director General of Foreign Trade (DGFT).

IEC is a code allotted on Individual PAN Number or company PAN number for importing/exporting any product goods/services and also to avail several benefits from Export development Council or DGFT.

To getting an IEC Code one you have to submit valid documents and follow relevant procedure so that the Government of India can ensure your identification as any person or as a business company

Steps for IEC Registration Process:

  • Step 1: Visit DGFT Website.
  • Step 2:  Then You need to Go on Services tab.
  • Step 3: Enter your PAN number (A Person/if any Company PAN Card)
  • Step 4: Enter t­he your details (As Mentioned on PAN Card)
  • Step 5: Enter your mobile number to get (OTP) verification process.
  • Step 6: Fill and Update Application Entity Details
  • Step 7: Add Branch Details
  • Step 8: Fill and update the Director/Partner details.
  • Step 9: Upload Documents Scanned Copies of Essential Documents.
  • Step 10: Fee Payment
  • Step 11: Preview & Print Application
  • Step 12: Final Submission You have to do in the last step

Documents required to apply IEC online are as follows: –

  • PAN of individual/company/LLP/partnership firm.
  • ID proof of individual Aadhar card, voter ID, passport
  • Mobile No. and Email-ID
  • Details of directors in case company applicant
  • Address proof of business premises i.e. Rent agreement, sale deed, lease deed or electricity bill with NOC from owner.

Cases where Export Import Code (EIC) is not mandatory

  • According to the latest circular issued by the government, IEC is not mandatory for all traders who are registered under GST. In all such cases, the PAN of the trader shall be construed as new IEC code for the purpose of import and export.
  • Import Export Code (IEC) isn’t required to be taken in case the goods exported or imported is for personal purposes and isn’t used for any commercial purpose.
  • Export/ Import done by the Government of India Departments and Ministries; Notified Charitable institutions need not require getting Import Export Code.

Sources Used

Taxguru, cleartax, dgft.gov.in & Google search

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Outsourcing Finance & Accounting Function

OUTSOURCING

OUTSOURCING THE FINANCE AND ACCOUNTING FUNCTIONS

What is Outsourcing?

Outsourcing is a business practice in which services or job functions are farmed out to a third party. or

‘Contracting to an external supplier for providing part or all business processes or functions.’

What is Finance & Accounting (F & A) Outsourcing?

Finance and accounting (F&A) business process outsourcing (BPO) consists of support for multiple business processes in the F&A domain through a single BPO contract. 

Companies choose to outsource F & A services either onshore (within their own country), nearshore (to a neighbouring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

First and Foremost, Beginning of F & A Accounting

The use of modern multi-process FAO began with a 1990 meeting in a London hotel between a British Petroleum (BP) CFO and a partner at the consulting firm now known as Accenture. The two men discussed the severe challenges the oil company confronted: plummeting oil prices, new, highly agile competition, and a burdensome cost structure. The discussion produced an innovative idea: rather than simply providing advice on how to make the CFO’s function more efficient, Accenture would take over the CFO’s entire accounting function, with the exception of control and financial policy. The following year, more than 300 BP employees from numerous locations transferred to Accenture’s outsourcing centre in Aberdeen, Scotland. There they performed forecasting, payment processing, joint venture accounting, and other processes that Accenture designed and managed.

BP reduced the costs of the outsourced processes by an estimated 50% over the term of the agreement, which then was renewed several times and still continues today, a time when the oil giant spends an estimated $1 billion annually in outsourced services of all types with various vendors.

Outsourcing services

Business process outsourcing (BPO) is an overarching term for outsourcing of a specific business process task, such as payroll etc. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support. Finance & Accounting outsourcing (FAO), therefore, is a subset of business process outsourcing.

While most business process outsourcing involves executing standardized processes for a company, knowledge process outsourcing (KPO) involves processes that demand advanced research and analytical, technical and decision-making skills such as pharmaceutical R&D or patent research.

F&A outsourcing clearly falls under the domain of FAO. However, FAOs often are involved in — or even oversee — non-FAO business process and knowledge prcess.O

Outsourcing Trends and Statistics for 2019-2020 and Beyond

The BPO industry offers its service across various end use industries such as BFSI (Banking, Financial Services and Insurance), healthcare, manufacturing, IT and telecommunications, retail, and others. The other segments include travel and transportation, government, education, construction, and utilities. The BFSI segment secured a market share exceeding 30.0% of the global business process outsourcing market in 2019 and is anticipated to grow at the rate of 8% CAGR from 2019 to 2027.

The European market for business process outsourcing accounted for more than 26.0% of the global market share in 2019.

Because of the benefits of outsourcing, many companies find that it’s an attractive option that allows their businesses to grow. In fact, 37% of small businesses currently outsource a business process. Among this number, 24% choose to outsource primarily to increase efficiency, while 18% are looking to receive assistance from an expert.

About 60% of companies outsource their various functions to reduce the cost of processing.

Research shows that around 80% of businesses are feeling very positive about their outsourcing relationships.

Around 40% of businesses outsourced their Finance & Accounts function to outsourcing partners.

India is most lucrative destination for the global outsourcing destination in terms of financial attractiveness, people skills & availability and business environment.

Key Companies & Market Share Insights

The major global players in this field are such as Accenture, Infosys Limited, HCL, Wipro, Capgemini, and Amdocs. A diverse range of services allow these companies to gain a competitive edge in the market.  For instance, Capgemini, one of the pioneers in the BPO industry is engaged in offering multiple BPO services such as financial services, supply chain and procurement, and business analytics.

At times these market players particularly focus on entering into mergers & acquisitions and joint ventures/collaborations in order to enhance their market presence. For Instance, in July 2018, Wipro Limited announced the acquisition of Alight HR Services in India for a total deal value of USD 1.5 billion. The company offered human resource outsourcing, IT outsourcing, and finance process outsourcing. These days companies are focusing on setting up new BPO centres across the globe to expand their market presence and augment their existing customer base. For instance, in September 2017, Infosys Limited, India announced the establishment of a new service centre in the Netherlands. This office is engaged in providing finance and accounting and other end-to-end outsourcing services.

Business Process Outsourcing Market Report Scope

Report Attribute Details
Market size value in 2020 USD 237.0 billion
Revenue forecast in 2027 USD 405.5 billion
Growth Rate CAGR of 8.0% from 2020 to 2027
Base year for estimation 2019

Finance and Accounting Outsourcing Life Cycle.

In this decision tree, the consulting firm breaks down the finance and accounting processes a company is likely to decide to outsource or keep in-house after working through the questions:

Outsourcing benefits and costs

The business case for outsourcing varies with situation, but the benefits of outsourcing often include one or more of the following:

  • Lower costs (due to economies of scale or lower labour rates)
  • Increased efficiency
  • Variable capacity
  • Increased focus on strategy/core competencies
  • Increased access to skills or resources
  • Increased flexibility to meet changing business and commercial conditions
  • Accelerated marketing in less time
  • Lower ongoing investment in internal infrastructure
  • Access to innovation, intellectual property, and thought provoked leadership

Research on outsourcing benefits suggests that cost reduction remains FAO’s primary motivation. By far the most important criteria for selecting a finance and accounting outsourcing provider among North American companies are price and the deal’s overall economic proposition; the FAO provider’s “transformational capability” represented only the 12th (out of 18) most important provider-selection criteria (CFO Research Services).The most frequently outsourced finance and accounting processes are (in priority) accounts payable (A/P), accounts receivable (A/R) and payroll. Turning over these processes to an outside vendor rarely delivers transformational benefits; rather, the primary objective is cost reduction. This may reflect the number of years that FAO outsourcing has been occurring; other criteria may evolve as the process matures, as has happened to some degree with IT outsourcing. The benefits associated with finance and accounting outsourcing are similar to those associated with both HR and IT outsourcing:

Some of the risks of outsourcing include:

  • Slower turnaround time
  • Lack of business or domain knowledge
  • Language and cultural barriers
  • Time zone differences
  • Lack of control

Outsourcing is sometimes difficult to implement, & hence the failure rate of outsourcing relationships remains high. Depending on outsourcing partner, it can be anywhere from 20 to 30 percent. The heart of this problem is the inherent conflict of interest in an outsourcing arrangement. The client seeks better service, often at lower costs, than they would incur doing the work inhouse. The vendor, however, wants to make more & more profit. That tension must be managed closely to ensure a successful outcome for both client and vendor.

Another cause of outsourcing failure is the rush to outsource in the absence of a good or logical business case. Outsourcing pursued as a “quick fix” cost-cutting manoeuvre rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage, is more likely to disappoint.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expand. Whatever be the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

Service levels agreements

A service levels arrangement is a contract between an F&A services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

Often, a customer charges a penalty fee from vendor, if certain SLAs are not met. Used judiciously, that’s an effective way to keep a vendor on the track. But no FAO wants to go into the business of penalty-charging and collecting. Bad service from an outsourcing vendor, even at a deep discount, is still bad service, and can lead to greater problems. It’s best to expend energy in finding out why the SLAs are being missed in the first place and work together to solve the well within time. Strong SLAs alone will not guarantee success when outsourcing F&A services. They’re one of many tools to manage an F&A outsourcing relationship.

Outsourcing deal lengths

What’s the best length for a skirt? While the outsourcing industry is not quite as fickle as fashion, the prevailing wisdom about the best length for an outsourcing contract has changed over the years. When outsourcing first emerged as a viable option, long contracts — as many as 10 years in length — were the norm. As some of those initial deals lost their shine, clients and vendors moved to shorter contracts.

As with most questions about outsourcing, the optimal answer depends on what’s being outsourced and why. While decade-long deals have largely gone by the wayside, a transformational outsourcing deal may require more time to reap benefits for both client and vendor. 

CONCLUSION

The use of finance and accounting outsourcing is increasing throughout the world. FAO arrangements offer companies opportunities to significantly reduce costs, access better skills and technologies, and achieve allied benefits. These include sharpening the organization’s focus on core competencies, or moving finance and accounting professionals away from transactional duties towards more strategic responsibilities. To capitalised on these opportunities, companies pursuing FAO arrangements must avoid problems that damage relationships with service providers and lower the returns on their FAO investments.

 FAO is of significant interest to finance and accounting professionals due to the discipline’s growing use, its risks and benefits, and its growing importance to a finance and accounting department. As the CFO of a $2 billion U.S. manufacturing company notes, outsourcing is practically a “ticket to the game” for finance executives and their organization. “We have to be competitive on every front,” she says, “and outsourcing is one way to get there,” (CFO Publishing Corp.)

Sources Use grandviewresearch.com, cio.com superstaff.com & Google search

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International Financial Service Centre Authority (IFSCA)

IFSCA stands for “INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY”.

A unified authority to regulate all financial services in International Financial Services Centres (IFSCs) in the country.

IFSC stands for international Financial service centre

IFSC are centre that cater to customer outside their own jurisdiction. Such centres deal with flows of finance, financial products and services across borders.

Therefore, they provide world class financial services to Resident and Non-residents in Currency other than the domestic currency of the location where the IFSC is located.

Global IFSC———-Which serve the client all over the world e.g. London, New York, Singapore.

Regional IFSC —— Which serve regional economies rather than world economies e.g. Dubai & Hong Kong.

It was way back in 2005 the concept of IFSC has been notified in the special Economic Zone Act 2005. Where it has been specified that The IFSC can be established in SEZ. But only one IFSC is allowed in one SEZ, it means in India many IFSC can be established but only one IFSC in one SEZ.

On 10th 2007 in chair of ex Financial Minister Mr P Chidambaram The High-Powered Expert Committee (HPEC) form to introduce IFSC in Mumbai. This committee elaborates the following reason for India should have the IFSC

  1. World leadership in Information technology.
  2. Location is far from nearby International IFSC.
  3. Strong securities market and trading platform.
  4. Human Capital.
  5. Rule of law.

Indian Economic growth and globalisation drives Indian demand for IFSC, but there was no further endeavour from India to develop IFSC till 2015 when then Finance Minister Late Mr Arun Jaitley announced GIFT City the Indian first IFSC and also pronounced to notify all the necessary guidelines for IFSC.

In 2017 during the vibrant Gujarat Summit PM N. Modi inaugurates the GIFT City the First Indian IFSC.

Financial Activities in IFSC

Financial Services Details
Banking Deals with flow of financial products/services across border.With resident deployment of funds and with non-residents entities for both raising of resources and deployment of funds.Provide banking/financial services to the units of the IFSC.
Capital Market Stock and commodity exchange.Depository.Clearing corporationIntermediaries such as Merchant banker, broker, mutual funds etc.Investment services.Custodial services.Fund Accounting.Trust Services etc.
Insurance Life/General Insurance.Co-Insurance.Reinsurance.Captive Insurance etc.

Key reliefs/benefits to IFSC Units

Benefits Details
Relief under companies Act   All such companies have to suffix IFSC in their names.Time limit relaxation for filling for various forms to ROC.Exemption from the standard prescribed by The Institute of Company secretaries of India.IFSC Companies need Internal Audit if their AOA provide for the same.
Regulatory relief to units in IFSC   The financial unit in IFSC shall be treated as non-resident Indian located outside India.The IBU (International Banking Unit) are exempt from CRR and SLR requirements.IBU can be trading member of stock exchange in the IFSC.IBU Can become a professional clearing member of the exchange in the IFSC.
Direct Tax Benefit Tax holiday for 10 years.Income and Dividend distribution tax exemption.Security transaction tax not leviable.Capital gains exemption for sale of specified securities on the stock exchange in IFSC.Exemption on Interest income.
Indirect Tax Benefit Exemption for Customs payment for imports of goods for setting up of the IBU.Exemption for GST in case of imports of service from HO or other branches located across the globe.
Stamp Duty Exemption Exemption of payment of stamp duty on registration of properties in IFSC.

Establishment of IFSCA

The finance ministry has established the International Financial Services Centres Authority (IFSCA) through a notification last month in April 2020. The body will be headquartered in Gandhinagar in Gujarat, as per the notification.

With this, the government has established a unified authority to regulate all financial services in International Financial Services Centres (IFSCs) in the country.

Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators such as Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI).

The notification brings into effect certain provisions of the IFSCA Act, 2019, related to its functioning, however, the Centre refrained from fully enabling the authority with all its powers as envisaged in the Act.

While allowing for the appointment of its members and other employees, setting up of funds and exemption from taxes, the government has not affected provisions pertaining to the regulation of financial products, financial services and financial institutions in IFSCs.

Main function of IFSCA.

The Authority shall regulate financial products such as Securities Deposits of contract of Insurance

Earlier all such financial products were regulating by their respective regulating authority.

It will follow the all processes which are applicable to such financial products under their respective laws.

Regulatory Authority RBI SEBI IRDA PFRDA IFSCA
Functional Area Banking Stock Exchange Insurance Sector Pension Funds IFSC

Table: – Representation of various regulating authorities in India.

Total member IFSCA will consist of 9 members.

  1. Chairperson
  2. One-member Representative from each RBI SEBI IRDA and PFRDA.
  3. Two-member representative from ministry of Finance.
  4. Two members on recommendation of search committee.
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SECURITIES LENDING & BORROWING MECHANISM (SLB)

Securities-Securities are the financial instruments that has monetary value and can be traded.

Lending– lending refer as temporary lending of securities by a lender to the borrower.

Borrowing-Borrowing refer as temporary borrowing of securities by a borrower from lender.

Lender—–>Securities——–>Intermediary———>Securities—–> Borrower

Benefit- Fee                              Benefit-Brokerage                Benefit-Liquidity                           

As show in above diagram

(i) Lender is a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the scheme.

(ii) Borrower is a person who borrows the securities under the scheme through an approved intermediary.

(iii) Approved intermediary is a person duly registered by the SEBI under the guidelines/scheme through whom the lender will deposit the securities for lending and the borrower will borrow the securities;

SLB– Securities Lending and Borrowing is a mechanism through which investors can borrow or lend shares to other market participants. The platform provides a viable alternative to derivatives market for purposes of hedging. Borrowers in SLB are usually short-sellers i.e. traders who want to sell shares that they don’t own. Lenders on the other hand are those investors who have bought shares for long-term purposes and such shares are lying idle in their demat accounts. This mechanism provides liquidity to the equity market and thereby increases the market efficiency.

Alike loan you avail from a bank, if you have borrowed the shares from another investor, an interest/ fee has to be paid for the lender. The interest rate varies from stock to stock and also depends on tenure of such borrowings. As per SEBI rules, stocks can be borrowed for a maximum period of 12 months. The interest rate for such lending is not fixed but is determined by the market conditions. Globally, long-term investors such as mutual funds or insurance companies are key lenders in SLB.

Recently in India Market regulator SEBI has announced transition of Indian derivatives market from cash settlement to physical settlement. Until now, investors largely used SLB for reverse arbitrage opportunities i.e. those situations where future contracts of company are trading at a discount to the cash market prices. In such scenario, traders sell stocks and buy futures contracts.

However, SEBI’s decision to move to physical settlement will bring more short-sellers to SLB platform.

Typically, an F&O (Future and Options) trader has three courses of action available for him. Either he can square-off his position before expiry and pay the cash differential, or he can roll-over the contract for next month. If the investor doesn’t choose any one of these two options, the contract gets expired and under physical settlement, shorts will have to offer shares to cover the open position.

In India Market regulator SEBI has placed several safeguards for the platform including reliable settlement system. Unlike many other countries, SLB is an exchange-traded product in India, settled by the clearing corporations, which means there is no counterparty risk.

SLB is a popular mechanics in financial market globally, yet very few people are aware full length and breath of this concept. Small and retail investors don’t have the expertise of financial markets hence seldom know SLB benefits.

There are numerous benefit to lenders which are given below:-

  1. Risk-free Income.
  2. Protection of all rights as owner.
  3. Settlement Guaranteed market regulators.
  4. Low costs.
  5. Potential to improve the portfolio performance.

Tax Implication in India

Indirect tax– The supply of lending of securities under the scheme is leviable to GST@ 18%. 

Direct Tax – income from business of lending/borrowing or income from other sources of income and will be taxable at applicable rates.

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