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This blog details the definition of FIRC (Foreign Inward Remittance Certificate). It also talks about the importance of a FIRC certificate and the process of obtaining it.
Nowadays, we are witnessing an explosion of cloud-based communication and service export industry.
As more and more companies invest in global workforce and payouts, they are beginning to understand the challenges that come with it.
One of those challenges is the FIRC.
So, what is it and why is it important? Let’s find out.
What is FIRC?
The full form of FIRC is Foreign Inward Remittance Certificate. In layman terms, if you receive any foreign currency, it can act as your proof. Obtaining this certificate in India is extremely important as it helps the authorities like DGFT (Directorate General of Foreign Trade) and Customs department track all the transactions.
Often, foreign funds become a vehicle for illegal activities like money laundering. If the authorities flag your transaction as suspicious, a FIRC certificate can act as your guard against any legal hassle.
According to the guidelines issued by RBI and FEDAI (Foreign Exchange Dealers Association in India), FIRC can only be issued by Authorized Dealer Category I (AD) banks in India.
In 2016, the Government discontinued the physical FIRC (except in cases of FDI and FII). However, for transfers corresponding to the export of goods & software services, it will be subject to EDPMS reporting and banks will issue an electronic FIRC. In the context of transfers received on the export of goods & software services, most people use the term e-FIRC (electronic FIRC) and FIRC interchangeably as they mean the same thing. We will be following the same nomenclature in this blog.
Who requires a FIRC?
Indian sellers or service providers receiving international payments require a FIRC.
Here are some other examples where someone might require it:
- A salaried individual getting compensation in foreign currency.
- A freelancer getting compensation in foreign currency.
- An eCommerce shop with customers paying in foreign currency
So, how can you obtain a FIRC certificate? Well, before we move on to that section, we need to brush up on some related concepts.
What is Export Data Processing and Monitoring System (EDPMS)
RBI launched the Export Data Processing and Monitoring System (EDPMS) portal, an online software in 2014. It helps digitize export transactions. It has helped improve foreign trade operations and facilitated the ease of doing business in India.
With the introduction of EDPMS, the concept of FIRS (Foreign Inward Remittance Statement) came into play.
For the realisation of export proceeds, FIRS is as good as a FIRC.
What is IRM (Inward Remittance Message)
Inward remittance is any amount of money transferred in an account.
However, foreign inward remittance specifically refers to money sent into an account from someone outside the country.
After the funds are completely credited to the beneficiary account, the bank reports IRM in EDPMS . This is possible through NOSTRO, VOSTRO or RTGS/NEFT. After that, the home bank uses the IRM to close the EDPMS entry if they are satisfied with the bonafides of transactions. Before reporting IRM in EDPMS, the home bank also ensures that there is no KYC / AML concern.
For more information, click here.
What is AD? Is the beneficiary bank the same as the bank that issues the AD?
AD stands for ‘Authorised Dealer’ Bank. As outlined in (Foreign Exchange Management Act) FEMA guidelines, banks serve as AD Category I Banks who are authorised parties to conduct money exchange.
When an exporter ships his product abroad, it has to pass through Indian customs.
Here, the exporter has to submit the IEC code (import-export code) and AD (Authorized Dealer) code against which the shipment is done.
The Import Export Code (IEC) is a 10 digit code issued by the DGFT (Director General of Foreign Trade). Without it, you cannot do import-export business in India.
On the other hand, the Authorised Dealer Code (AD Code) is a 14-digit numerical code. It is provided by the bank where the exporter has a current account. One requires the The AD code at every port for custom clearance of the goods.
In most cases, the bank that issues the AD code and the beneficiary bank (that received the credit) is the same. In this case, Cashfree’s banking partner will provide the e-FIRS copy to the exporter. The e-FIRS copy is as good as the FIRC itself.
However, in case the beneficiary bank is different from the AD Bank (whose code is shared at customs), the recipient bank will issue the e-FIRC to the AD bank.
Let us assume that Bank A receives the foreign remittance of services and goods.
However, Bank B’s code is submitted at the time of shipment.
So here, Bank A will issue an e-FIRC to Bank B. Bank B will pass the IRM to close the EDPMS entry.
However, you can only be eligible for e-FIRC if your transaction falls under the reporting of EDPMS.
How can I get a FIRC certificate?
Request for Foreign Inward Remittance Statement or Advice
Let’s assume you are a business that has credited a payout to an Indian beneficiary. Once you have credited the payout, your beneficiary will require a FIRS certificate. This is also called as Foreign Inward Remittance Advice (FIRA) or Advice. The FIRS has to be requested from the bank that processed the foreign transaction.
It is important to note that e-FIRS is as good as the FIRC. You only need to specifically get the FIRC if the beneficiary bank is different from the bank issued the AD code.
FIRC certificate format/ FIRC request letter
To request a FIRC, your beneficiary has to draft a letter to their bank. The letter should include these following details:
- Beneficiary Details i.e. beneficiary in India
- Buyer Details to identify the overseas buyer
- Payment Details i.e. amount realised in foreign currency, equivalent Indian Rupees
- The Unique Transaction Number (UTR)
- Purpose Code to identify the nature of the cross border transaction. The above would help in identifying the source & destination of funds. It is extremely important to mention the purpose of remittance honestly. This is because banks usually ask for proof of the purpose listed by people.
Indian Bank generates the IRM
Once the bank is satisfied with all the documents, it generates an Inward Remittance Message (IRM) on the government export portal called EDPMS. Thereafter, this IRM number is called the FIRC number.
FIRC is issued
After the payment, the beneficiary bank will issue the FIRC electronically or physically.
Getting the e-FIRS: The Cashfree way
The process of getting the FIRC can be a bit tedious. But there is a way to cut through this hassle.
If you are a Cashfree merchant, the beneficiary email ID is shared with the bank at the time of transfer and our bank partners will issue the e-FIRS directly to your beneficiary’s email address. In fact, it will be sent on the same day your payout is processed.
Cashfree issues the e- FIRS in this format:
Who will issue the FIRC?
The FIRC is issued by the beneficiary bank and it is quite a lengthy process.
However, if you are a Cashfree customer, this process can be made simpler. Our banking partner would issue an e-FIRS (Foreign Inward Remittance Statement) against every transaction to the beneficiary email address.
In fact, our banking partners will issue the e-FIRS directly to the beneficiary on the same day your payout is processed.
How can your seller/service provider gain instant access to e-FIRS?
While initiating a transfer request with Cashfree, please ensure that you include the correct ‘Email ID’ corresponding to your seller/service provider.
But understanding how to get a FIRC certificate is only half the work done. It is also important to understand why.
What is the use of FIRC?
So, why is the Foreign Inward Remittance Certificate important for your beneficiaries in India? Have a look
It is legal proof
FIRC serves as evidence for receiving international payments in India. Without it, your beneficiaries can be vulnerable to legal troubles which can extend to your own organization.
Prerequisite for claiming export incentives
The FIRC & BRC are crucial documents required by DGFT (Directorate General of Foreign Trade), Central Board of Indirect Taxes and Customs to claim any export-related incentives.
In fact, they are equally crucial to claim custom duty exemptions, refunds on service tax or any other financial assistance.
Proof of shares purchased
Here is another situation where FIRC proves itself indispensable. Let’s assume you issue shares in the name of a person/ company that exists outside a country. Here, it acts as the proof of money received by that person/company in lieu of share application.
Alternatively, let’s assume that a resident Indian sells or transfers his shares to some non-resident Indian or foreign identity. Here, the FIRC certificate is proof that the resident seller has got the consideration for the share purchase.
Moreover, it is a very crucial document which is submitted to DGFT (Director General of Foreign Trade) in case of EPCG (Export Promotion Capital Goods) and Advance License.
Export Promotion Capital Goods (EPCG) is a scheme by DGFT to facilitate import of capital goods. This Scheme allows import of capital goods at zero customs duty.
Furthermore, an Advance Licence is issued to allow duty-free import of inputs that are incorporated in the export product.
To prove no GST on services
If services are exported, no GST is levied. In such cases, FIRC acts as an important proof of export of services and remittances which are received in lieu of them.
We hope that this section aided you in understanding the importance of FIRC.
However, there are still a lot of other concepts at play here.
Let us head over to the FAQ section to explore them in detail.
What is e-FIRC?
e FIRC is the electronic version of FIRC. Since June 20, 2016, banks have stopped issuing physical FIRC. Now, people use the terms FIRC and e-FIRC interchangeably.
What is the difference between Physical FIRC and e-FIRC?
Before EDPMS, banks issued a physical Foreign Inward Remittance Certificate against every transaction. However, the Government discontinued the physical FIRC in 2016.
Nowadays, a physical FIRC is only issued in case of FDI and FII.
For all other foreign remittances and transactions, banks issue an e-FIRC.
Moreover, post the introduction of EDPMS, FIRS is used today for the realisation of export proceeds.
What is the difference between FIRC and BRC?
Often, the difference between the BRC (Bank Realization Certificate) and FIRC (Foreign Inward Remittance Certificate) is not very clear.
For starters, the beneficiary’s AD (Authorized Dealer) banks issue both BRC and Foreign Inward Remittance certificates to customers for receiving amounts from foreign countries.
However, here is what differentiates them:
A bank issues the Foreign Inward Remittance Certificate in relation to any receipt of an amount from foreign countries. Now, this amount can be remuneration or advance payment on exports, air freight or ocean. In fact, it can even be wages under consultancy charges.
The beneficiary’s bank issues the Bank Realization Certificate specifically in relation to the export of goods. In fact, bank issue the BRC on each shipment of export proceeds.
Let us assume you are an exporter. Chances are you want to avail the financial assistance or import duty exemptions provided by the Government/ government agency.
However, these agencies require proof of your exports to claim those benefits.
BRC acts as proof of your export activities and helps you avail those exemptions. Cashfree’s banking partner issue the FIRS. On its basis, the beneficiary bank issue the BRC / FIRC.
What to do if the FIRS is not received?
Write an email to email@example.com and we shall help you with a duplicate copy.
What is FIRC in export?
FIRC in export is a certificate issued by banks as proof of international payments. This certificate mentions all the details of remittance. Exporters may show this certificate to various government authorities if they apply for financial assistance and other government support.
Which bank will report IRM in EDPMS?
This table will help you understand which bank reports IRM:
Do freelancers require a FIRC?
If you are a freelancer and receiving foreign remittances, you will require a FIRC as proof. In fact, this goes for freelance bloggers, artists and sellers as well.
What is a Purpose Code?
Reserve Bank of India (RBI) issues the Purpose Code which is a unique code to specify the type of foreign currency transactions. This code is necessary because RBI prohibits certain types of payments. This helps RBI curb illegal transactions.
Hence, the FIRC request letter must have the purpose code attached.
What are the latest FIRC RBI guidelines?
You can refer to the latest version of RBI guidelines on Export of Goods and Services, as of October 19, 2020.
Well, that was quite a lot of information.
We hope this blog helped you understand the ins and outs of the Foreign Inward Remittance Certificate and the process of obtaining it.