[itsaj]

Glad to see a thread like this.

My Entrepreneurship journey had started just a while back and I would like to understand the income tax rules that could apply for my pvt. ltd. Reason I was asking is that my account ing firm is with many other established software companies but not sure if they are well aware of all the concessions that a startup might get in the starting years. Wanted to learn from you all and appreciate if you could direct me to the right literature which is easy to understand for a non-finance guy like me.

[johy]

Originally Posted by speed79

We export our software product and sometime software engineering services and it is such a simple task. We deliver our software (product or services) via email or through FTP/shared drives. There is no need of any Softex form. We get payment credited via bank wire transfer to our bank account and get an FIRC automatically from our bank via email for each payment received. I

Ditto here. I don't think the paperwork/registration is needed. Just keep the files and returns regular.

[Samurai]

Originally Posted by itsaj

Reason I was asking is that my account ing firm is with many other established software companies but not sure if they are well aware of all the concessions that a startup might get in the starting years.

I suppose your inquiry is about the 3 year tax holiday that a startup an avail in the first 10 years of incorporation.

First you need to register with StartUp India website here.

Eligibility to be a startup is mentioned here: https://www.startupindia.gov.in/cont...up-scheme.html

Next you need to get DPIIT recognised. Less than 20% of the applicants manage to get this recognition. About 3 years ago I was pretty confident and really pushed for it. Then I got the following information from the CA firm:

In order to obtain the tax exemption, Start-up should:

· Get recognized by department for Promotion of Industry and Internal Trade (DPIIT). For that the start-up should register in StartupIndia portal, then apply for DPIIT registration.

· In addition to DPIIT recognistion, Start-up should hold a certificate of eligible business from the Inter-Ministerial Board (IMB) of Certification as notified in the Official Gazette by the Central Government to avail 80-IAC exemptions.

· Only 4% of start-ups recognised by DIPP have been recognised by (IMB) for Income Tax Exemptions purposes.

· In order to provide tax exemption, the startups were scrutinised for innovativeness and potential for job creation but this “rigorous screening” has translated only into a minuscule proportion of total recognised startups being exempted for tax purpose by IMB.

· Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. After getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.

Once I calculated that the 4% of 20% will be less than 1%, I gave up on the idea and decided to just pay the taxes.

Yes, Startups can avail tax holiday for 3 years. Everyone has heard that. But it is not well known that less than 1% Startups qualify for that scheme. There are too many hoops to jump, paying taxes would be simpler. But that's just me. Your mileage may vary.

Originally Posted by johy

Ditto here. I don't think the paperwork/registration is needed. Just keep the files and returns regular.

Can you kindly support this claim with some government circular. I too would love to give up doing SoftEx filing, if it is unnecessary.

[Bhargav7]

Originally Posted by johy

Ditto here. I don't think the paperwork/registration is needed. Just keep the files and returns regular.

The moment you start exporting Software outside India which falls under the head 'P0807 - Off-site Software Exports', you have to follow the entire guidelines mentioned by Samurai San in the first post. Without generating a Softex, you cannot close the entry in EDPMS. And to generate Softex, you must be registered as a Non-STPI unit. Other compliances like the MPR, SERF, QPR, APR, and annual service charges will become mandatory.

Originally Posted by Samurai

Can you kindly support this claim with some government circular. I too would love to give up doing SoftEx filing, if it is unnecessary.

I have seen some entities that do not register with STPI. Though they export software, they use the purpose code 'P0802 - Software consultancy and implementation'. They probably tweak the nature and description of their business accordingly to fit into these criteria. Is it worth the effort and risk to do this just to bypass the STPI guidelines? I don't think so and would not suggest to anyone.

If there is any recent circular that says Non-STPI registration is not required, I would be keen to know.

[Samurai]

Originally Posted by Bhargav7

I have seen some entities that do not register with STPI. Though they export software, they use the purpose code 'P0802 - Software consultancy and implementation'. They probably tweak the nature and description of their business accordingly to fit into these criteria. Is it worth the effort and risk to do this just to bypass the STPI guidelines? I don't think so and would not suggest to anyone.

Ah, the P0802 is the big reason why lots of companies think they don't need to file SoftEx.

It took me lots of research to figure out the P0802 vs P0807 dilemma. Even I had used P0802 few times and then STPI rapped on my knuckle to fix it.

P0802 is not for export. If you render software service in India, and got paid by a foreign entity for it, then you can use P0802. Example: Citi Bank asks you to supply software or develop software for their Indian branch. But they ask you to invoice in USD to their US office, and pay you in USD from USA.

However, if you supply the software/service to a foreign entity, to be used abroad, then it is export. Then the funds you get should have P0807 purpose code.

BTW, it is not just software. STPI covers both IT and ITES. If you are running any ITES business that is servicing foreign customers, that too falls under software export and you have to file SoftEx and use P0807.

What is an export is explained here: https://taxguru.in/goods-and-service...xport-gst.html

[carguy2021]

Originally Posted by Samurai

It took me lots of research to figure out the P0802 vs P0807 dilemma. Even I had used P0802 few times and then STPI rapped on my knuckle to fix it.

Thanks for providing detailed information. I am in the same boat and was suggested to do softex filings. Not many are aware of this. Just got my first remittance and still pending registration with STPI.

Few questions:

1. How did you get the P0802 issue fixed? My client put the purpose code as P0807 but then HDFC put that as P0802 despite telling them. Got FIRC as well now. Any way to correct it now and get new FIRC issued?

2. Do you submit Softex certificate to the bank for BRC (Bank Realisation Certificate)? Is BRC necessary for us? Which bank do you use? HDFC Bank here doesn't have a clue on that.

Might have more follow up questions as things progress.

[Samurai]

Congrats on becoming an exporter. Now you have to become an expert on all the forex related issues, otherwise your bank and accountant can lead you totally astray as it happened to us. Then the government will say it is all your fault.

Originally Posted by carguy2021

1. How did you get the P0802 issue fixed? My client put the purpose code as P0807 but then HDFC put that as P0802 despite telling them. Got FIRC as well now. Any way to correct it now and get new FIRC issued?

Yes, there is. I have done it, with HDFC. You need to give a request through the HDFC Forex division of your branch. Now I hope you got the foreign remittance directly to your account, and not via dreaded Vostro.

If you got it directly as foreign remittance, you can give a request to change the purpose code. I have attached the request format, which was given to me by HDFC. It will take 2-3 months, but it will happen if you keep following up relentlessly. If you got it via Vostro, there is a much longer procedure, which also I have managed to complete once.

Originally Posted by carguy2021

2. Do you submit Softex certificate to the bank for BRC (Bank Realisation Certificate)? Is BRC necessary for us? Which bank do you use? HDFC Bank here doesn't have a clue on that.

Yes, this is necessary. Otherwise, your inward remittance will be stuck in the EDPMS database, and you can be blacklisted from receiving foreign remittance if you don't clear it.

Since this is your first time, you need to submit 3 documents I have attached:

1) Form1.doc
2) auto email.doc
3) Defaulter-declan.doc

This needs to be done only once.

However, whenever you receive inward remittance and sofex filing is approved, you need to regularize that remittance by submitting that to the bank. I have attached the export regularization form too. You need to submit this along with Certified softex form, STPI certificate, invoice & FIRC, both in soft copy via email, and hard copy via courier.

All these have to be done on your company letterhead.

[carguy2021]

Originally Posted by Samurai

Yes, there is. I have done it, with HDFC. You need to give a request through the HDFC Forex division of your branch. Now I hope you got the foreign remittance directly to your account, and not via dreaded Vostro.

Thank you for your detailed reply. I will review it throughly and reach out to you with any follow up questions.I got the remittance directly. I am sole proprietor with GST/IEC/Labor certificates.

Are you doing as company or sole proprietorship? Are you doing all by yourself or CAs assisting?

Btw, do you use still HDFC? If so, does enet/trade on net help anyway in uploading softex certificate and related docs and get brc easily?

Branch here has no clue and they are saying that portal might have options to do. It's a small branch with not many employees.

[Samurai]

Originally Posted by carguy2021

Are you doing as company or sole proprietorship? Are you doing all by yourself or CAs assisting?

Mine is a private limited company. So I do need an external auditor. I have also outsourced compliance to a CA firm that has 200 employees, but the CA assigned to my STPI compliance was plainly incompetent. Others are fine.

Originally Posted by carguy2021

Btw, do you use still HDFC? If so, does enet/trade on net help anyway in uploading softex certificate and related docs and get brc easily?

Still on HDFC, but I have never used their enet portal yet.

Originally Posted by carguy2021

Branch here has no clue and they are saying that portal might have options to do. It's a small branch with not many employees.

You better start dealing directly with their forex division. Your VRM may not know all the procedures.

[carguy2021]

Originally Posted by Samurai

Mine is a private limited company. So I do need an external auditor. I have also outsourced compliance to a CA firm that has 200 employees, but the CA assigned to my STPI compliance was plainly incompetent. Others are fine.

Still on HDFC, but I have never used their enet portal yet.

You better start dealing directly with their forex division. Your VRM may not know all the procedures.

Glad to have this very productive conversation with someone who is doing this and willing to share the knowledge.

How to do you submit Softex and other documents to bank for BRC? Are they issuing e-BRCs? What's the timeline on that from bank perspective?

How long do we have getting BRCs issued after Softex certificate?

Do you have any contact for hdfc forex department who deals with all these?

All we can do regarding banks issues with FIRC or BRCs is keep following up with them and have an active email thread as proof. But ultimately they will need to do work from their end.

Are they any penalties involved for us, if issues or delays are in their end? What if we have proofs on our end.

[Samurai]

HDFC forex department contacts will be different for you since you are in HYD. Ask your VRM for the local forex department contacts. You will be submitting the certified softex to the forex contact. Timelines are highly stretchable, could be less than a week, or more than a month.

I have cleared up remittances as old as 3 years without getting paying any penalties. Unless the amount involved is really high, the RBI won't come after you right away.

[carguy2021]

Originally Posted by Samurai

HDFC forex department contacts will be different for you since you are in HYD. Ask your VRM for the local forex department contacts. You will be submitting the certified softex to the forex contact. Timelines are highly stretchable, could be less than a week, or more than a month.

I have cleared up remittances as old as 3 years without getting paying any penalties. Unless the amount involved is really high, the RBI won't come after you right away.

Thank you. 1 more question for today. What if FIRC has a purpose code other than P0807 (client listed code correctly as P0807 in additional information but bank put that as P0802 even after providing email instructions correctly) and we have a deadline to file Softex filing? Can we use that for now? I know you said Banks take weeks to months to fix and re-issue? How do we deal with such scenarios?

[Samurai]

Originally Posted by carguy2021

What if FIRC has a purpose code other than P0807 (client listed code correctly as P0807 in additional information but bank put that as P0802 even after providing email instructions correctly) and we have a deadline to file Softex filing? Can we use that for now?

You don't need the corrected FIRC for filing softex. It is required to submit to the export realization after the softex is approved.

Also, STPI will usually overlook delays upto 3 months because lots of customers pay late. So don't take the 30 day deadline quite literally. Beyond 3 months, the STPI will ask you to file a condonation of delay request.

[carguy2021]

Originally Posted by Samurai

You don't need the corrected FIRC for filing softex. It is required to submit to the export realization after the softex is approved.

Question regarding GST refunds. As we will be filing 0% for export invoices without any payment with LUT, to get refund from GST authorities for any input credits, do we mandatorily need BRC or does FIRC/remittance advice from HDFC work as supporting documents. Can you please shed some light?

[agbenny]

Originally Posted by Samurai

[*]Once the STPI certifies the SoftEX application, submit it along with the FIRC and invoice and STPI registration certificate to the RBI through your forex authorised dealer (your bank). [*]Once approved, it will clear your payment from the EDPMS database. Congrats, you finally completed one export transaction.[/list]

Here is a problem we face. We use Payoneer to receive payments. Reason to use them is to help clients to pay from their desktop.

BUT - Payoneer (or any other RBI approved third-party Payment processors) has tie up with some banks in India, and issue FIRC through them.
When we get P0807 FIRC from the bank which process FIRC, our bank (in our case HDFC) is finding it difficult to close it at their end in EDPMS. Is there any reason for this? HDFC is OK with P0802, but as a registered non-STPI member it is not possible, and P0807 is the way. Any idea/help/thoughts on this?