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Everything you need to know about Import-Export Startup

  August 2019

The terms “Import” and “Export” got a lot of prominence after the reforms made by the erstwhile Finance Minister Mr. P.V. Narasimha Rao in 1991.As India relies heavily on the imports of the goods from various countries, we can safely consider that India has a lot of market for Importing the goods. Coming to the exports, we also export goods to many countries but not much as imports.
Being Import & Export has potential in the market, there are opportunities for High-Networth Individuals(HNI), Investors & Entrepreneurs to invest in India. There are some points to be noted before starting any business, same applies to Import & Export business also.

1.Sound Business Model:

You should have a feasible business model. Like the strong pillars give support to the entire super-structure of the house, in the same manner a good business model can provide you the strong base to your business. Your business model should be capable of generating the revenue all the times. Assistance of Business Consultant or Chartered Accountant is necessary for making sound business model.

2.Mandatory Registration with DGFT :

DGFT is the authority for providing license for import & export of goods in India. No import or export is permitted unless the license is obtained for this purpose. DGFT grants IEC Code and after obtaining IEC code RCMC (Registration Certificate cum Membership Certificate) to be obtained to start the business of Import and Export.

3.Knowledge of Laws & Regulations:

Since Imports & Exports are governed as per Foreign Trade Policy, Customs Act, IGST Act etc., having knowledge of these Acts is useful because you as an importer/exporter undertakes the process of import or export on behalf of some clients, you need to have the technical knowledge of variety of terms like FOB, CIF etc. and Customs House Agent help is required. Since Imports & Exports of goods involve transport of goods via multiple modes there is always the chance of theft/pilferage/damage/loss of goods due to which the knowledge of insuring the goods while transit is considered safe.

4.Networking :

The more the contacts you have in your business, the more are the chances to get the customers. Having contacts with the people of Chamber of Commerce (this is the place where the certificate of origin of the goods is obtained by an exporter) and people dealing with logistics is very much required as the Import-Export business requires the involvement of various transporters/courier agents to carry the goods from port/air-port and vice-versa. Having circle of Customs Brokers/Customs House Agents will help you in making the imports and exports very smoothly and at the same time complying the laws and regulations as specified under Customs and under the other acts too.

5.Income Tax Related Exemptions:

Having the knowledge of tax benefits provided to any business is must because there is a saying in English called as “A penny saved is a penny earned”, in other ways, saving of Tax is nothing but reducing your expense, which ultimately leads to the increase in your profit. Government of India for encouraging the startups/new businesses, it provided exemption from Tax if such startup is considered as “Recognized Startup”.

A Startup for getting recognized with DPIIT should comply with the following conditions:

  • The startup should be registered as a Partnership firm or LLP firm or as a private limited company.
  • Turnover should be less than Rs.100 crores in any of the preceding Financial Years.
  • The entity established should not have completed 10 years from Date of Incorporation.
  • Startup should work for innovation/improvement of Existing products/processes or services and should generate the potential employment/create wealth. This also mean that the business should be newly established and not formed from the split-up of existing business or reconstruction of the existing business.

Let us see what TAX BENEFITS are available for the RECOGNIZED STARTUP :

Sec 80IAC Startup Exemptions:

After obtaining recognition, tax-holiday of 3 out of 10 years from date of incorporation can be On satisfying following conditions:

  • Startup should be incorporated/established after 01/04/2016.
  • Startup should have been recognized by DPIIT. Click here for obtaining recognition by DPIIT.
  • Only Private Limited Company and LLP is eligible to claim exemption u/s.80IAC

ANGEL TAX Exemption:

Section 56 (2) (vii)(b) of the Income Tax Act said that if a privately held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be taxed as income from other sources.

Click here for submitting application for ANGEL TAX Exemption. One should remember that ANGEL TAX Exemption can be claimed only after obtaining Recognition from DPIIT.

Following conditions to be satisfied to claim exemption from ANGEL TAX:

  • Should be recognized by DPIIT
  • Aggregate of Paid-up Share Capital and Share Premium of the Startup after the proposed issue of shares, if any does not exceed Rs.25 crores

6. GST Compliance

Exports are generally considered as Zero-rated supplies under GST, where GST is levied at Zero-rate (not to be confused with nil-rate) Imports are generally subject to levy under IGST, as the goods/services that come from territory outside India to India is considered as supply between two different states. Obtaining Registration under GST is mandatory unless it is notified for exemption for registration.

Failure to obtain Registration may attract Penalty under the CGST & IGST Acts.

7.MSME Benefits:

As per the MSME Act, 2006 : Registering as a MSME will benefit a start-up because the established companies who opt for the services provided by the start-up should make the payment within 45 days otherwise Interest compounded monthly at 3 times the rate notified by Reserve Bank of India shall be paid along with amount payable to the startup. This provision insulates the startup from blocking of the working capital and enabling the speedy recovery of receipts from their debtors.

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