IEC REQUIREMENTS FOR SOFTWARE EXPORT AND

SERVICES IN INDIA
1. If we are beginning in software exports, are there any compliance/registration
required?

Yes, when starting a software export business from India, there are several key compliance and
registration requirements that you must fulfill. These requirements ensure that your business
adheres to Indian laws, facilitates smooth cross-border transactions, and leverages available
incentives. Here’s a breakdown of the key steps and registrations you need to consider:
1. Incorporation of the Business
 Register your company: You need to incorporate your company as a legal entity under the
Companies Act, 2013. The most common options are:
 Private Limited Company
 Limited Liability Partnership (LLP)
 Sole Proprietorship (if applicable)
This registration can be done through the Ministry of Corporate Affairs (MCA) portal.

2. Goods and Services Tax (GST) Registration

 GST Registration: If your turnover exceeds ₹40 lakhs (for most states) or ₹20 lakhs (for
special category states), you will need to register for GST. Software export services fall
under export of services and are generally zero-rated under GST, meaning you don’t pay
GST on exports but you can claim Input Tax Credit (ITC) on any GST paid on inputs.
 Filing Returns: Once registered, you will need to file regular GST returns (monthly or
quarterly), even if your export activities result in a zero tax liability.

3. Export License
 IEC Code (Import Export Code): To export software, you need to obtain an IEC from the
Director General of Foreign Trade (DGFT). This is a mandatory registration for any
business involved in the export of goods or services. The IEC code is required for any
international trade transaction.
The application for IEC can be done online via the DGFT portal. It requires documents like your
PAN card, proof of business address, and bank details.

4. Reserve Bank of India (RBI) Compliance

 Export Payments: As a software exporter, you will receive payments in foreign currency,
and these must be routed through an Authorized Dealer (AD) bank. You should open an
NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account for this
purpose, depending on the nature of your payments.
 RBI Filing: Ensure compliance with the RBI's Foreign Exchange Management Act
(FEMA) regulations when repatriating foreign earnings. You may also need to file with the
RBI under the Export of Services category.
5. Software Technology Parks of India (STPI) Registration
 STPI Scheme: If you plan to operate from a Software Technology Park (STP), you can
register with the Software Technology Parks of India (STPI), a government body that
offers infrastructure and various incentives for software exporters. This registration is
particularly helpful if you want to avail of tax exemptions and other benefits.
 Benefits of STPI Registration:
 Income Tax Exemption: 100% tax exemption on income from software exports
under Section 10AA of the Income Tax Act.
 Customs Duty Exemption: Duty-free import of hardware and software necessary
for export operations.

6. Taxation Compliance
 Income Tax: Software exports are eligible for tax exemptions under Section 10AA of the
Income Tax Act if your company is registered under the STPI scheme. Otherwise, you will
be subject to corporate tax rates, and you must file tax returns annually.
 Transfer Pricing: If you engage in intercompany transactions (e.g., selling software to an
overseas parent or affiliate), you may need to comply with Transfer Pricing regulations
under the Income Tax Act.

7. Other Compliance Aspects

 Intellectual Property (IP) Protection: As a software exporter, you may want to protect
your intellectual property. You can file for copyrights, patents, or trademarks to protect
your software and other creations.
 Contract and Legal Framework: It is also essential to ensure that contracts with foreign
clients are in place, with clear terms and conditions, and compliant with international laws.
It is recommended to seek legal advice to ensure that your contracts cover aspects like
dispute resolution, payment terms, and intellectual property rights.

8. Export Documentation
 Invoices & Contracts: You need to issue commercial invoices and have proper contracts
for all international transactions. These will need to reflect the export nature of the services.
 Shipping and Customs Documents: While this is more relevant to physical goods exports,
you may need to provide additional export-related documentation depending on the type of
software you are exporting (e.g., software products on physical media).

9. Other Registrations and Compliance

 FSSAI (Food Safety and Standards Authority of India): If you are exporting software-
related goods like packaged hardware, this may require compliance with the FSSAI
(although, for pure software, this would generally not apply).
 Export Credit: If you are looking for export financing or credit, you can approach banks
and financial institutions that offer export financing options.

Summary
For software exports from India, the major compliance requirements include:
 1. Company Registration (Private Limited, LLP, etc.)
2. GST Registration (if applicable)
3. IEC Code from DGFT
4. STPI Registration (if you wish to avail of tax and infrastructure benefits)
5. RBI Compliance for receiving payments in foreign currency
6. Income Tax Compliance (including exemptions under the STPI scheme)
7. Protection of Intellectual Property (if needed)
It's always advisable to consult with a legal expert or tax consultant specializing in export services
to ensure you comply with all the necessary regulations for your specific business needs.

2.After registration is there any restriction in domestic market for the same
company?

In India, once a company has registered for software export under the Software Technology Parks
of India (STPI) scheme or through the Special Economic Zone (SEZ) route, there are generally
no restrictions on the company's ability to sell software in the domestic market. However, there are
a few important points to consider:
1. Export Commitment: Under STPI or SEZ schemes, companies often get tax benefits (such
as exemption from customs duties, income tax, and other indirect taxes). However, in return,
they are usually required to meet certain export obligations (such as a minimum percentage
of revenue generated from exports). This means while companies can sell software
domestically, they need to maintain a certain balance between domestic sales and exports to
continue benefiting from these schemes.
2. Tax and Duty Structure: The benefits provided under STPI or SEZ may be contingent on
the company meeting specific export targets. If a company sells a significant portion of its
software in the domestic market, it may risk not fulfilling the export commitment, which
could affect its tax exemptions and other benefits.
3. Regulations: While there are no specific restrictions preventing software export-registered
companies from operating in the domestic market, the company must ensure compliance
with domestic regulations, such as Goods and Services Tax (GST), income tax laws, and
other local business regulations.
4. Foreign Exchange Regulations (FEMA): Software exports are governed by the Foreign
Exchange Management Act (FEMA), which focuses on how foreign exchange is earned and
handled. Selling software domestically wouldn't typically affect FEMA rules directly, but the
company would need to ensure it doesn't inadvertently violate export revenue commitments
or foreign exchange regulations.

In Summary:
 There are no direct restrictions preventing software export-registered companies from
selling software in the domestic market.
 However, there are export obligations tied to the benefits under the STPI or SEZ schemes,
and companies need to ensure they comply with export commitments.
 The company should be mindful of domestic tax and regulatory requirements, such as GST,
income tax, and compliance with FEMA.
If the company is planning a significant shift in its market strategy (e.g., focusing heavily on the
domestic market), it may need to assess its export obligations carefully or consult with a tax advisor
to ensure compliance with relevant laws.

3. When beginning any software or services export project, do we need to

provide any intimation to any concerned authority and what are such concerned
authority if yes?

Yes, when beginning a software or services export project from India, there are certain regulatory
requirements and authorities you need to be aware of. Here's a breakdown of the key authorities and
the actions you may need to take:

1. Reserve Bank of India (RBI)

 Intimation: Indian businesses exporting software or services are required to comply with
the Foreign Exchange Management Act (FEMA) and report export earnings to the RBI.
 Action Required:
 Filing with Authorized Dealer (AD): When you receive payments in foreign
currency for export services, you need to inform the AD (your bank) through the
RBI's Export Declaration Form (EDF).
 Realization of Export Proceeds: You need to ensure that export proceeds are
realized and repatriated to India within a prescribed time frame, typically within 9
months from the date of export.

2. Directorate General of Foreign Trade (DGFT)

 Intimation: The DGFT is responsible for the implementation of the Foreign Trade Policy
and provides guidelines for the export of goods and services from India.
 Action Required:
 IEC Registration: To engage in export activities, including software and services,
your company must have an Import Export Code (IEC), which is issued by the
DGFT. This is a mandatory requirement for any export-related business.
 Filing for Export Licenses: If your service falls under any controlled category, you
may need to apply for relevant export licenses (though this is rare for software
services).

3. Software Technology Parks of India (STPI)

 Intimation: If you are specifically in the business of software exports, registering with
STPI may be beneficial.
 Action Required:
 STPI Registration: This is an optional but common step for companies involved in
software export. It provides benefits such as tax exemptions under the Income Tax
Act and other government incentives.
 EHTP/SEZ: You can also consider setting up an Export-Oriented Unit (EOU) or
operating in a Special Economic Zone (SEZ) for additional benefits.
4. Income Tax Department
 Intimation: Your business needs to comply with Indian tax regulations, including any
income tax and service tax obligations.
 Action Required:
 Service Tax Registration: If your export service involves provision of taxable
services, you may need to register for service tax (or Goods and Services Tax - GST)
under the Reverse Charge Mechanism (RCM).
 Income Tax Compliance: Make sure to account for export revenues in your Income
Tax filings. Software exports can often be eligible for tax incentives like a tax
holiday under Section 10AA of the Income Tax Act, provided you meet the
qualifying conditions.

5. Export Promotion Councils

 Intimation: There are several industry-specific export promotion councils you may need to
engage with, such as the Electronics and Computer Software Export Promotion Council
(ESC).
 Action Required:
 Membership: Register with the relevant export promotion council, as it may offer
financial support, market access, and promotional benefits to software exporters.

6. Customs Department
 Intimation: If your export project involves physical delivery of software (e.g., media
containing software or hardware that forms part of your export), you may need to deal with
the Customs Department.
 Action Required:
 Customs Documentation: Ensure that all customs paperwork is completed for
physical exports. This includes export declarations and filing with the Customs
authorities.

7. State and Local Authorities

 Intimation: Depending on the state where your business is located, there may be local
requirements such as GST registration or local business license filings.
 Action Required:
 GST Registration: If your turnover exceeds the prescribed limit or if you’re dealing
with inter-state sales, you will need to register under the Goods and Services Tax
(GST) Act.

Key Steps for Starting a Software/Services Export Project from India:

1. Obtain IEC Registration from DGFT.
2. Register with STPI (optional but beneficial).
3. File Export Proceeds with RBI through your bank (Authorized Dealer).
4. Ensure Compliance with Tax Regulations (GST and Income Tax).
 5. Engage with Export Promotion Councils (optional but beneficial).
6. File necessary customs documents if physical exports are involved.
If you are unsure about the exact requirements for your specific type of software or services export,
it’s advisable to consult with a legal or compliance professional who specializes in international
trade.

4. Once such project is started then is there any compliance to be maintained by

company at certain periodic frequency(weekly, monthly etc)?

Yes, when a software export project is initiated from India, the company must comply with several
legal and regulatory requirements set by various government authorities. These compliance
requirements depend on the nature of the project, the entities involved, and the terms of the export,
but they generally include periodic filings, reporting, and maintaining certain records. Below are the
key compliance areas that the company must maintain, including any periodic frequency:

1. FEMA Compliance (Foreign Exchange Management Act)

Under FEMA, companies must comply with regulations related to foreign exchange and cross-
border transactions.
 Reporting of Export Proceeds: Under FEMA, companies must report the export of goods
or services and remit the foreign currency earned back to India. The company must report
export earnings to the Reserve Bank of India (RBI) through banks.
 Periodic Reporting: If export receipts exceed a certain threshold, the company is required
to submit the Export Data Reporting (EDR) on a monthly or quarterly basis, depending on
the RBI guidelines.
 Foreign Inward Remittance Certificate (FIRC): For every foreign remittance received,
the company must ensure that it receives the FIRC from the bank, which is a proof of
foreign currency inflow.
Frequency: Monthly, quarterly, or annually, depending on the nature of remittances.

2. GST Compliance (Goods and Services Tax)

The export of software services is generally considered a zero-rated supply under the GST Act.
However, there are still reporting and filing requirements.
 GST Return Filing: Software exporters must file GST returns (GSTR-1 for outward
supplies and GSTR-3B for summary of taxes payable).
 Export Documentation: The company must keep track of export-related documents, such
as invoices, contracts, and proof of export, for GST compliance.
Frequency: Monthly or quarterly, depending on the turnover of the company (monthly for those
with a turnover of ₹5 crore or more, quarterly for those with a turnover below ₹5 crore).

3. Income Tax Compliance

Software export projects are subject to tax compliance in India, and companies must adhere to the
tax regulations set by the Income Tax Act.
  Transfer Pricing: If the company has related-party transactions (e.g., subsidiaries or
affiliates abroad), it must ensure compliance with transfer pricing regulations and document
the arm's length pricing.
 Tax Filing: Software exporters must file income tax returns (ITR) annually, and they must
also make advance tax payments (if applicable) in accordance with the income projected.
Frequency: Quarterly for advance tax payments (due in June, September, December, and March),
and annually for the filing of income tax returns.

4. RBI Reporting and Annual Compliance

 Overseas Direct Investment (ODI): If the company is sending funds abroad (for example,
for setting up a subsidiary or joint venture), it must comply with RBI’s ODI reporting
requirements.
 Annual Return Filing: An annual return regarding foreign exchange remittances (FEM 15)
needs to be filed with the RBI. Companies must also file the FEM 14 return, which deals
with export of services.
Frequency: Annual reporting for investments, with additional periodic filings for foreign exchange-
related transactions.

5. Export Documentation and Record Keeping

Software export companies must maintain proper records of their export transactions, including
contracts, invoices, and remittance details.
 Export Documentation: Proper export invoices, proof of export (shipping bills or customs
documents), and customer contracts must be maintained.
 Records Retention: All documents related to exports should be retained for at least six
years, as per tax and legal requirements.
Frequency: Record-keeping is ongoing, with audits typically conducted annually.

6. Audit and Internal Controls

 Statutory Audit: Companies must conduct an annual statutory audit, which includes
verifying compliance with tax laws, FEMA, and other regulations.
 Transfer Pricing Audit: If applicable, companies need to file a transfer pricing audit report
annually.
Frequency: Annually.

7. SEZ (Special Economic Zone) Compliance (if applicable)

If the company operates from a Special Economic Zone (SEZ), there are additional compliance
requirements, such as:
 SEZ Reporting: Regular reporting on export performance, utilization of tax exemptions,
etc., to the Development Commissioner of the SEZ.
 Filing Monthly Returns: SEZ units must file monthly returns for the goods and services
they export.
Frequency: Monthly for export performance reporting, annually for certain filings.
8. Export Credit Guarantee Corporation (ECGC)
If the company opts for export credit insurance or guarantees under the Export Credit Guarantee
Corporation of India (ECGC), it must ensure timely payment of premiums and comply with any
additional requirements.
Frequency: Annual premiums for insurance coverage.

9. Other Sector-Specific Regulations (If Applicable)

In some cases, software exporters may need to comply with additional regulations based on their
specific sector, such as:
 Intellectual Property: Ensure that IP laws related to software protection, including
copyrights, trademarks, and patents, are followed.
 Data Protection: Compliance with data protection regulations, such as GDPR for clients
based in the European Union, or other international data protection laws, if applicable.

Conclusion
While there is no fixed, standard periodic frequency (like weekly or monthly) for all compliance
requirements, software export companies must regularly report and file various returns, depending
on the nature of the transaction and regulatory requirements. Most compliance tasks, such as tax
filing, GST returns, and reporting foreign exchange receipts, occur monthly, quarterly, or annually.
The company must maintain a well-organized system for record-keeping and timely filing to ensure
continued compliance with Indian regulations.

5. Once we received any remittance(advance or regular) for such project, then

what is procedure/compliance requirement to ensure the money is credited into
our account and is free for any utilization?

To ensure that any remittance (whether an advance or regular payment) for software export and
services projects from outside of India is properly credited into your account and is free for
utilization, you need to follow certain procedures and comply with the regulations set by the
Reserve Bank of India (RBI) and other relevant authorities. Below are the key steps and compliance
requirements:

1. Ensure RBI Authorization for Foreign Exchange Transactions

 Reserve Bank of India (RBI) Regulations: Remittances received from outside India are
governed by the Foreign Exchange Management Act, 1999 (FEMA). In most cases,
remittances for export-related services are allowed under the General Permission provided
by the RBI, but they must still comply with specific conditions.
 Authorized Dealer (AD) Bank: Your business needs to have a designated account with a
bank that is an authorized dealer (AD) for foreign exchange transactions. This bank will
handle the receipt and conversion of foreign currency into INR (Indian Rupees) if necessary.
2. Receiving Payment: Documentation Requirements
 Invoice and Contract: Ensure that the payment is linked to a valid export invoice for the
software or services provided. There should be a clear contract with the foreign client
specifying the terms of payment.
 Form A2 (if applicable): Under FEMA, Form A2 is used for receiving foreign payments.
Depending on the nature of the payment, you might need to provide this form for processing
the remittance.
 KYC Compliance: Your company should be compliant with Know Your Customer (KYC)
norms, both for the company and the individuals involved in the transaction. Your
authorized dealer bank may request KYC documents when you receive a foreign remittance
for the first time.

3. Remittance Receipt Process

 SWIFT or Telegraphic Transfer: Foreign payments are typically made through methods
like SWIFT or telegraphic transfer (TT). Ensure that the remittance includes all relevant
details such as the invoice number, contract reference, and nature of the transaction
(software export or services).
 Foreign Currency Account: If the remittance is in foreign currency, your AD bank will
credit it to a foreign currency account (or an INR account after conversion, depending on
your preference).
 Payment Acknowledgment: After receiving the remittance, you should ensure that the
payment is acknowledged by the bank. Keep the bank statement or remittance receipt as
proof of transaction.

4. RBI Reporting and Compliance

 External Commercial Borrowing (ECB) Guidelines (if applicable): If your payment is
considered as an external commercial borrowing (i.e., a loan from a foreign lender), you will
need to ensure compliance with the ECB guidelines issued by RBI. However, for typical
software export payments, this is not usually the case unless it’s structured as a loan.
 R-Return: Ensure that the bank reports the foreign remittance to the RBI through R-Return
forms as per FEMA requirements. The bank should handle this aspect, but you must ensure
it’s done.

5. Taxation and GST Compliance

 GST on Export of Services: Software export services are typically zero-rated under GST
(Goods and Services Tax), meaning no GST is levied on the export of services. However,
you must ensure that your transactions are documented properly to claim this benefit.
 Tax Deducted at Source (TDS): If the payment involves any royalty or fee for technical
services, TDS (Tax Deducted at Source) might apply. You need to be mindful of the Double
Taxation Avoidance Agreement (DTAA) provisions between India and the foreign country, if
applicable.
 Form 15CA and 15CB: If the remittance involves payments to non-resident entities (for
example, payments for software royalties), Form 15CA and Form 15CB might be required
 for tax compliance. You will need to submit these forms to the Income Tax Department to
ensure no TDS is applicable or to prove that the correct TDS was deducted.

6. Utilization of the Funds

 Free Utilization: Once the foreign remittance is credited to your account, you are generally
free to utilize it for your business purposes, subject to ensuring that:
 The remittance is appropriately classified (as export earnings).
 You maintain proper books of accounts for audit and compliance purposes.
 You ensure that no restrictions on usage exist for the specific type of remittance you
have received.
 Exchange Control Compliance: If you plan to use the funds for purposes other than
business expenses (e.g., investments, purchases outside India), be sure to check if any
specific exchange control regulations apply.

7. Maintaining Records
 Keep a record of all remittance details, including invoices, contracts, payment receipts, bank
statements, and communication with the foreign client. These documents will be important
for tax and regulatory audits.
 Annual Reporting: If you are an exporter of services, you may be required to file annual
reports with the RBI or other authorities regarding the receipt of foreign exchange earnings.

Key Takeaways:
 Ensure that the remittance is related to a legitimate export invoice or service contract.
 Your authorized dealer bank should handle most of the compliance requirements regarding
foreign exchange transactions.
 Comply with GST, TDS, and RBI reporting norms to ensure legal and tax compliance.
 Maintain proper records and documentation to facilitate audit and compliance checks.
If there are any specific concerns regarding the nature of the payment or if you are unsure about any
compliance issues, it may be advisable to consult with a qualified chartered accountant or legal
advisor familiar with FEMA and foreign exchange regulations.

6. Are there any compliance requirements for closure of such projects in

abnormal or normal cases?

Yes, there are compliance requirements for the closure of software export projects from India,
whether the closure is in normal or abnormal circumstances. The regulatory framework governing
the export of software from India primarily includes guidelines set by the Reserve Bank of India
(RBI), the Directorate General of Foreign Trade (DGFT), and other relevant authorities. Here are
the key compliance requirements:

1. Foreign Exchange Management Act (FEMA) Compliance:

 Foreign Exchange Transactions: If a software export involves the receipt of foreign
exchange, companies must ensure compliance with FEMA, which governs cross-border
financial transactions. This includes the proper accounting and repatriation of foreign
exchange earnings back to India.
  Realization of Export Proceeds: Under FEMA, export proceeds must be realized within
the prescribed time frame (typically 9 months) from the date of export. Failure to realize
payments within the stipulated time can attract penalties or legal consequences.
 Filing of Realization Certificates: In some cases, exporters may be required to file export
realization certificates with the RBI or other designated banks to prove that payments for the
export services were received.

2. DGFT (Directorate General of Foreign Trade) Regulations:

 Export Declaration: Companies must ensure that the closure of software export projects is
properly documented with the DGFT if they are registered under the Foreign Trade Policy
(FTP). This includes providing the necessary export declarations, completion certificates,
and customs clearances (if applicable).
 Export Obligation Discharge (EOD): If the company had any specific export obligation
under schemes like Advance Authorization or Export Promotion Capital Goods
(EPCG), they need to ensure that all obligations are met and discharged before project
closure.

3. RBI Reporting and Compliance (Under FEMA):

 RBI Reporting: For software export projects, especially if the transaction involves foreign
investment or foreign clients, the RBI requires that companies report exports of services on
the E-Biz Portal or directly to the RBI under specific forms (like A1, A2, etc.).
 Income Declaration: Companies need to ensure that income from the project is
appropriately declared for tax purposes in India and that the foreign payments are processed
as per regulatory requirements.

4. Taxation and Accounting Compliance:

 GST (Goods and Services Tax): Software exports are usually subject to the zero-rated
supply under GST, meaning that no GST is levied on the export of software services.
However, companies should ensure they have the correct documentation and fulfill any
filing obligations related to GST returns, especially if Input Tax Credit (ITC) is involved.
 Income Tax Compliance: Companies must ensure that they fulfill all tax obligations,
including Transfer Pricing regulations if they are working with related foreign parties, and
ensure proper closure of project-related accounts for the year.
 TDS (Tax Deducted at Source): If the project involves any payments to non-resident
contractors or suppliers, it may be subject to TDS under the Income Tax Act. Proper tax
filings and payments must be done before project closure.

5. Client Agreements and Contractual Obligations:

 Service Level Agreements (SLAs): Ensure that all SLAs are adhered to during the project,
including closure terms. This includes resolving any outstanding issues, handing over
deliverables, and ensuring the client is satisfied with the project closure.
 Contractual Compliance: If there were any export-related contracts (like Master Service
Agreements or specific export contracts), the company needs to ensure that all terms and
conditions of closure—like delivery, warranty, support, or maintenance—are met.
6. Closure Reporting and Documentation:
 Final Deliverables: Ensure that all software deliverables have been completed and handed
over to the client, including any source code, documentation, or intellectual property. This
can include a formal handover report, sign-offs, and the return of any client-specific
resources.
 Project Closure Documentation: A formal closure report is often required to record the
completion of the project, the final payment, and the resolution of any outstanding issues.
This is important for financial and tax audits.
 Intellectual Property Rights (IPR): If the software export project involved the creation of
intellectual property, ensure that the necessary legal formalities related to the transfer or
licensing of IP are completed, if applicable.

7. Special Cases - Abnormal Closure:

 In case of abnormal closure (such as early termination or contract disputes), companies may
need to:
 Resolve Disputes: Follow proper legal and contractual dispute resolution
mechanisms, including arbitration or litigation if necessary.
 Refunds or Adjustments: If advance payments were received from the client, there
may be obligations to refund or adjust payments based on project milestones not
being completed.
 Notify Authorities: In the case of major financial irregularities, the company may
need to notify the relevant authorities such as the RBI, Income Tax Department, or
the Ministry of Corporate Affairs.

Conclusion:
Whether a software export project is concluded normally or under abnormal circumstances, Indian
companies must ensure compliance with FEMA, DGFT, tax laws, and contractual obligations.
Timely reporting of foreign exchange transactions, fulfilling tax liabilities, proper documentation,
and adherence to legal frameworks are critical for smooth closure. If there are any issues, especially
with abnormal closures, legal advice should be sought to avoid any non-compliance consequences.

7. Closure with Software Technology Parks of India (STPI) Scheme (if

applicable)
 STPI Compliance: If the software export project was executed under the STPI scheme, it is
essential to comply with the closure formalities laid out by the STPI authorities. This
typically includes the submission of final export performance reports, clearance of pending
dues (if any), and closure of the STPI registration for the project.

8. Labor and Employment Compliance

 Employee Settlement: If employees were hired for the project (either on-site or off-site), it
is important to ensure that all their dues, including salary payments, severance (if
applicable), and other compensations, are settled. Documentation related to employee exit
(e.g., relieving letters, NOCs) should also be processed in compliance with labor laws.
Conclusion
The closure of software export projects from India requires careful attention to legal, financial, and
regulatory requirements to ensure compliance. This includes documentation, tax filings, foreign
exchange reporting, IP protection, and adherence to export norms set by authorities like the DGFT,
RBI, and STPI. In cases of abnormal closure, companies should also handle disputes, refunds, and
compliance with termination clauses as per the contract and applicable laws.

7. What could be the compliance or procedure for exiting software export

business?

Exiting the software export business in India involves a set of legal, regulatory, and procedural
requirements to ensure compliance with various laws, including those related to tax, foreign
exchange, and business dissolution. Here is an outline of the main steps to follow when exiting the
software export business:

1. Close Business Operations

 Discontinue Operations: Stop all software export activities, including terminating contracts
with clients, ceasing new orders, and halting the delivery of services.
 Notify Stakeholders: Inform employees, suppliers, clients, and any other stakeholders about
the decision to exit the business.
 Transfer or Settle Contracts: If applicable, transfer ongoing contracts or settle them in
accordance with the terms and conditions of those agreements.

2. Financial Settlements
 Clear Debts and Liabilities: Settle all outstanding dues with creditors, employees, tax
authorities, vendors, etc. This may include unpaid taxes, salaries, and other obligations.
 Pay Taxes: Ensure that all taxes, including Goods and Services Tax (GST), Income Tax, and
other statutory obligations, are cleared before closure. This includes filing final returns.
 GST Compliance: If your company is registered under GST, you must file final GST
returns and cancel the GST registration. You must also reverse any Input Tax Credit (ITC)
taken on assets and liabilities.
 Income Tax Compliance: File a final Income Tax Return, including any pending taxes, and
obtain a no-objection certificate (NOC) from the Income Tax Department if required.

3. Close Bank Accounts and Financial Transactions

 Settle Bank Accounts: Clear all dues with banks and close business bank accounts.
 Liquidate Assets: Sell or transfer assets owned by the business (e.g., office equipment,
intellectual property, etc.).
 Repatriate Foreign Earnings: If the company has received foreign payments, ensure
proper repatriation of foreign currency under the Foreign Exchange Management Act
(FEMA). This might require conversion of the foreign currency into Indian rupees and
appropriate documentation.
4. Cancellation of Registrations and Licenses
 Registrar of Companies (RoC) Filing: File the necessary documents with the RoC to close
the business (e.g., Form STK-2 for striking off a company or filing a dissolution request).
This requires approval from the RoC and clearance of any outstanding compliances.
 FEMA Compliance: As a software exporter, your business may be subject to compliance
under FEMA. If your business has dealings with foreign clients, ensure that all foreign
exchange transactions are properly accounted for and repatriated before closure.
 Export Code (IEC) Cancellation: If the company holds an Importer-Exporter Code (IEC),
it should be surrendered to the Directorate General of Foreign Trade (DGFT) after ceasing
operations.
 Software Technology Parks of India (STPI) De-registration: If your business is registered
with the STPI or under the Special Economic Zones (SEZ) for software exports, notify them
and de-register from their schemes.
 Intellectual Property: If the business holds intellectual property (IP) rights, such as patents,
trademarks, or copyrights, decide how these will be managed. IP assets may be transferred,
sold, or licensed.

5. Final Return Filings

 File Annual Returns: Complete and file any outstanding annual returns with the Ministry of
Corporate Affairs (MCA), even if the business is to be closed.
 Winding-up Process: If the company is being wound up, file for the formal winding-up
process through the RoC or National Company Law Tribunal (NCLT), depending on
whether it is a voluntary or compulsory winding-up.

6. Labor and Employee Compliance

 Settle Employee Dues: Ensure that all employees are paid their due salaries, gratuities, and
other post-employment benefits as per Indian labor laws.
 Provide Relieving Letters: Issue relieving letters and experience certificates to employees.
 Provident Fund (PF) and ESI: If the company had employees contributing to the
Employees' Provident Fund (EPF) and Employee State Insurance (ESI), ensure that
contributions are up to date, and that the EPF accounts are closed or transferred.

7. Reporting to Authorities
 Director General of Foreign Trade (DGFT): If your company holds an Export Promotion
Capital Goods (EPCG) authorization or other export-related licenses, inform DGFT about
the cessation of business and ensure compliance with any specific regulations related to
these licenses.
 Other Regulatory Bodies: If your company is registered with any other government body
or regulatory authority, ensure that all necessary notifications are made to these bodies,
including any industry-specific regulators.

8. Data Privacy and Security

 Client Data: Ensure that client data is handled in accordance with the applicable data
protection and privacy laws (e.g., GDPR if dealing with clients in Europe, or India's
upcoming Data Protection Bill). You may need to safely transfer, anonymize, or delete the
data.
  Documentation and Audit: Maintain proper documentation of the business's exit process,
including final financial records, tax filings, client contracts, employee settlements, and
compliance reports.

9. Tax and Audit Considerations

 Audit Final Financials: It may be beneficial to get a final audit of the company’s financial
statements by a chartered accountant to ensure all compliances are met and the company’s
accounts are in order.
 Capital Gains Tax: If any assets are sold or transferred during the closure process, consider
the tax implications, including capital gains tax.

10. Notify Investors and Shareholders

 Shareholder Approval: If applicable, obtain approval from shareholders regarding the
closure of the business. This may require holding a general meeting and passing a resolution.
 Distribution of Assets: If there are assets left in the company after paying off liabilities,
these should be distributed according to the shareholding pattern.

11. Legal Considerations and Legal Exit

 Obtain Legal Counsel: It’s advisable to consult with legal professionals to ensure all legal
formalities are met, including contract terminations, asset transfers, and handling of any
liabilities.

Conclusion
Exiting the software export business in India is a complex process that involves several steps,
ranging from financial settlements to legal filings. It's crucial to follow the proper compliance
procedures to avoid future liabilities and ensure that the exit is smooth. Engaging professionals such
as tax consultants, legal advisors, and chartered accountants is highly recommended to guide you
through the process efficiently.