Freelancers and small service exporters in India are grappling with ongoing confusion regarding the Reserve Bank of India's (RBI) new foreign exchange (forex) reporting rules, which came into effect on October 1. This uncertainty persists despite direct clarifications from RBI Governor Sanjay Malhotra stating that individuals are not subject to these new requirements.
Initial Confusion Among Freelancers
The issue gained prominence after content creator Ramesh Srivats shared his experience. Srivats, who consults for a US-based company, received an email from his bank requesting extensive details under the new Foreign Exchange Management Act (FEMA) export declaration rules for his October invoice. He was asked to select, print, sign, and submit multiple forms monthly to receive payments.
While Srivats later updated his post to confirm his bank had clarified the initial request was an error for individuals, his experience highlighted a broader problem. Many individual creators, freelancers, and small exporters providing services to foreign clients found themselves in a similar unsettling situation, unsure of their compliance obligations.
Understanding the New FEMA Regulations
The new RBI rules under FEMA mandate that all service exporters must file an Export Declaration Form (EDF) for each export transaction. This form must be submitted through the bank handling the foreign exchange, typically within 30 days of the invoice date. Historically, EDFs were primarily required for goods exporters and, more recently, software exports, but not for other services.
This expansion of compliance requirements raised significant concerns, particularly among individuals and small businesses unaccustomed to such formal declarations.
RBI's Official Stance and Clarifications
On October 7, RBI Governor Sanjay Malhotra explicitly clarified the central bank's position. Responding to media queries, Malhotra stated that individuals providing services abroad – such as tutoring, small software development, or subscribing to international digital services – are not required to report under the new framework. He further added that even for other exporters, a self-declaration would suffice for invoices up to Rs 10 lakh.
Why Confusion Endures
Despite the RBI's clear statements, the confusion largely stems from the delay in issuing official Frequently Asked Questions (FAQs) to guide banks and exporters. This vacuum has led to varied interpretations of the rules by different banks and chartered accountants.
Devang Gheewalla, group CFO of Kotak Mahindra Bank, noted that his institution understood the norms were not applicable to individual transactions and was actively discussing the matter with FEDAI (Foreign Exchange Dealers’ Association). However, many banks currently lack standardized operating procedures, leading to inconsistent demands on their clients.
Industry stakeholders, including the India SME Forum, have called for a 90-day relaxation in EDF filing requirements for small service exporters, urging the finalization of a simpler compliance mechanism. Until the RBI and the Indian Banks’ Association issue comprehensive FAQs, the uncertainty for freelancers and small service exporters is likely to continue.