Realisation of Payment in INR Under The EPCG Scheme
- Commercial Consultancy Counsel
- Nov 21, 2023
- 7 min read
Updated: Nov 28, 2024
Ever wondered if you can receive your export proceeds in Indian Rupees (INR)?
Let's unravel the intriguing world where trade meets currency and gain a better understanding of the realization of payments in INR under the EPCG scheme.
With a brief discussion about Vostro Accounts and the regulations associated with them, we will explore and break down the complexities of payment realisation for your imports and exports and discover the key mechanisms of payment realisation under the Foreign Trade Policy 2023.
Our team at Commercial Consultancy Counsel is dedicated to providing the best EPCG Consultancy Services so your business can stay on top of your payment realizations.
Can export proceeds be realised in Indian Rupees (INR)?
What is a Vostro Account?
Will INR export proceeds be considered as export realisation under FTP 2023?
Is invoicing, payment and settlement of exports and imports permitted in INR?
What are the steps involved in handling exports and imports conducted in INR?
What is a Special Rupee Vostro Account?
How is a Special Rupee Vostro Account different from the free convertible Vostro Account?
Is RBI approval is required for opening Special Rupee Vostro Accounts?
What is the treatment of advance payments against exports received by Indian exporters?
Applicability of FTP Schemes for exports realised in INR?
Can payment be realised in INR under the EPCG Scheme?
Can export proceeds be realised in Indian Rupees (INR) for deemed exports?
We begin our exploration by answering this fundamental question:
Can export proceeds be realized in INR?
Let’s understand this in detail in the section
1. Can export proceeds be realised in Indian Rupees (INR)?
Export proceeds are usually only allowed to be realised in freely convertible currency.
However, certain exports may be realised in Indian Rupees (INR), provided it is through a freely convertible Vostro Account of a non-resident bank situated in any country other than a member country of Asian Clearing Union or Nepal or Bhutan.
Let’s have a look at what a Vostro Account is and what role it plays in realising exports in INR.
2. What is a Vostro Account?
A Vostro Account is an account that domestic banks hold for foreign banks in the former’s domestic currency, which is INR in the case of India.
It is a type of correspondent banking system that enables foreign banks to conduct transactions and provide services in local markets where they do not have a presence.
The domestic bank acts as a custodian, maintaining and managing the account on behalf of the foreign bank.
Our next section covers the significance of the Vostro Account in realising export proceeds in INR under the Foreign Trade Policy, 2023
3. How will INR export proceeds be considered as export realisation under the export promotions schemes of the Foreign Trade Policy (FTP, 2023)?
INR payment received by the exporter in India through Vostro Accounts may be against payment of free foreign currency by the buyer in his non-resident bank account.
Free foreign exchange currency remitted by the buyer to his non-resident bank account on account of this transaction would be taken as export realisation under the export promotion schemes of the FTP 2023.
But INR payments using Vostro Accounts are subject to several other important elements like invoicing and settlement.
We cover these important aspects in the next section.
4. Is invoicing, payment and settlement of exports and imports permitted in INR?
Invoicing, payment and settlement of exports and imports can also be done in INR subject to compliance with the RBI’s A.P. (DIR Series) Circular No. 10 dated 11th July 2022.
Now that you have an idea of how INR payments can be made for export realisation, let’s look at the procedural steps and mechanisms involved in making these payments and handling invoices and settlements for your imports and exports.
5. What are the procedural steps and mechanisms involved in handling invoicing, payment, and settlement for exports and imports conducted in INR?
According to Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, Authorised Dealer Banks (AD banks) in India have been permitted to open Rupee Vostro Accounts.
For settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent banks of the partner trading country. In order to allow the settlement of international trade transactions through this arrangement, the below procedures shall be followed:
Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro Account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro Account of the correspondent bank of the partner country.
Our team of experts can assist in your INR payments, from invoicing to settlement of your imports and exports.
Here’s how you can get in touch:
Let’s look at the Special Rupee Vostro Account in a bit more detail in the next section.
6. What is a Special Rupee Vostro Account?
A Special Rupee Vostro Account keeps the foreign entity's holdings in the Indian bank, in INR.
When an Indian importer wants to make a payment to a foreign trader in INR, the amount will be credited to this Vostro Account.
Similarly, when an Indian exporter has to be paid for his goods/services in INR, this Vostro Account will be deducted and the amount will be credited to the exporter’s regular account.
However, the Special Rupee Vostro Account has certain differences that make it unique as compared to a general free convertible Vostro Account.
Let’s look at these differences in the next section.
7. How is a Special Rupee Vostro Account different from the free convertible Vostro Account?
In the Special Rupee Vostro Account, INR balances of the buyers/overseas importers are maintained to reflect the debit and credit of payments for imports and exports, therefore the buyer makes and receives payment in INR.
In a free convertible Vostro Account, the buyer makes the payment in free foreign currency in his non-resident bank account and the exporter receives the proceeds in INR from the free convertible Vostro Account of the buyer.
How can Commercial Consultancy Counsel help you with your Special Rupee Vostro Account or your typical Vostro Account?
8. Whether RBI approval is required for opening such Special Rupee Vostro Accounts?
Yes, for the opening of a Special Rupee Vostro Account, prior approval of RBI is required.
Once a Special Rupee Vostro Account is in place, an Indian exporter can receive advanced payments to their accounts from foreign importers.
Let’s understand how advanced payments for Special Rupee Vostro Accounts work and what criteria must be met in order to allow advance payments.
9. What is the treatment of advance payments against exports received by Indian exporters?
Indian exporters may receive advance payment against exports from overseas importers through their Special Rupee Vostro Accounts.
However, before allowing such advance payments, Indian banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders.
Let us assist you in setting up your Special Rupee Vostro Account for receiving advanced payments quickly and conveniently.
The Foreign Trade Policy of 2023 plays a huge role in INR payment realisation for exports.
Let’s explore this further in the next section.
10. Applicability of FTP Schemes for exports realised in INR?
Export proceeds realised in INR through the Special Rupee Vostro Account are permitted to avail export benefits/incentives/fulfillment of the export obligation under the FTP 2023.
Additionally, the payment received in INR for services notified in Appendix 5D of the FTP, 2023 shall also be counted towards the discharge of export obligation under the EPCG Scheme provided such services are rendered in the customs notified areas to a foreign liner including through its agents in India.
Which brings us to the next question:
Can INR payments also be made under the EPCG scheme?
We answer this crucial question in the next section.
11. Can payment be realised in INR under the EPCG Scheme?
As per Para 5.04(j) of the FTP 2023, the payment received in INR for the services notified in Appendix 5D can be considered towards the discharge of export obligation under the EPCG Scheme.
However, conditions of Appendix 5D should be fulfilled vis-à-vis services rendered in the Customs Notified Area, services are rendered to foreign liners including through its agents in India.
Need assistance in your INR payment realisation under the EPCG scheme?
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How does INR payment realisation work for deemed exports?
Does it follow a similar pattern as seen in the EPCG scheme?
Let’s understand this further in our next section
12. Can export proceeds be realised in Indian Rupees (INR) for deemed exports?
Export proceeds shall be realised in free convertible currency or INR for ‘Deemed Exports’ without the requirement of opening a Vostro Account.
Deemed Exports refer to those transactions in which the goods supplied do not leave the country, and the payment for such supplies is received either in INR or in free foreign exchange.
Exports to Special Economic Zone (SEZ) units/supplies to developers/co-developers irrespective of the currency of realisation would also be counted for discharge of the export obligation.
Conclusion
We have delved into the intricacies of Vostro Accounts, Special Rupee Vostro Accounts, and the regulatory landscape under the Foreign Trade Policy, 2023 that play a major role in realising export proceeds in INR.
From procedural steps to the applicability of export promotion schemes under the FTP 2023, we've navigated the intricacies in detail.
Apart from streamlining your INR payments, we help businesses traverse the complicated world of import-export and meet regulations in an efficient way.
We provide expert guidance in avenues like DGFT Consulting and Customs Consulting with the aim of assisting your import-export business in realising the growth you deserve.
Here’s how you can reach out to us for your business needs:
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