India is the world’s 14th biggest exporter, exporting a diverse range of goods and services. India’s export figures are increasing year after year, and according to a recent HSBC report, India will be among the top five exporters in the world by 2030. The Indian government aggressively promotes manufacturing in India through campaigns such as Make in India. The rising demand for Indian products from overseas markets indicates that India’s exports are expected to grow rapidly over the next decade.
Starting an export business in India may sound exciting, but it is not as easy as it sounds. Before establishing an export business, thousands of questions such as legal guidelines to follow, documents required, and much more would arise. This business’s information is also not readily available on the internet. This article will walk you through the entire process of starting an export business in India, from incorporating your business entity, applying for an AD code from the bank and other essential steps involved in establishing an export business in India.
1. Incorporate your business
Export companies typically generate large sales volumes. These companies face a variety of risks. Currency fluctuations, foreign credit, foreign suits/legal proceedings, and other foreign liabilities are all risks. As a result, it’s best to have a Limited Liability Structure with a distinct existence that is recognised globally. Limited Liability Partnership(LLP) and Private Limited Company(LLC) are the best structures for export businesses. Private Limited Companies or Limited Liability Partnerships project a strong brand image to international customers. In addition to offering stakeholders Limited Liability protection, the value of the brand image increases. Many overseas investors prefer that their vendors be Private Limited Companies or Limited Liability Partnerships. That is why export businesses should prefer incorporating their export company as a Private Limited company, Limited Liability partnership or One person company.
2. Perform tax registrations
Obtain the tax registration in the business entity’s name after completing the business registration process. A PAN or Permanent Account Number is the first tax registration required for any new business. After obtaining the PAN, the company can open a bank account and begin the loan syndication or equipment or raw material purchase process to start a business. GST is not levied on goods or services exported from India. However, because the company will be purchasing raw materials from outside the state, GST Registration may be required, as well as service tax registration to bill domestic clients. As a result, it is strongly advised that the necessary steps be taken after opening the bank account to obtain the required tax registration.
3. Open Current Bank Account
A current account, also known as a financial account, is a type of deposit account maintained by individuals who conduct a significant number of regular bank transactions. It is created by the bank at the applicant’s request and made available for frequent or immediate access. Current accounts are for liquid deposits and provide various customized options to help with financial transactions. Current accounts also allow you to make payments to creditors using the bank’s cheque facility. In general, current accounts do not pay interest and have a higher minimum balance than savings accounts. The greatest advantage of a current bank account is that account holders can easily obtain overdraft protection.
4. The AD Code Registration
Once the current bank account is opened with a bank, exporters must register for an AD code. The AD code registration will assist exporters in growing their businesses and reaching out to a global customer base. This enables Indian companies to grow more quickly in the international market. This registration is a one-time event. This implies you are not required to file any returns. Once the code is assigned, you are not required to file any returns. The code has lifetime validity, which means it will remain valid as long as the entity exists. This ensures that once you register the code, you will not be concerned about renewing it. The AD code registration provides various exemptions and incentives to exporters/importers from the Customs, DGFT, and Export Promotion.
5. Obtaining the IEC registration
IEC stands for Importer and Exporter Code and is obtained by a corporate entity as part of an official, commercial contract to import into or export from India. The Directorate General of Foreign Trade (DGFT) grants a 10-digit unique number which is IEC. The IEC Certificate is the primary document for the import and export company. Any corporate entity, including individuals, can pertain for an import or export registration in India. Importer – Exporter Code renewal is not needed because IEC is assigned and granted lifetime validity, i.e. until the business is closed.
6. Registration cum membership certificate (RCMC)
The Registration-Cum-Membership Certificate (RCMC) confirms an exporter dealing with products registered with an Indian government-approved agency or organization. In India, the certificate is valid for five years and is given by the Export Promotion Councils(EPC) or commodities boards. An exporter seeking an RCMC must specify his primary business in the application. This application would be presented to the Export Promotion Council/Commodity Board for that particular line of business.
7. Select the suitable range of products to export
The range of products you select for exporting deeply impacts your profitability. If you fail to study the demand for the product in a particular overseas market, you will be clueless about why your products are not selling. Therefore you must spend your time and effort understanding which products are in demand in a particular market. There are different ways to understand the product demand. You can study market reports, business studies and customer surveys to know what problems the customers are facing in a particular domain and what solutions you can provide to your customers and which products you can export. A long range of products is freely exportable except for some restricted lists. After studying the export trends and market studies, you can decide the range of products to export.
Starting an export business can be profitable if the above steps are performed strategically and consciously. Exporters must fulfil all the compliances and leverage the initiatives, exemptions, schemes and portals offered by the EPCs and government to establish, strengthen and expand their export business.