Starting an export business is always a significant expansion for any company. This post is for you if you want to start an export business in India or have any doubts regarding the same. Exporting has never lost its lustre in this ever-changing work environment, from tradition to modernity. However, one of the issues with this business is the lengthy and complex documentation. In this blog, we will explain how to export from India and what processes you should be aware of before starting your exporting business.
Did you know?
India's export significantly increased to 38.91% in December 2021!
How to start an export business in India?
Export is a broad concept, and an exporter must make numerous preparations before beginning an export firm. The following actions can be taken to start an export business:
1. Choose a business structure
Choosing a business structure is similar to selecting a vehicle for a long journey. Keep in mind that once you begin a business, it is quite tough to change it later. Some of the most critical business forms are:
- Limited liability partnerships (LLP)
- One person company
- Limited Company
2. Obtaining Permanent Account Number (PAN)
Before beginning business, every exporter and importer must get a PAN from the Income Tax Department.
3. Opening a Bank Account
It is essential to open a current account with a bank. However, it should be a bank that can deal in foreign exchange.
4. Exporter Type
After you've decided on your business model, you'll need to make another decision. In India, there are two sorts of exporters:
- Merchant Exporter: A merchant exporter is a person who exports goods by acquiring them from a third party and is not a manufacturer.
- Manufacturer Exporter: The term "manufacturer exporter" refers to producing goods and then exporting them.
5. Import Export Code (IEC)
After you've decided on your business model and exporter type, you'll need to apply for an import-export code, also known as an IEC code. There is no need to visit a government office to obtain an IEC code because the process is entirely online. Here are some key points to remember about import-export codes:
- To begin an export firm, you must have an IEC code.
- Once issued, an IEC code is valid for life.
- There is no compliance related to the IEC code.
6. Register with Export Promotional Council (RCMC)
Exporters must get Registration Cum Membership Certificate (RCMC) from the relevant Export Promotion Councils/Commodity Boards/Authorities to obtain a licence to import/export or any other benefit or concession under Foreign Trade Policy (FTP) 2015-20, as well as to obtain services/guidance. Always keep in mind that if you are a goods exporter, you must register with the Export Promotion Council or the Commodity Board of India.
7. Inspection Certificate
Inspection certifications are also necessary after completing the registrations above. According to the Export (Quality and Inspection) Act of 1963, it is critical to ensure the effective functioning of India's export trade. The Indian Export Inspection Council will assist in obtaining inspection certificates.
8. Authorised Dealer (AD) Code Registration
AD code must be registered with any scheduled commercial bank in India before filing any export bill. The scheduling bank will generate the AD code using the IEC code. In addition, the exporter must register their IEC and AD codes with customs officials. The AD code is used to determine whether or not export proceeds have been realised.
9. GST Registration
Every exporter can register with their GSTIN in Part A of Form GST REG-01 on the shared platform, regardless of their turnover. Exports of goods and services are classified as zero-rated supplies under GST. This zero-rated supply entitles the exporter to reimburse the GST paid on the input. The exporter has two alternatives for requesting a refund:
(i) Export using a LUT/Bond and seek reimbursement of the accumulated input tax credit; or
(ii) Export after paying the IGST and claiming a refund.
10. Product selection
Apart from a few goods on the restricted or prohibited list, the rest of the products can be freely exported. Following a thorough examination of the trends in the export of various items from India, a proper selection of the product(s) to be exported can be made.
11. Market Selection
After researching market size, competition, quality criteria, payment arrangements, and so on, the overseas market should be chosen. Exporters can also consider markets based on the FTP export perks available to a few countries. Export promotion organizations, Indian missions overseas, co-workers, acquaintances, and relatives may all be useful sources of information.
12. Identifying Buyers
Participation in trade fairs, buyer-seller meetings, exhibitions, B2B portals, and web browsing are good ways to locate buyers. Export Promotion Councils (EPCs), Indian missions abroad, and overseas chambers of commerce might also be of assistance. Creating a bilingual website with a product catalogue, price, payment terms, and other relevant information would benefit your business.
13. Providing Sample Products
Providing customised samples to meet the needs of foreign buyers aids in the acquisition of export orders. According to the FTP 2015-2020, exports of genuine trade and technical specimens of freely exportable commodities are unlimited.
14. Product Pricing
In light of international competition, product pricing is critical in attracting buyers' attention and encouraging sales. The price should be calculated taking into account all expenses from sampling to the realisation of export earnings based on the terms of sale, such as Free on Board (FOB), Cost, Insurance & Freight (CIF), Cost & Freight (C&F), and so on. The goal of developing export costs should be to sell the most amount at the lowest possible price while maintaining the highest possible profit margin. An export costing sheet is recommended to be prepared for each export product.
15. Covering Risks with ECGC
Payment risks exist in international trade owing to buyer/country insolvency. These risks can be mitigated by a suitable Export Credit Guarantee Corporation Ltd policy (ECGC). If the buyer places an order without making an advance payment or creating a letter of credit, it is advisable to obtain a credit limit from ECGC to protect against the risk of non-payment.
16. Obtain the services of a freight forwarder
They work as cargo system ticketing agents. The goods can be transported by sea, land, or air. The following three factors determine the freight rates:
- Mode of transport
- Port of Arrival
- Quantity of shipment
17. Proforma invoice (PI)
Following the initial discussion with the customer, the exporter should send the buyer a Proforma invoice with as many details as possible, such as quality, goods description, payment method, mode of shipping, packing material, and so on. When the buyer receives the Proforma invoice, they must approve it before moving on to the next phase.
18. Shipping Instructions (SI)
Depending on the nature of the goods, they must be shipped according to specified guidelines. Because some items are hazardous, perishable, or of any other type, they must be shipped following various international treaties. The freight forwarder provides shipping instructions after learning about the many aspects of the shipment.
19. Commercial Invoice (CI)
A commercial invoice is similar to a standard sales invoice. It should be prepared when the buyer has confirmed the export order. After the business invoice has been issued, you must lodge it with your bank.
20. Labelling, Packing, and Marking
Export items must be labelled, wrapped, and packed following the buyer's precise instructions. Good packaging keeps the goods in good condition and presents them appealingly. Similarly, good packing facilitates easy handling, maximum loading, lowers transportation costs, and ensures the cargo's safety and standard. Address, package number, port and place of destination, weight, handling instructions, and other markings offer identification and information about the cargo packed.
21. Packing list (PL)
The packing list shows the contents of each item. It informs all parties involved in the packing process, such as the exporter, importer, customs authorities, transportation providers, and so on. The products may be checked by customs officials based on the PL given.
22. Certificate of Origin
While clearing customs, the Customs Authority seeks the certificate of origin. The Chamber of Commerce of the Exporter's country issues a Certificate of Origin to establish the product's origin. The name and address of the exporter, characteristics of the goods, package number or shipping marks, and quantity, if applicable, are generally included on a certificate of origin.
23. Shipping Bill
A shipping bill is generated when the commercial bill, PL, or other documents are submitted. You or Custom Housing Agents (CHA) can carry this act out. The shipping bill must then be lodged with the appropriate port. The shipment bill can be submitted via the ICE gate website. Following receipt of the shipping bill, the assessing officer must verify the accuracy of the information supplied and the exportability of the products following the Act and any rules promulgated thereunder.
24. Let Export Order (LEO)
Once the evaluating officer is satisfied, a Let Export Order will be issued.
25. Loading of goods in Container
The shipping bill and Let export order must be provided to the shipping agent, who will then contact the Proper Officer to request shipping permission. Customs officials supervise the loading of commodities onto the ship.
26. Bill of lading (BL)
After the items have been loaded, the carrier vessel issues a bill of lading. It specifies the items' name, means of transportation, mode of payment, and packing content, among other things. One of the most crucial documents is the bill of lading. This bill will be given to the buyer of the products to claim the items when they arrive in their country.
A marine insurance policy covers the danger of loss or damage to the products while they are in transit. Exporters generally arrange insurance for CIF contracts, whereas buyers obtain insurance for cost & freight (C&F) and Free On Board (FOB) contracts.
28. Export General Manifest (EGM)
Within 7 days of the cargo sailing, shipping lines or agents submit the general export manifest to customs. The EGM contains a list of all goods loaded or present on the ship as it sailed away from the port. The EGM serves as the final confirmation of the goods' physical export. This also aids in the approval of duty exemptions.
29. Submission of documents to Bank
Following shipment, the paperwork must be presented to the bank within 21 days for forwarding to the foreign bank for payment arrangements.
The following documents should be submitted:
- Packing List
- Airway Bill/Bill of Lading
- Bill of Exchange
- Certificate of Origin/GSP
- Declaration under Foreign Exchange
- Letter of Credit (if the shipment is under L/C)
30. Document transmission from bank to bank
The negotiating bank will examine the shipping documents and forward them to the importer's banker for him to clear the consignment. It is expected of such Reserve Bank authorised dealers to assure receipt of export proceeds, which must be communicated to the Reserve Bank by quarterly Returns.
31. Receipt of Bank certificate
Once payment is received, authorised dealers will issue Bank Certificates to the exporter, and only with the issuance of the Bank Certificate will the export transaction be completed. Exporters are required to negotiate shipping documentation exclusively through approved Reserve Bank dealers. Only through this system can the Reserve Bank secure receipt of export revenues for products transported out of the country.
Having the necessary knowledge of import and export is crucial if you are in this field of buisness. Having an adequate understanding of export is mandatory if you are looking forward to starting an export buisness. We hope you now have a basic understanding of the requirements for the export procedure in India. We've covered all of the essential aspects to consider when you export goods from India and the basics required for a seamless process.