Writing Off Export Receivables? Know the Conditions Under FEMA

The Foreign Exchange Management Act, 1999 (herein referred to as FEMA) regulates foreign and import transactions. Whenever a person undertakes an export transaction, FEMA lays down explicit conditions relating to the realization of export proceeds. However, it may happen that despite best efforts, an exporter is unable to realize the export receivables. In such a situation, should it be considered as a violation of FEMA? What are the conditions for writing off the export receivables under FEMA? Let’s find out!

Limits to Write-Off Export Receivables

Before discussing the conditions, exporters should know the limits up to which they can write off the export receivables under FEMA. Here are the limits up to which unrealized export bills can be written off:

Conditions to Write Off Export Receivables Under FEMA

Therefore, the exporters or authorized dealers can write off the export receivables up to the above limits. However, they need to follow certain conditions to be eligible for the same. Here are some of the conditions to write off the export receivables under FEMA:

• The amount of proceeds should remain outstanding for more than 1 year.
• The exporter should furnish necessary documentary evidence that he has made all the efforts to realize the dues.
• The concerned exporter’s case falls under any of the below categories:
  • The concerned overseas buyer is being declared insolvent, and a certificate is produced from the official liquidator that it is not possible to recover the export proceeds from such a buyer.
  • The buyer abroad cannot be traced for a long period of time.
  • The goods exported by the exporter have been destroyed or auctioned by the customs, port, or health authorities in the country of import.
  • The unrealized amount represents the balance outstanding in a case settled with the intervention of the Foreign Chamber of Commerce, Indian Embassy, or any other similar organization.
  • The amount being unrealized is the undrawn balance of the export bill (not exceeding 10% of the invoice value) that is outstanding and has become unrealizable despite the best efforts from the exporter.
  • The cost involved in a legal action will be disproportionate to the amount that remains unrealized in the export bill or in case the exporter wins the court case against the overseas buyer but cannot execute the decree of the court due to reasons beyond his control.
  • Bills were drawn for either the difference between the letter of credit and the actual value of the exports or between the actual and provisional freight charges but this amount is unrealized because of dishonor of the bills by the overseas buyer, and there is no possibility of realization.
• The exporter has surrendered the export incentives proportionate to the relevant shipments to be written off. In this case, the AD Category-I banks should obtain the documents that provide evidence for the surrender of the export incentives availed of by the exporter before allowing the writing off of the relevant export bills.
• In case of the self-write-off by the exporter, the exporter should submit a certificate from the Chartered Accountant to the concerned AD Bank, stating the number of export realizations in the preceding calendar year, and the amount of write-off availed of during the current year, invoice value, the GR/SDF Nos. that needs to be written off, bill numbers, country of export, commodity exported, etc. The CA certificate can also indicate the amount of export benefits availed of by the exporter, if any.

When Exporters Cannot Write Off Export Receivables?

There are certain peculiar situations where the exporters cannot write off export receivables under FEMA. If exports are made to countries with externalization problems, then the exporter cannot write off the exports. This basically includes those cases whereby the overseas buyer has already deposited the export proceeds in the local currency but the amount is not allowed to be repatriated by that country’s central banking authorities.

Further, if law enforcement agencies have investigated the outstanding bills that are the subject matter of civil or criminal suits, then the exporters cannot write off the unrealized export proceeds. These agencies can include the Enforcement Directorate, Central Bureau of Investigation, Directorate of Revenue Intelligence, etc.

How to Write Off Export Receivables?

For writing off the unrealized export proceeds, the RBI’s Export Data Processing and Monitoring System (EDPMS) should be used by the banks for reporting the write-off. Banks can cancel the export claims on an application in case the export proceeds are already converted and realized into Indian currency from other sources, and the exporter is not there in the RBI’s caution list.

What if the IRDA or ECGC Regulated Insurance Companies Settle the Claim?

Exporters can request the banks to set aside the relevant export bill in the EDPMS. Exporters need to present supporting documented proofs from the ECGC or private insurance companies that the claim has been submitted by these authorities. In case of such write-offs, the 10% limit shall not be applicable. In such a case, the write-off shall be according to the insurance policy. For instance, if the ECGC settles 80% of the export bill value, then 20% shall be written off by the exporter. Exporters can avail of the export incentive for the claims settled by the insurance companies.

In a Nutshell

Above is detailed information concerning how to write off export receivables under FEMA. Exports are highly regulated by the government, and for good reasons. The government bestows multiple benefits for export-oriented businesses and as it involves foreign exchange, therefore, it is important to ensure that the exporters receive their payments timely. However, in genuine cases whereby the exporter is unable to receive the payment despite best efforts, then the FEMA regulations allow exporters to write off such receivables if the above conditions are fulfilled. For any assistance in relation to the exports from India, government regulations, and writing off export receivables, feel free to contact the ASC Group.

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