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Businesses and individuals that send or receive payments in foreign currencies must understand the currency trends and the affective factor to predict an ideal currency exchange rate.&nbsp;

Whether you're a seasoned investor, a business leader, or someone keen on understanding the evolving financial ecosystem, this blog highlights the potential trends and influences affecting the currency exchange rate, valuation, and a table with the currency exchange forecast this year.&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 

The United States economy saw a drop during the COVID-19 pandemic. However, it has witnessed a strong GDP recovery as it has outperformed expectations in three key dimensions: slowing inflation, labour market resilience, and economic output.&nbsp;

The US GDP has increased to <a href="https://home.treasury.gov/news/featured-stories/the-us-economy-in-global-context#:~:text=Strong%20U.S.%20GDP%20Recovery&amp;text=In%20most%20advanced%20economies%2C%20real,higher%20than%20in%20Q4%202019.">6.1% in Q4 of 2023</a>, which is the highest among all major countries. Inflation fell to <a href="https://www.focus-economics.com/countries/united-states/">3.2% in October</a> from 3.7% in September, below the market estimation of 3.3%.&nbsp;

<a href="https://capex.com/en/overview/usd-to-inr-forecast">The projected USD to INR forecast</a> against INR is mildly bearish for 2024, as experts believe that the 1-month target is 83.00, the 3-month target is 82.50, the 6-month target is 81.50, and the 12-month target is 81.00.&nbsp;

Source: <a href="https://www.bookmyforex.com/currency-converter/usd-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/usd-to-inr/forecast/</a>&nbsp;

The UK economy has beat expert estimates to perform better than expected in 2023. At the start of the year, it was expected that the UK's GDP was expected to fall by 1%. However, experts now expect the <a href="https://kpmg.com/uk/en/home/insights/2018/09/uk-economic-outlook.html#:~:text=The%20UK%20economy%20has%20performed,by%206.3%25%20in%20Q3%202023.">GDP to grow by 0.5% </a>by the end of 2023.&nbsp;

On a year-on-year basis, business investment in the UK grew by 6.3% in Q3 of 2023, and household consumption was up by 0.3%. Furthermore, the UK’s GDP is thriving based on the headline CPI inflation, which decreased<a href="https://kpmg.com/uk/en/home/insights/2018/09/uk-economic-outlook.html#:~:text=The%20UK%20economy%20has%20performed,by%206.3%25%20in%20Q3%202023."> to 4.6% in October.&nbsp;</a>

<a href="https://longforecast.com/gbp-to-inr-forecast-2017-2018-2019-2020-2021-pound-to-rupee">The pound forecast</a> against INR is moderately bullish for 2024 and can reach 105.69 in the next month, 108.86 in three months, 106.07 in six months, and 110.44 by the end of 2024.

Source: <a href="https://www.bookmyforex.com/currency-converter/gbp-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/gbp-to-inr/forecast/</a>&nbsp;

<a href="https://www150.statcan.gc.ca/n1/pub/36-28-0001/2023010/article/00006-eng.htm">The Canadian economy</a> showed a mild slowdown toward mid-2023 owing to higher borrowing costs. The employment rate is also declining as the labour demand is lower than last year. However, inflation eased to <a href="https://www.focus-economics.com/countries/canada/">3.8% in September,</a> down from 4% in August.

As of the end of 2023, Canada's GDP is estimated to be $1.919 trillion, and the nominal GDP was approximately $2.117 trillion, making it the world's tenth-largest economy.

<a href="https://longforecast.com/cad-to-inr-forecast-2017-2018-2019-2020-2021-canadian-dollar-to-rupee">The CAD forecast</a> for the dollar rate against INR is mostly flat for 2024, as experts believe that the 1-month target is 63.05, the 3-month target is 64.21, the 6-month target is 63.38, and the 12-month target is 64.26.&nbsp;

Source: <a href="https://www.bookmyforex.com/currency-converter/cad-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/cad-to-inr/forecast/</a>&nbsp;

<a href="https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/germany/economic-forecast-germany_en">Germany’s economy</a> is facing multiple challenges as it is witnessing a decline in industrial production along with a decreasing construction sector. Currently, as per the European Commission, Germany’s GDP is expected to shrink by 0.4% by the end of 2023. However, it expects Germany’s inflation to decrease and reach 6.4% by the end of 2023.&nbsp;

<a href="https://longforecast.com/euro-to-inr-forecast-2017-2018-2019-2020-2021-eur-to-indian-rupee">The Euro forecast</a> against INR is bullish for 2024, as experts believe that the 1-month target is 92.97, the 3-month target is 96.07, the 6-month target is 94.22, and the 12-month target is 95.21.&nbsp;

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Source: <a href="https://www.bookmyforex.com/currency-converter/eur-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/eur-to-inr/forecast/</a>&nbsp;

<a href="https://economictimes.indiatimes.com/topic/uae-economy">The United Arab Emirates (UAE) GDP</a> is one of the fastest growing and is the second-largest economy in the Middle East. In 2023, the UAE witnessed a substantial rise of 3.7% in its GDP in the first half of the year.&nbsp;

Currently, the International Monetary Fund (IMF) expects the UAE’s economy to grow at a rate <a href="https://www.trade.gov/knowledge-product/united-arab-emirates-market-overview">of 4.2% by the end of 2023</a>, with the labour force participation rate expected<a href="https://thedocs.worldbank.org/en/doc/65cf93926fdb3ea23b72f277fc249a72-0500042021/related/mpo-are.pdf"> to reach 82.7</a>%.&nbsp;

The<a href="https://dollarrupee.in/aed-to-inr-today-forecast"> Dirham (AED) forecast</a> against INR is mostly flat for 2024 and can reach 22.50 in the next month, 22.59 in three months, 22.86 in six months, and 22.68 by the end of 2024.&nbsp;

Source: <a href="https://www.bookmyforex.com/currency-converter/aed-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/aed-to-inr/forecast/</a>&nbsp;

<a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">The Australian economy</a> performed slightly positively as of September 2023, as the GDP grew to 0.2% due to higher capital investment and increased government consumption. However, the growth rate has slowed due to cost of living pressures and higher interest rates.&nbsp;

Currently, Australia is the <a href="https://www.imf.org/en/News/Articles/2023/10/31/cs103123-australia-staff-concluding-statement-of-the-2023-article-iv">14 largest economy worldwide</a> by nominal GDP and has shown improved performance as unemployment has been low and the industrial output is above potential.&nbsp;

The <a href="https://longforecast.com/aud-to-inr-forecast-2017-2018-2019-2020-2021-australian-dollar-to-indian-rupee">AUD forecast</a> against INR is slightly bearish for 2024, as experts believe that the 1-month target is 58.64, the 3-month target is 59.62, the 6-month target is 58.26, and the 12-month target is 56.84.

Source: <a href="https://www.bookmyforex.com/currency-converter/aud-to-inr/forecast/">https://www.bookmyforex.com/currency-converter/aud-to-inr/forecast/</a>&nbsp;

Factors Influencing Currency Trends&nbsp;

Analysing currency trends is vital if you have exposure to international currencies, as the currency exchange rates fluctuate in real-time, resulting in increasing or decreasing the money you send or receive. However, to analyse currency trends effectively, it is vital first to understand the factors that influence currency trends and result in real-time currency exchange rate fluctuations.&nbsp;

Here are the factors influencing currency trends:&nbsp;

A country with stable economic conditions witnesses a lower currency exchange rate fluctuation than a country going through an economic slowdown.&nbsp;

Countries with higher GDP growth rates often experience stronger currencies as they indicate a robust and expanding economy, attracting foreign investment. Factors such as manufacturing and services PMI, industrial production, and consumer confidence can also affect currency trends.&nbsp;

If a country has a higher unemployment rate, the local currency witnesses a weak status against other currencies of countries with a lower unemployment rate, as higher unemployment rates may indicate economic weakness.&nbsp;

Furthermore, currency values are affected by how well a country manages economic factors such as inflation and deflation. Here, a country’s central bank is responsible for managing both factors to ensure a stable currency value.&nbsp;

The political landscape of a country influences the currency as it reciprocates with the mindset of consumers based on how they think the economy will perform. Political stability fosters investor confidence, positively impacting currency values. However, if a country is politically uncertain, the currency trend may turn negative.&nbsp;

Furthermore, Political events, such as elections or government instability, can lead to currency fluctuations owing to economic and geographical uncertainty. For example, foreign institutional investors refrain from investing during elections as the government may change, bringing new rules that may further add to currency fluctuations.&nbsp;

A country’s central bank is the main regulatory authority that manages and regulates the money flow in the economy. For example, in India, the RBI manages the money flow by increasing or decreasing the key interest rates, such as repo or reverse repo rates. Higher interest rates attract foreign capital, increasing demand for the currency and strengthening the currency value.&nbsp;

However, at times of recession, the central banks can lower the key interest rates to inject money into the economy and ensure people have more disposable income. However, this can increase the supply and result in currency depreciation.&nbsp;

4. Technological advancements and market innovations

Currency trends are generally positive for a technologically advanced and innovative country. Technological advancements can affect a country's economic competitiveness, influencing its currency. Innovation and technological progress can attract investment and impact currency values.

For example, a country embracing new technologies such as blockchain and digital currencies can positively influence traditional currency markets, strengthening the currency valuation.&nbsp;

Furthermore, a country with new-age fintech innovation through fintech firms can affect the efficiency and accessibility of financial markets, potentially influencing currency trends.&nbsp;

Currency trends and forecasts, such as USD to INR history, are subject to a variety of factors, and while analysts strive to provide accurate predictions, there are always uncertainties in the global economic landscape. For example, most currency trend-affecting factors are dynamic and can change based on unforeseen economic events.&nbsp;

Unexpected economic developments, such as natural disasters, economic crises, or sudden changes in global demand, can disrupt currency trends. Furthermore, political instability, conflicts, or unexpected geopolitical events can significantly and suddenly impact currency values.&nbsp;

Businesses and investors can mitigate the negative effects of influencing factors by diversifying their portfolios across different asset classes, diligently assessing risks, and staying informed about market trends. Adopting a long-term perspective, seeking professional advice, and maintaining cash reserves provide additional tools for navigating market fluctuations.

International currencies trade in pairs, which means that their value is compared against another currency to determine how much one has to pay to get the desired foreign currency account. For individuals and businesses with international exposure and dealing in foreign currencies, it is vital to understand the factors that can affect the currency exchange rate.&nbsp;

As currency value fluctuates in real-time, it is crucial to understand the currency trends to predict if the foreign currency you hold can increase or decrease in value. Understanding these currency trends can allow you to determine the ideal time to convert the currency into INR and get the most amount for the foreign currency.&nbsp;

If you receive payments in foreign currencies, you can create an account on Skydo. It creates a virtual currency account, which you can use to hold foreign currencies and convert them at the best currency exchange rate.&nbsp;

Q1. What are the key factors influencing the 2024 forecast for USD, Pound, CAD, Euro, Dirham, and AUD?

Ans: The factors include global economic indicators, geopolitical events, central bank policies, trade agreements, and specific regional factors impacting the USD, Pound, CAD, Euro, Dirham, and AUD.&nbsp;

Q2. How can investors and businesses use the 2024 currency forecast to create their strategies?&nbsp;

Ans: Whether you're a currency trader, investor, or business leader, understanding the forecasted trends can assist in making informed decisions and adapting strategies to the anticipated currency movements in the year ahead. Hence, understand the factors that can influence currency trends in detail and make strategies accordingly.&nbsp;

Q3. What are some factors other than economic factors that could affect currency movements?

Ans: Some factors are market sentiment, currency manipulation, health crisis, geological tensions, and technological advancement.

Stay ahead of the game by forecasting currency exchange rates of USD/Pound/CAD/Euro/Dirham/AUD in 2024

A Quick Guide to Forecasting Currency Exchange in 2024

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India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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You've just bagged a project with an international client, and now it’s time to get hustling. However, you need to raise an export invoice for 50% of the advance amount. How should you present your charges? Should you opt for the comfort of your native Indian Rupee (INR) or invoice in foreign currency?

The quick answer to this is you should invoice in the currency of your client - say if your client is based in the US, you should invoice in USD, however there are other considerations which can significantly affect costs, fees, tax compliance, and financial management.&nbsp;

Let’s delve into the complexities of international transactions and explore factors to consider when deciding whether to invoice in Indian Rupees (INR) or a foreign currency. Additionally, we will shed light on the relevance of SWIFT, LUT, FIRA, and FIRC in navigating the payment process for international transactions.

Costs and Fees to Consider with International Transactions

Before deciding on the invoicing currency, you must consider the costs and fees associated with international transactions.&nbsp;

As the volume increases, your business may benefit from <a href="https://www.investopedia.com/terms/e/economiesofscale.asp">economies of scale</a>, enabling you to negotiate better rates with service providers and suppliers. Higher transaction volumes can also justify investments in streamlined processes and technologies that enhance efficiency and reduce costs.

If you are servicing clients from the US or UK, it is more straightforward and convenient to bill in that currency as it provides better financial stability and credibility. However, you can bill in your local currency if it is stable.&nbsp;

International payments generally include intermediary bank fees, transaction fees, conversion fees, and other administrative charges levied by financial institutions or payment service providers for additional transactions or payment-related services&nbsp;

Let's say you are a tech export business based in India sending an invoice to clients in the United States. Suppose your invoice is in USD, and your bank charges high fees for currency conversion. In that case, it may be more cost-effective to invoice in INR with an export payments partner like Skydo to minimise transaction costs and ensure that you receive the maximum possible amount. Skydo charges a flat fee for each transaction.

4. Tax Implications of Charging in Different Currencies

Sending an invoice in INR may subject the trade to Goods and Services Tax (GST) based on the nature of the transaction and relevant thresholds. As an IT services exporter, accepting foreign payments in INR will be subject to 18% GST. Therefore, you will need to add that tax amount to your invoice.

Conversely, invoicing in a foreign currency might have different tax implications, such as potential exemptions or other GST treatment. For example, if you accept the payment in USD, you must submit a Letter of Undertaking (LUT) (explained further in the article) per government regulations. Read more about the taxation rules and regulations concerning foreign transactions <a href="https://www.skydo.com/blog/understanding-gstin-requirements-for-export-businesses-in-india">here</a>.&nbsp;

International transactions expose businesses to currency exchange rate fluctuations, which can impact the value of transactions and profitability. Swings in exchange rates can result in potential gains or losses, affecting the overall cost of the transaction and financial performance.

6. Competitive Positioning in Foreign Market

Business in foreign markets often entails additional costs to establish and maintain a competitive position. These costs can include market research, advertising and marketing expenses, customisation of products or services to suit local preferences and investments in distribution channels. Such expenditure is necessary to penetrate and compete in foreign markets effectively.

7. Accounting and Reporting Considerations

International transactions necessitate compliance with accounting and reporting standards specific to each jurisdiction. It involves additional administrative efforts, such as preparing financial statements according to local regulations, adhering to tax reporting requirements, and potentially engaging with local accounting professionals to ensure compliance.

Engaging in international transactions requires businesses to navigate various legal and regulatory frameworks in different jurisdictions. It may include understanding and adhering to foreign trade regulations, customs requirements, import/export laws, intellectual property protection, and other legal obligations. Non-compliance with these regulations can lead to penalties, legal disputes, or reputational damage.

Assess the preferences of your international clients. Some clients may prefer invoices in their local currency to simplify accounting and budgeting processes. Others may be open to invoicing in your local currency. Understanding your clients' preferences will help you determine the most suitable invoicing approach that’s also profitable for your business.

Once the decision regarding the invoicing currency is final, the next step is determining the appropriate payment methods for international transactions.

Payment Methods for International Transactions

Several payment options are available, each with its advantages and considerations.&nbsp;

Businesses should evaluate <a href="https://www.skydo.com/blog/navigating-payment-platform-headwinds-to-stormproof-your-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">payment methods</a> based on transaction fees, processing time, safety, and customer preferences to make informed decisions.

Bank transfers, credit cards, online payment platforms, and letters of credit are among the popular choices.

This payment method often involves transaction fees (flat rates or percentage-based), which can vary depending on the banks involved and the nature of the transfer (domestic or international). Bank transfers typically require some processing time, especially for international transfers, which may take a few business days to complete.&nbsp;

They offer a level of safety as they typically require authentication and verification processes to initiate the transfer, reducing the risk of fraudulent transactions.

Businesses and individuals favour bank transfers if they have established relationships with their banks, for larger transactions, or when payment needs to be directly transferred to a specific bank account.

They are popular among consumers for their simplicity, ease of use, and convenience. Credit card payments usually involve transaction fees, which vary depending on the merchant's agreement with the financial institution and the type of credit card used.

Credit card payments are processed quickly, often settling within seconds or minutes. This makes them suitable for time-sensitive transactions or situations where immediate payment confirmation is required.

They also provide a certain level of safety as they are protected by fraud prevention measures and dispute resolution mechanisms provided by credit card companies.

These platforms charge transaction fees that can vary based on the platform and the type of transaction, either as a fixed amount or a percentage of the transaction value.

Online payment platforms enable fast processing of payments, with transactions often settling instantly or within a few minutes. This makes them suitable for efficient and time-sensitive transactions.

These providers also prioritise security and employ encryption technologies to protect sensitive financial information.&nbsp;

Online payment platforms have gained popularity due to their global accessibility, secure transactions, and ease of use. They cater to diverse customer preferences, particularly e-commerce transactions, international payments, and peer-to-peer transfers.

Letters of credit entail fees charged by banks for their intermediary services, which can vary based on factors such as the transaction's complexity, value, and the agreed-upon terms and conditions.

Processing letters of credit may take longer than other payment methods due to the comprehensive document evaluation and adherence to agreed terms. The processing time can vary from days to weeks, depending on communication efficiency and document exchange.

By involving banks as intermediaries, they mitigate the risk of non-payment or non-delivery of services by ensuring that funds are held in escrow until specified conditions are met.

Letters of credit are frequently utilised in international trade, especially for sizable transactions or when enhanced financial security is desired. They are preferred by businesses operating in regions with limited payment infrastructure or when trust and assurance play vital roles.

As of 2022, SWIFT enables immediate processing between <a href="https://www.swift.com/news-events/news/swift-reports-strong-annual-growth">over 4 billion accounts</a> and 11,000 institutions across more than 200 countries while upholding unmatched security, dependability, and robustness. Thus, businesses prefer to use SWIFT for money transfers and here’s all you need to know about it.&nbsp;

Understanding SWIFT in International Money Transfers

<a href="https://www.skydo.com/blog/why-was-a-certain-amount-deducted-from-my-swift-payment?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">The Society for Worldwide Interbank Financial Telecommunication (SWIFT)</a> is a messaging network that enables global secure and standardised communication between financial institutions.&nbsp;

SWIFT assigns a unique identification code (or the SWIFT/BIC code) to each financial institution, allowing for accurate funds routing. It also utilises the SWIFT message format, which includes various fields containing transaction details. The syntax/interpretation is as follows.

First four characters: the institute code&nbsp;

The Next two characters: the country code

The Following two characters: the location/city code&nbsp;

The Last three characters: these are optional, but organisations use them to assign codes to individual branches.

One required field in the SWIFT message is <a href="https://www.swift.com/swift-resource/249746/download#:~:text=In%20SWIFT%20MT%20messages%2C%20charges,via%20a%20three%20letter%20code%3A&amp;text=BEN%3A%20Beneficiary%20%2D%20All%20transaction%20charges,borne%20by%20the%20beneficiary%20customer.">field 71A</a>, which highlights handling intermediary bank fees.&nbsp;

International money transfers through SWIFT typically take several business days due to factors such as time zone differences, intermediary bank involvement, and potential manual processing steps. The processing time can vary depending on the participating banks and the specific requirements of the transfer.

Additionally, SWIFT transactions involve fees charged by the participating banks. The sender is usually responsible for covering these fees, which can vary depending on the institutions involved, the transfer amount, and the transferring currency.

Payers have three options when making a SWIFT international transfer: SHA, BEN, and OUR. These options determine the distribution of charges between the sender and the recipient.

Deciphering these options is crucial to understanding the cost-sharing arrangement and making an informed decision based on the transaction value, relationship with the counterparty, and cost considerations.

However, once these transactions are successful, you need to ensure tax compliance with the FIRA/FIRC document.

<a href="https://www.skydo.com/blog/skydo-launches-automated-digital-fira?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">FIRA (Foreign Inward Remittance Advice)</a> and <a href="https://www.skydo.com/blog/all-you-need-to-know-about-FIRC-a-complete-guide?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">FIRC (Foreign Inward Remittance Certificate)</a> are vital documents in international business transactions. They are often used interchangeably to refer to documents that serve as proof of inward remittance.

This document provides details such as the beneficiary, remittance amount, and purpose of payment. These documents are essential for maintaining transaction records, ensuring compliance with applicable laws, and facilitating the monitoring and regulation of foreign exchange transactions.

While FIRA and FIRC may have slight differences in terminology and format depending on a country's specific banking practices or regulatory requirements, their primary purpose remains – to provide evidence of foreign inward remittances receipt.

Per the <a href="https://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MDEGS1205163428383952204B77831A3A086E82FDDF.PDF">RBI rulebook on the Export of Goods and Services</a>, “AD bank should be satisfied with the bona fides of the transaction and export documents, such as export invoice / FIRC”. Additionally, “Further, AD Category – I banks need to report the electronic FIRC to EDPMS wherever such FIRCs are issued against inward remittances.”

Skydo simplifies obtaining GST-compliant FIRA and LUT by allowing you to download this vital document from its online platform, eliminating manual paperwork, streamlining the submission process, and ensuring compliance with GST regulations. This convenience and efficiency save time and resources, allowing you to focus on core activities and improve operational efficiency.

The Importance of Letter of Undertaking (LUT) in International Transactions

The <a href="https://www.skydo.com/blog/everything-you-need-to-know-about-lut?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Letter of Undertaking (LUT)</a> holds significant importance for GST-compliant-registered businesses supplying services outside India. LUT is a document that exempts your company from paying GST on export services and allows for a smooth flow of transactions. It serves as a legal undertaking by the exporter to fulfil specific obligations and comply with GST regulations.&nbsp;

Obtaining a valid LUT is essential for businesses engaged in international transactions as it enables them to provide services without charging GST, making their offerings more competitive in the global market. Failure to provide a valid LUT may lead to unnecessary <a href="https://www.skydo.com/blog/gst-format-matters-heres-why-and-what-it-includes?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">GST liability</a> and compliance issues, impacting the financials and overall business operations.

Navigating the complexities of international transactions requires careful consideration of various factors, such as costs, fees, tax implications, payment methods, and regulatory compliance. Deciding whether to invoice in INR or a foreign currency can significantly impact a business's financial management and profitability.&nbsp;

Understanding the role of SWIFT, LUT, FIRA, and FIRC in international transactions is essential for businesses engaged in cross-border trade. By comprehending these concepts and their interplay, you can streamline payment processes, minimise costs, ensure tax compliance, and establish healthier financial controls.&nbsp;

Q1. What is a valid currency for an invoice in India?

Ans: In India, an e-invoice for export must be issued in Indian Rupees (INR) as the official currency. Foreign currencies are not accepted for domestic transactions, ensuring compliance with the country's legal and financial regulations.

Q2. Could I prepare an invoice using any currency in an export business?

Ans: Yes, in the export business, invoices can be prepared using any internationally recognised currency. This flexibility allows exporters to adapt to the preferences and regulations of their international clients.

Q3. Do exporters want to invoice in the importers' currency?

Ans: Exporters often prefer invoicing in the importers' currency to simplify transactions and accommodate the preferences of their international clients. It helps in avoiding currency exchange rate uncertainties and making transactions more transparent.

Ans: An export invoice is a document issued by a seller to an international buyer detailing the products or services sold, their quantities, prices, and other relevant information. It serves as a formal request for payment and is a crucial document in international trade and compliance.

Optimise your export invoice strategy by exploring the advantages of invoicing in INR or foreign currency. 

Export Invoices: Should I Invoice in INR or Foreign Currency?

Export Invoices: Should I Invoice in INR or Foreign Currency? Th

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