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Everything you need to know about filing the SOFTEX Form

Everything you need to know about filing the SOFTEX Form
rohit
Rohit26 January 2024

Export, or exporting, is the process of sending goods and services to a foreign country to sell and earn money. For such physical exports, the exporters have to fill out and submit an Export Declaration Form (EDF). However, the exports can also include software by software exporters onboarded on media devices such as CDs or DVDs or online through a data communication link. The export of any type of software digitally (other than physical means) calls for filling out a specialised form called SOFTEX after the actual export of the software has taken place. 

This blog will help you understand everything about the SOFTEX form and the answer to how to file the SOFTEX form. 

What is SOFTEX? 

When exporting software on physical media devices, monitoring and assessing the value was easy. However, for software exported through the virtual data communication link, determining the value was challenging. Hence, the Indian Ministry of Communication and Information Technology, in 1991, formed a society called STPI (i.e., Software Technology Parks of India). In turn, the ministry introduced the SOFTEX form to certify the value of such software exports. 

What is SOFTEX?

Per RBI regulations, software is any database, computer program, drawing, design, audio/video signal, or any other information. The definition given is exhaustive and includes all kinds of software that may be shared in any medium other than in a physical medium. 

It implies both Information Technology (IT) and Information Technology Enabled Services (ITES) exports. 

  • ‘IT’ covers both Software products, including Software as a Service (SaaS) and Software services. Software services cover development, consulting, design, implementation, maintenance, and re-engineering of software or a software product. 

  • ‘ITeS’ covers all those services that are delivered to clients across India using an IT-driven system and process over a telecom/internet link (including BPO, KPOs, Digitization, Call centres, Data processing, etc.). 

Furthermore, the Software Technology Parks of India (STPI) and Special Economic Zones (SEZ) significantly influence the valuation of SOFTEX. These designated zones provide tax benefits and exemptions from certain regulations, amplifying the importance of accurate SOFTEX valuation for software companies operating within STPIs and SEZs. 

Who Needs to File SOFTEX?

As software transcends borders, the RBI mandates compliance with financial and international regulations to ensure transparency and adherence to established norms. Here are the entities required to file the SOFTEX form.

Who Needs to File SOFTEX?
  • Software Companies
    Software companies engaged in developing and exporting software are required to file SOFTEX. It includes businesses of various sizes, ranging from startups to large corporations.
  • Freelancers
    Individual freelancers involved in software export activities must file SOFTEX. It ensures that even independent professionals comply with regulatory requirements when exporting software.
  • Service Providers
    Companies providing IT services that involve the export of software fall under the purview of SOFTEX filing. This category encompasses businesses offering IT-related services, such as consulting, development, or support.

The inclusive nature of the requirement ensures that even small-scale operations adhere to regulatory standards.

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Exemption for Physical Medium Software Exporters

Certain software exporters dealing with physical mediums, such as CDs or DVDs, are exempt from SOFTEX filing. It means that exporters exporting software not digitally but through physical media devices are not required to fill out the SOFTEX form. 

Distinction Between STP/SEZ and Non-STP/Non-SEZ Exporters

Exporters operating within STPs or SEZs often enjoy various incentives, such as tax breaks, exemptions from certain duties, and simplified regulatory processes. The regulatory environment within STPs and SEZs is often more favourable, with streamlined processes for export-related activities.

Exporters outside of STPs and SEZs do not benefit from the specific incentives and concessions available to those within the designated zones. Non-STP/Non-SEZ exporters may have a different tax structure and duty obligations than their counterparts in STPs and SEZs.

Penalties for Non-Filing

Non-compliance with SOFTEX filing requirements can lead to financial penalties imposed by regulatory authorities. If the form is not filed and the export proceeds are realised, the funds received are treated as ‘general services’ and not as export proceeds. 

Non-filing can adversely impact an entity's export performance and potentially hinder the ability to participate in tenders and secure contracts. 

Any discrepancies in the SOFTEX form may result in the exporter losing the zero GST benefit. Zero-rating means that the export transactions are subject to a GST rate of 0%, effectively resulting in no GST liability for the exporter.

In extreme cases of persistent non-compliance, regulatory authorities may resort to severe measures such as the freezing of accounts. Later, the entity must rectify the filing discrepancies, submit the required SOFTEX documentation, and comply with regulatory requirements to unfreeze an account. 

How to File SOFTEX?

SOFTEX filing is a crucial step for software exporters to ensure regulatory compliance. As the process includes several steps, it is advisable to consult experts such as Galactic Advisors for expert assistance navigating the SOFTEX filing process. Below is a comprehensive guide to filing SOFTEX.

Step 1: Generating SOFTEX Number

  • Visit the RBI’s website and click on the ‘Forms’ menu at the button of the page. 
  • Click on ‘Foreign Exchange Management Act Forms’ and click on ‘Click here’ under the ‘For Printing EDF/SOFTEX Form No.’
  • Enter all the required information, which will include first name, IECode, address, phone number, email ID, Fax (if applicable), and the number of forms.
     
  • Apart from the above information, you will have to select the type of export and mode of export from the drop-down menu along with the Form number (single or bulk).
  • Enter the verification code, and you will receive the SOFTEX number. 

Step 2: Filling the Form

  • Visit the STPI website and navigate to the SOFTEX form. The format of the form is attached below: 
SOFTEX form
  • Fill in all the necessary details mentioned in the form. You must fill out the form within 30 days from the date of the last invoice raised in the month. 

Certification

  • Once you submit the form, you are required to download a copy of the SOFTEX form application. 
  • Digitally sign the form (last page- section C) and upload the same on the same online portal. Some state-wise portals may ask you to send the hard copy to the STPI officer. 

Best Practices for Filing SOFTEX

Before you start online filing the SOFTEX form, you have to register/upload the following details as a one-time task after login.

Best Practices for Filing SOFTEX
  • The copy of the Board Resolution for the appointment of an Authorised Signatory for signing the SOFTEX form. 
  • A copy of the AD Bank’s declaration letter is uploaded under the ‘Bank Details’ link in the online system. 
  • Paid service charge and export projection details for the financial year under the relevant ‘Service Charge’ and ‘Export Projection’ sections. 

Furthermore, it is wise to engage with professional advisors, such as Galactic Advisors, to ensure compliance with evolving regulations. Their expertise can help navigate complexities and mitigate the risk of errors.

Keep checking the official websites of RBI and STPI for any updates regarding the SOFTEX procedures. 

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Conclusion

SOFTEX filing is integral for maintaining regulatory compliance, preserving eligibility for benefits, and establishing a trustworthy reputation in the software export industry. Understanding and navigating the process of filing the SOFTEX form is crucial for businesses engaged in software exports from India.

By adhering to the guidelines laid out by the Reserve Bank of India (RBI) and staying informed about regulatory updates, exporters can streamline their compliance efforts and contribute to the efficient recording and monitoring of software exports. 

The SOFTEX form serves as a reporting tool and plays a vital role in promoting transparency and accountability in the software export industry. 

Frequently Asked Questions

Q1. When Should I File the SOFTEX Form?

Ans: Generally, the SOFTEX form should be filed within a reasonable timeframe after the software export. This helps in the timely recording and monitoring of software exports. Delayed filing may lead to non-compliance with regulatory guidelines, and it may result in penalties or other consequences.

Q2. Can I File the SOFTEX Form Online?

Ans: You can file the form online by visiting the STPI website. 

Q3. Is There a Fee for Filing the SOFTEX Form?

Ans: No, there is no legal fee to be paid for filing the Software Export Declaration Form (SOFTEX). However, non-STP exporters registered with the STPIs have to pay a service charge for seeking certification of the SOFTEX form. 

Q4. Can I File the SOFTEX Form for Past Export Transactions Not Reported Earlier?

Ans: Consult with regulatory guidelines; some jurisdictions may allow retroactive filings for a specified period.

Ans: In India, it is advisable to retain records related to SOFTEX form filings for five years from the end of the relevant financial year. However, it's crucial to stay updated with any changes in regulations.

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About the author
rohit
Rohit
Finance
“Love being part of an exciting and challenging journey.”Netflix & Chess