Importance of FIRA for Freelancers
As a freelancer working with international clients, you gain access to exciting opportunities and diverse revenue streams. However, this also brings additional compliance requirements you need to be aware of. Every time you receive a foreign payment, you must obtain a Foreign Inward Remittance Advice (FIRA) from your bank. This document serves as proof of receiving international funds.
In this blog, we will explore everything you need to know about Foreign Inward Remittance Advice (FIRA) and why it is crucial for freelancers dealing with foreign payments.
What Is FIRA?
A Foreign Inward Remittance Advice (FIRA) is a document issued by Indian banks to Indian exporters and freelancers who receive foreign payments.
Before 2016, banks issued Foreign Inward Remittance Certificates (FIRC) as proof of receiving global payments. However, in 2016, the RBI introduced the Export Data Processing Management System (EDPMS) to digitally record all export-related data.
With EDPMS in place, the RBI instructed banks to stop issuing FIRCs for export collections. Banks now provide FIRA (Foreign Inward Remittance Advice) instead of FIRCs for export collections and foreign payments. Anyone receiving foreign payments, including freelancers, needs to obtain FIRA.
Why FIRA Matters
1. To Ensure Compliance
Failure to obtain a FIRA can lead to monetary loss as you will have to pay GST on the export income received in India. However, you may face penalties for non-compliance with foreign exchange regulations at the time of audits if proper documentation, such as FIRA, is not maintained.
2. Acts as proof of income
Suppose you are looking for a loan from a financial institution. In that case, the institution asks for proof of income that serves as the reference point for the institution to either accept or reject the loan application. Here, you can submit FIRA as proof of income.
Furthermore, FIRA can also be used for VISA applications or anywhere as proof of income. Juhi Shah, a seasoned Chartered Accounting professional states:
"FIRA plays a crucial role in establishing financial credibility and stability, particularly in cross-border transactions. These certificates serve as verifiable proof of income from international sources, bolstering confidence among lenders, investors, and immigration authorities."
3. Simplified Tax Reporting.
By providing FIRCs as supporting documentation, taxpayers demonstrate their commitment to compliance and reduce the risk of penalties or legal consequences for underreporting income.
Additionally, you can claim tax benefits or exemptions under the Double Taxation Avoidance Agreements (DTAA).
Ravi Mamodiya, a tax advisor highlighted the potential financial and legal implications of ignoring FIRAs:
"Ignoring FIRCs may result in inaccurate tax reporting, leading to penalties, fines, and potential legal actions by tax authorities. Additionally, non-compliance with tax laws erodes trust with regulatory agencies and may tarnish your reputation as a taxpayer. Hence, it is important to maintain FIRAs."
How To Obtain FIRA?
Receiving your international freelance payment directly through your bank can make obtaining FIRA a lengthy process. You need to submit a request to the bank, and the bank typically takes 7-15 days to provide the FIRA. You may also need to follow up multiple times, and banks often charge at least INR 400 to issue the FIRA, depending on the institution.
Enter yours truly!
Get your FIRA from Skydo Instantly
Getting a FIRA might sound like a hassle, but with Skydo, it's a breeze. Our fully automated payment system along with built-in partnerships with banks, ensures effortless compliance with RBI guidelines, without needing any manual intervention.
When you receive an export payment through Skydo, we automatically generate the required FIRA for you at no extra cost. Just log into our user-friendly dashboard, and you'll find your FIRA ready to download, complete with all the details you need.
Conclusion
Freelancers have fluctuating incomes and are solely responsible for fulfilling the taxation and regulatory compliance for inward and outward remittance. In case a freelancer has foreign clients and receives foreign remittances, it is vital to obtain FIRA either for the bank or the digital currency platform.
FIRAs streamline income reporting to tax authorities, reducing complexities and minimising the risk of penalties for non-compliance. By documenting foreign remittances, freelancers can accurately report their earnings, fulfil their tax obligations, and build credibility with regulatory agencies.
FAQs
Q1. Can all banks issue physical FIRCs?
Ans: RBI has discontinued the permission for banks to issue physical FIRCs/FIRAs after 2016 unless it is against Foreign Direct Investment or Foreign Institutional Investment. Currently, only AD Category-I banks are allowed to issue e-FIRAs (FIRAs in electronic format).
Q2. Do I need a separate FIRA for each client or project?
Ans: No, you do not need a separate FIRA for each client or project. All foreign remittances received during a particular time frame, regardless of the client or project, can be covered by a single FIRA issued by your bank.
Q3. What documents do I need to apply for FIRA, and how long does it take?
Ans: If you are requesting FIRA from a bank, you need to provide information included in the FIRC certificate format, such as beneficiary name, name and address of the payee, UTR number, recipient’s name, purpose, date and amount of transfer, and the recipient’s account number. However, if you are receiving foreign remittances through digital platforms like Skydo, you don’t have to submit any documents. FIRA is generated automatically and instantly with every payment.
What are the benefits of Fira?
Beyond compliance, here’s why FIRA is crucial for exporters and freelancers:
1. Goods or services exported are classified as zero-rated supplies, exempt from GST. However, to claim a GST refund for input tax credit, exporters must furnish their FIRA.
2. Exporters require FIRA to claim export-related incentives, including exemptions on foreign currency payments received in India.
Is FIRC mandatory for freelancers?
What is the purpose code for inward remittance for freelancers?
