Importance of FIRA for Freelancers

If you're serving clients abroad, chances are you have heard of Foreign Inward Remittance Advice (FIRA) or Foreign Inward Remittance Certificate (FIRC). 

This blog will help you understand everything about Foreign Inward Remittance Advice (FIRA) and why it is one of the most important compliance documents for freelancers receiving foreign funds.

What Is a FIRC Certificate/FIRA? 

A Foreign Inward Remittance Advice (FIRA), also called the Foreign Inward Remittance Certificate (FIRC), is a document issued by Indian banks to Indian beneficiaries who receive foreign remittances into their bank accounts. It serves as evidence that the beneficiary has received foreign funds. 

The FIRA document contains details such as the name and address of the beneficiary, the remitter's details, the amount remitted, the purpose of remittance, the currency in which the remittance was made, the date of remittance, and the name of the bank through which the remittance was received.

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

There are two methods to obtain FIRA: from the bank or a digital currency platform. 

If you want the FIRA from the bank, you can apply with all the relevant details about you, the client, and the transaction. Once the bank cross-checks and approves the application, they issue the FIRA in the electronic format. 

On the other hand, if you are using foreign currency payment platforms such as Skydo, it becomes comparatively easy to obtain FIRA. 

Skydo includes the feature of Automated Digital FIRA, where the document is automatically generated every time you receive foreign funds in your virtual Skydo account. 

Skydo’s automated FIRA eliminates the need for manual document creation and management. This efficiency saves time and reduces the risk of human errors during manual data entry included in the process of obtaining FIRA from a bank. Once generated, Skydo users can easily download the document from the dashboard. 

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.