Western Union Money Transfer for Export income

 

How Safe for Export Inward Remitances ?

Business Transactions ?

I have noticed some people in MSME sector, thinking of getting funds for export of goods and services via Western Union. Is this Legal ? Are they safe ? Does RBI Allow this ? FEMA ? GST ?

Short Answer : This is not OK.

Detailed Answer : The Doubt is due to multiple reasons :

 

Reason for doubt

Source 1. RBI Website

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=10868&fn=5&Mode=0

RBI does not allow this at all, as per the MTSS scheme itself. See the first para itself. Extracts as under :

“…..1. Introduction

1.1 Money Transfer Service Scheme (MTSS) is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India.

Only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible.

No outward remittance from India is permissible under MTSS. The system envisages a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates. The Indian Agents can in turn also appoint sub-agents to expand their network. The Indian Agent is not allowed to remit any amount to the Overseas Principal.

Under MTSS the remitters and the beneficiaries are individuals only. This document covers the details regarding the entry norms, authorization, renewal and various operating instructions pertaining to the entities involved in this scheme……”

So, if someone gets money for Export of Goods/services via Western Union, it can be considered as an contravention of FEMA

Source 2. : SBI Site

https://www.sbi.co.in/portal/web/personal-banking/western-union-money-transfer

State Bank of India is the Principal Agent of Western Union Financial Services for paying inward remittances deposited in overseas offices/ locations of Western Union. This arrangement is governed by MTSS guidelines of Reserve Bank of India, which are as follows:

  • Only personal remittances shall be allowed under this arrangement.
  • Donations/contributions to charitable institutions/trusts, trade related remittances, remittance towards purchase of property, investments or credit to NRE Accounts shall not be made through this arrangement.
  • A cap of USD 2500 has been placed on individual remittance under the scheme. Amounts up to Rs.50,000/- may be paid in cash to a beneficiary in India. Any amount exceeding this limit shall be paid by means of account payee cheque/ demand draft/ payment order, etc. or credited directly to the beneficiary’s bank account only. However, in exceptional circumstances, where the beneficiary is a foreign tourist, higher amounts may be disbursed in cash.

So, prima facie if someone gets money for Export of Goods/services via Western Union, it can be considered as an contravention of FEMA

Source 3 :

IGST Act – Section 2(6)

“Export of Service Conditions”

“Export of services” means the supply of any service when, –

(i) the supplier of service is located in India; = Yes

(ii) the recipient of service is located outside India; = Suppose, Yes

(iii) the place of supply of service is outside India; =  Suppose, Yes

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; = NO … in case of Western Union.. money transfers,.. it usually comes in Indian Rupees only

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person = suppose complied with

So, if someone gets money for Export of Goods/services via Western Union in Indian Rupees, it is not satisfying the Export of service conditions, and thus GST exemption is not available.

Query of Auditors

Kindly advise the legal position taken by Vamani Overseas in this regard

(a) FEMA (b) GST

Positively,
Sangeet Kr Gupta
Author

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