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THE DIGITAL
TRANSFER OF JOB
WORKS
RELEVANT STATUTORY
PROVISIONS (INDIA)
This article pertains to the Indian statutory provisions that may be applicable to the freelance jobs,
pertaining to software/literary/artistic domains, procured by freelancers in India from abroad,
and transmission of the finished/performed work, in digital format via internet, to the client
abroad, for a consideration.
Take note that this article is not an exhaustive commentary on the statutes discussed hereunder.
The statutes discussed hereunder may not be an exhaustive list of statutes applicable. The article is
prepared in academic interest, and gives only a general overview of the highlights of the statutes
which may be applicable.
While the author has yearned to be as accurate as possible, the same may not be fully correct or
may not reflect the latest position of the statutes discussed. Note that the views expressed in the
article are purely the personal views of the author.
This article is never a substitute to professional advice and is not intended to be acted upon. The
author will not be liable, responsible or answerable under any circumstances in any manner, for
any claims on account of the views expressed in the article. The reader is advised to consult
his/her lawyer, chartered accountant or such other professional consultant as she/he deems fit, to
discuss her/his particular issues at hand.
This article is free for unlimited copying, printing and distribution without any consideration,
provided the each copy or print contains this Caveat & Disclaimer and the whole of the article, in
its original form; and credits the author of this article as Adv. Ranjith Xavier Attokaran.
F
reelancing is the present day’s buzzword. Wikipedia defines a freelancer or
freelance worker as a person who pursues a profession without a long-term
commitment to any particular employer. The term "freelance" was first
coined by Sir Walter Scott (1771–1832) in his well-known historical romance
Ivanhoe to describe a "medieval mercenary warrior" (or "free-lance"). These days,
most of the freelance jobs are procured and transmitted via internet.
In India, currently there is no law specific to the domain of freelancing. There are
several statues that may be applicable to the freelancing jobs performed here and
transmitted outside India, via internet. This article will attempt to examine the
various legal provisions applicable from the perspective of different statutes.
1
PERSPECTIVE OF TAX LAWS
INCOME TAX ACT. 1961.
Any income derived by way of freelancing job is taxable under the provisions of
Income Tax Act. 1961.
If your annual income derived out of freelancing job alone; or if added to your
other income(s), adds up to exceed the annual limit mentioned in the Income Tax
Act, you are duty bound to apply for and obtain a Permanent Account Number
(PAN). Obtaining PAN is mandatory also if the total receipts for a year exceeds the
limit for the turn-over mentioned in the Income Tax Act, though the whole of the
receipts may not be “income”.
Consult your chartered accountant for more accurate and updated information on
this regard.
SERVICE TAX
Service Tax was introduced by Finance Act, 1994. Sections 64 to 96 of the Finance
Act, 1994 deals with Service Tax. Service Tax Rules, 1994 are the rules which are
applicable to the collection of Service Tax.
Service tax is levied on specified taxable services and the responsibility of payment
of the tax is cast on the service provider. System of self-assessment of Service Tax
Returns by service tax assessees has been introduced with effect from 01.04.2001.
The jurisdictional Superintendent of Central Excise is authorized to cross verify the
correctness of self assessed returns. Tax returns are expected to be filed half yearly.
Central Excise officers are authorized to conduct surveys to bring the prospective
service tax assessees under the tax net. Directorate of Service Tax at Mumbai over
sees the activities at the field level for technical and policy level coordination.
From the long list of services on which Service Tax is payable, the list of a few
which may have special relevance to freelancing jobs are given below.
Consult your chartered accountant for more accurate and updated information on
this regard.
2
PERSPECTIVE OF FOREX LAWS
Definition of Export
Section 2 (i):
"Export", with its grammatical variations and cognate expressions, means –
(i) the taking out of India to a place outside India any goods,
Definition of Import
Section 2(p):
"Import", with its grammatical variations and cognate expressions, means bringing
into India any goods or services;
Definition of Service
Section 2(zb):
Section 2(n):
3
General prohibition in dealing with foreign exchange
Section 4 provides that no person resident in India shall acquire, hold, own,
possess or transfer, any foreign exchange, unless as prescribed under FEMA.
Section 7(3):
Every exporter of services shall furnish to the Reserve Bank or to such other
authorities a declaration in such form and in such manner as may be specified,
containing the true and correct material particulars in relation to payment for such
services
Section 8:
“Save as otherwise provided in this Act, where any amount of foreign exchange
is due or has accrued to any person resident in India, such person shall take all
reasonable steps to realize and repatriate to India such foreign exchange within
such period and in such manner as may be specified by the Reserve Bank. “
Under the provisions of the Act, anyone doing import or export is expected to
apply for and obtain an Importer-Exporter Code Number (IEC Number).
Section 7 of the Foreign Trade (Development and Regulation) Act, 1992 reads like
this:
“No person shall make any import or export except under an Importer-
Exporter Code Number granted by the Director General or the officer
authorised by the Director General in this behalf, in accordance with the
procedure specified in this behalf by the Director General.”
"Import” and "export" means respectively bringing into, or taking out of, India any
goods by land, sea or air;”
Note that the Foreign Trade (Development and Regulation) Act, 1992 does not
define “Goods”.
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Section 22 of the Imports and Exports (Control) Act, 1947 which is the predecessor
of the Foreign Trade (Development and Regulation) Act, 1992 defines goods as
follows:
The Foreign Exchange Management Act, 1999 does not define the term “Goods”.
The General Clauses Act, 1897 does not define the term “Goods”.
The online version of the Oxford Advanced Learner’s Dictionary defines the term
“goods” as:
goods
noun [pl.]
things that are produced to be sold: cheap / expensive goods
leather / cotton / paper goods electrical / sports goods perishable
/ durable goods increased tax on goods and services
See also CONSUMER GOODS
possessions that can be moved: stolen goods The plastic bag
contained all his worldly goods (= everything he owned).
(BrE) things (not people) that are transported by rail or road: a
goods train a heavy goods vehicle
Compare: FREIGHT
Idioms: be the goods (BrE, spoken) to be very good or impressive
deliver the goods
come up with the goods (informal) to do what you have promised to
do or what people expect or want you to do: We expected great things
of the England team, but on the day they simply failed to deliver the
goods.
None of the above definitions would indicate that electronic files would come
under the definition of “Goods”.
Now the question to be considered is whether a person who transmits digital files
over internet is exporting “goods” from India to abroad.
Even considering that software programmes or other digital files are goods, their
electronic transmission via internet would not amount to import or export since
they are not brought into India, or taken out of India, by “by land, sea or air” (By
5
road, ship or aircraft) as envisaged in the definition (of import and export).
Therefore, it can also be assumed that transmission of electronic files via internet
will not amount to import or export.
The term “goods” cannot bring within its ambit “services”. So, it can be safely
assumed that “services” does not come under the definition of “goods” and an
exporter of services need not apply and obtain IEC Number, as per the
requirement of Section 7 of the Foreign Trade (Development and Regulation) Act,
1992.
Therefore, the requirement to apply for and obtain IEC Number is not applicable
to import and export of services or to electronic files transmitted from
India to abroad via internet, as per the requirement of Section 7 of the Foreign
Trade (Development and Regulation) Act, 1992.
But, there is a recommendation to include “services” too into the ambit of the said
Act. The proposed amendment is kept in abeyance due to the objections from
Finance Ministry. Once “services” too are brought into the ambit of the said Act,
every freelancer perform services to a foreign client would be exporting it and
thus attracting the provisions of the said Act. In such a case, he/she should apply
for and obtain the IEC Number.
The terms “Goods” and “Service” are not defined in the Regulation. The term
“service” is defined in FEMA and the same will be applicable here too.
Note that the definition of the term “Software” is much wider than the normal
meaning we give to it, in common parlance.
COMPUTER PROGRAMME (including source codes, scripts etc.);
DATABASE (all kinds of databases); DRAWING, DESIGN (all kinds of
artworks including cartoons, sketches, webpage designs, logo designs, image edit
works etc.); AUDIO / VIDEO SIGNALS (including editing works done to audio
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and video files); ANY INFORMATION by whatever name called (other than, in
or on any physical medium – includes any kind of information).
Declaration
In case, the full export value is not ascertainable at the time of export,
(ii) The value which the exporter expects to receive on the sale of the
goods or the software in overseas market (Having regard to the
prevailing market conditions).
He/she shall affirm in the said declaration that the full export value of goods or the
software has been/will be, paid in the specified manner, within the specified
period.
The form in which the declaration is to be submitted in each case is specified in the
Schedule of the Regulations.
The authority to which the Declaration is to be furnished and the manner in which
it is to be furnished are narrated in the Regulation.
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Importer-Exporter Code Number
The Regulation mandates that each declaration (and its copies) submitted by the
Exporter, shall indicate on it the IMPORTER-EXPORTER CODE NUMBER (IEC
Number). The Regulation also mandates that the IEC Number is to be indicated
on all the correspondence of the Exporter with the Authorised Dealer or the
Reserve Bank.
Note that, if an exporter comes under any of the exceptions listed in the
Regulations, he/she need not file a declaration. If he/she need not file a
declaration, he/she need not obtain the IEC Number. Such a person needs
an IEC Number only if he/she needs to have any correspondence with the
Authorised Dealer or Reserve Bank.
Consult your chartered accountant for more accurate and updated information on
this regard.
This Policy came into force on 1st September, 2004 and shall remain in force upto
31st March, 2009, unless as otherwise specified.
This policy was framed under the provisions of the Foreign Trade (Development
and Regulation) Act,1992. This Policy would be applicable if the
Definition of Exporter
3.22 "Exporter" means a person who exports or intends to export and holds an
Importer-Exporter Code number.
Definition of Services
3.47 "Services" include all the tradable services covered under General
Agreement on Trade in Services and earning free foreign exchange.
(ii) supply of a "service" from India to the service consumer of any other
country in India; and
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(iii) supply of a "service" from India through commercial or physical
presence in the territory of any other country.
The applicability of the provisions of the EXIM Policy depends on the facts and
circumstances of each particular case. Consult your consultant/chartered
accountant for more information on this regard.
LINKS
EXIM Policy