Just yesterday I was browsing through my mail when I noticed an email Subject stating “Resuming local banks withdrawal to India” I thought that somebody was playing a prank or something but when I saw the From section of the table, I felt glad to see Paypal written there. I was feeling overwhelmed with joy seeing the subject. I opened the mail and began to read with joy filled in my heart. My joy turned slowly into confusion as I read the mail. The email stated.

PayPal

Dear Shiva Chettri,

We have been diligently working with the RBI and our business
partners to resume Indian bank withdrawals for the thousands
of Indian businesses who depend on PayPal to sell their goods
or services in the global marketplace.

Today, we are happy to announce that the RBI has allowed us
to continue local bank withdrawals for settlements for exports
of goods and services.  We are currently making changes to
comply with Indian regulations for settlements for exports of
goods and services, and we anticipate that, as of Wednesday,
March 3rd, customers will be able to use our
bank withdrawal service.

As part of the changes, you will be required to fill out a
new field entitled 'Export Code' when you request a withdrawal.
This information is required under the current laws of India in
order to identify the nature of cross-border merchant transactions.

On Monday, March 1st, we will be back in touch with specific
instructions on how you can move your money into your bank account.

Moving forward, the RBI has told us that PayPal needs specific
approvals to allow personal remittances to India, which we
currently do not have.  Until we get these approvals, personal
payments into India will remain suspended.  However, if you are
an exporter, you will continue to be able to use the PayPal
service for payments of goods and services.  In fact, with the
changes we are making to our system, PayPal is now set to be a
more powerful engine for exporters in India.  With purpose codes
for export transactions and FIRCs (Foreign Inward Remittance
Certificates), you should now be able to get the export
related benefits you seek.

You can check the PayPal blog for additional updates.
www.thepaypalblog.com

We thank you for your business and for your patience during
the past few weeks.

Sincerely,

PayPal

Now, what got me confused as to what is export code. I did some research through Google and also went to some very popular forums and found out more information about Export Code. The Export code that is being referred here is the IEC code or the Import Export Code.

What is the IEC?

IEC is the Importer Exporter code which is granted by the Directorate General of Foreign Trade (DGFT), to any bonafide person or company for carrying out import / export. Here is a sample IEC – http://www.dgft.gov.in/dgftcla/database/ieccert.pdf

The IEC forms the primary document for recognition by Government of India as an Exporter / Importer. On the basis of IEC, companies can obtain various benefits on their exports/imports from DGFT, Customs, Export Promotion Council etc.

Why do you need the IEC?

If you are a Paypal user and need to withdraw money from your Paypal account to your local Bank account, you will need the IEC according to a recent RBI directive.

How to apply for the IEC “Import Export Code”?

You can apply for the IEC at the zonal Directorate General of Foreign Trade (DGFT) office.

The application form can be downloaded here – IEC Application Form – http://www.dgft.gov.in/dgftcla/database/IECForm.doc

What are the documents required:

1. PAN Card
2. Current Account/Savings account (Current Preferred but Savings will do)
3. Bankers Certificate with attested photograph
4. 2 Photographs in application
4. Cover letter on your firm letter head
5. D.D. of Rs.250/-
6. Envelope with a stamp of rs.25

Issues that have arised:

The main issues that arised are for the Individual Freelancers who do not work as a company. A company can easily obtain an IEC code but the individual freelancers are will have huge problems. Many freelancers use online money making as an extra source of income or as a part time job. Most earn less than 100 dollars a month by doing stuffs like copy paste. The Paypal decision of using export codes will act as a blow to all these freelancers because most of the Freelancers do not have a PAN Card. Not having a PAN Card they are thus exempted from taxes. But the basic necessity to get an IEC code is a PAN card. So first they will have to apply for PAN Card. A PAN Card takes 1 month to be issued so he/she will have to wait for 1 month and then apply for a IEC Code which in turn will take a month. Therefore,  a small time freelancer will need to wait atleast 1 month minimum to withdraw from Paypal to his/her bank.

The other problem that has come up due to this Paypal decision is for the freelancers who earn good amount of money online but do not pay  their taxes. They will now have to provide all their details to the government through the IEC code.

The main confusion that lies, is with the IEC code. There is a huge debate on who can apply for IEC code. Some believe that it is only for companies while other say it is also for individuals. There is also another debate on what kind of exports come under IEC. Some say Goods only while the others says services also come under IEC code. There is also debate th at money earned under Rs. 1,60,000 do not come under the purview of IEC. The other thing that is debatable is the requirement of Current account for getting an IEC Code.  Some people say that only Current Accounts can be used but others say that Saving accounts also can be used.

The other issue with IEC is that, you will have to provide an annual summary of all the exports/services you have done throughout the year. That is too much paperwork and a great hassle for small time time freelancers. It is not logical nor makes sense if a person receives payment of just $50 or other small amounts and need to mention IEC code everytime the payment is done.

Paypal did a good job by resolving it’s withdrawal issues at the earliest but it has brought other huge problems for all the Indian users. Many Paypal users in India do not earn much online and this decision of Paypal will certainly make them think twice about continuing to work online or at the least using Paypal.

Shiva Chettri is a young web entrepreneur, designer and a SEO Analyst and Consultant. You can find him blogging at Netchunks about Technology, SEO and Blogging

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