PayPal UPDATE: IEC Code required to Withdraw Funds

Hi All,

Just to update you all, I received a letter from PayPal that people can now withdraw their funds. However, they need to enter an Export Code before the transaction is successful. There is no news on when the personal payments will be resumed. For the time being, obtaining an export code will help Indians whose money is stranded in PayPal.

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Going further, when I posted this update in our Freelance Guild, some questions arose as how to get the IEC form to get the Export Code and How to fill it - as most of us work as individuals and do not have any business name.

Following is some information that might help you.

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Is Import Export code really necessary?

According to PayPal, Yes.

There has been a lot of talk among indian paypal users, about how to get “export code” (a.k.a IEC code or Import export code ) issued by directorate of foreign trade from Indian govt. The following helps:

How to Apply for Export code (IEC code)

Quite contrary to many people think, it is very easy to apply and get the IEC code (usually 10 digits) from the Office of the Director General, Foreign Trade in your city for a small fee. You can apply as individual name under services and dont need to form a company or proprietorship. Both savings and current account are accepted. It usually takes 2-5 days to get this code. You can also consult your auditor or CA on this.

As of now, you cannot apply for IEC code online, at this time, except you can only check the IEC status online.

Documents Required

**Read this pdf document on IEC procedures and fees

Download the IEC Application and print it.

PAN card (2 copies)

2 Photos

Bankers Certificate stamped by your bank where you hold savings/current account (see the format in IEC application)

Bank Account statement (1 month)

Self Addressed envelope

Demand draft for Rs 250.

>> In short, the process of withdrawing money is now complex. You will need an export code as of now. There is no news about when they'll allow personal payments. So a simple advice to all Indian writers n entrepreneurs using PayPal: If you have funds stuck in PayPal, get the export code and withdraw the funds. And until the personal payments are given a green signal, ask your clients to pay using any alternate mode such as Xoom.

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This question led to many other questions in our Guild like how to use the IEC form for individuals, taxes, etc. Please read the response I posted:

1. In the IEC form, you need to fill in your own name where it asks for company name. If you have a bank account in the name of your business, you can fill in the business name.

IMP: If you wish to give a name to your business, you might go ahead and fill it in the area but then, you will need a separate bank account for the business. You will also have to upgrade your PayPal account from personal or Premiere to a Business account so that the funds go to the bank account. For personal and premiere accounts, PayPal send funds to your bank using your name which may mean a refund and thereby penalty fee at PayPal's end too.

2. You do not necessarily register if you are running a proprietary/Sole-Owner business. You may opt out from registering if you wish (though registration of trademarks and monograms is beneficial in the long run). If you wish to register the firm name and/or monogram, you need a third party service provider else it will take years - all of you know how the judicial system works in India. Check out the best attorney in your area for registration (You will also need a good amount to grease the palms of registrars). Once again, registration is not necessary for sole ownership (proprietary) business.

3. Coming to taxes, one of the best advantages of a proprietary firm (sole-ownership) is that you do not need a different PAN card for your business. Your business profits are treated as an individual and hence you pay only the individual income tax that you have been paying.

However, as the IT officials may keep an eye on your transactions after you apply for the IEC, you may have to fill in TAX EXEMPTION Form if your profit does not fall into the IT Net, which I suppose, is somewhere around 1.6 lacs. Another benefit is that you can always pass off your personal expenses as official, so that you pay minimum tax or no tax at all (using the Exemption Form). Anyways, the tax money will not reach the common man so better save it for your business - at least your employees will benefit!

I hope this answers most of the doubts with IEC and taxes associated with sole ownership.

Let us see what all complications come in with the "personal payments" through PayPal once they resume it. I hope it will be much easier.

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Best Regards,

Arun Kumar M.

http://dreams-central.com

Twitter: @DreamsCentral

#FaceBook Cause for a Better World: http://j.mp/Careerz

Signed: Monday, March 01, 2010, 2:49:49 PM IST