The Directorate General of Foreign Trade (DGFT) is a department affiliated with the Ministry of Commerce and Industry of India, governing and facilitating the country’s foreign trade. It is involved in formulating, implementing, and monitoring the Foreign Trade Policy (FTP), which aims at increasing exports while simplifying imports. The DGFT acts as a crucial go-between for the government and the trade community, granting permits, authorisations, and certificates such as the Importer Exporter Code (IEC). It also enforces international trade rules and assists exporters with incentive schemes and export facilitation measures.
What is IEC?
Importer Exporter Code (IEC) is an exclusive 10-digit code of registration provided by the Directorate General of Foreign Trade (DGFT) of the Ministry of Commerce and Industry, Government of India. Any individual or entity that plans to export or import goods and services from India is required to procure a license first. No one is allowed to engage in cross-border economic activity legally without an existing IEC.
The IEC serves as an identification number for the traders and is utilised at stages in international trade such as customs clearance, processing of shipments, receipt or dispatch of foreign exchange payments via banking houses. It is a lifetime registration and does not need to be renewed. It is nevertheless mandated by existing DGFT regulations that it has to be updated or verified between April and June annually.
IEC can be applied to a wide variety of entities, ranging from proprietorships and partnerships to LLPs, companies, trusts, and even individuals. It is also essential for exporters willing to benefit from India’s Foreign Trade Policy, such as duty drawbacks or export promotion incentives. The process to secure an IEC is simple, completely online, and requires very little documentation and is thus easily accessible to startups, MSMEs, freelancers, and existing businesses looking to expand in the international market.
Applicability of DGFT IEC Code
IEC is mandatory for all people and companies who are importing or exporting goods or services in India. Whether it is a corporate business, a small company, a service company, or a freelancer, obtaining an IEC is usually the first regulatory milestone in pursuing international business. It ensures hassle-free customs clearance, financial settlements, and the facility to participate in different government schemes as per the Foreign Trade Policy. Owing to its wide-ranging applicability and growing relevance in international trade, each enterprise looking to grow globally must give high priority to timely enrollment and compliance with the IEC requirements as specified by the DGFT.
1. IEC Applicability to Different Entities
Entities and individuals who are obliged to register for an IEC are:
- Proprietorship firms – Even a single entrepreneur who wants to carry out international trade needs to obtain an IEC in their name.
- Partnership firms and LLPs – Partnership firms or Limited Liability Partnership firms registered under the Partnership Act or the Limited Liability Partnership (LLP) Act are required to obtain an IEC before they can engage in import/export business.
- Private and public limited companies – Company entities, public or private, need to obtain an IEC before they can carry out import/export business.
- Trusts, NGOs, and Societies – Where these entities have foreign business activities (i.e., donations or import/export of project equipment), an IEC is required.
- Individuals – Any individual undertaking cross-border trading in a personal capacity is similarly required to apply for an IEC.
2. Situations Where IEC is Required
The IEC is mandatory in the following situations:
- Customs clearance of goods: Required at the moment of customs clearance for imports.
- Exporting shipments outside India: It is a must for export shipment processing through customs.
- Remitting or receiving foreign currency money: Banks require the IEC for foreign currency remittances towards making or receiving import/export-related remittances.
- Benefit from Foreign Trade Policy: Business entities looking to avail benefits or incentives under DGFT schemes are required to have a valid IEC.
3. Situations Where IEC Is Not Required
There are specific instances where an IEC is not required.
- Government ministries and departments are exempted from getting registered with the IEC for import/export activities.
- Some organisations notified by DGFT can be exempted from import/export requirements.
- IEC is not mandatory for personal imports/exports that are not related to trade, manufacturing, or agriculture.
- Exports of services via e-commerce websites: Small service exporters providing services through online websites might be exempt in certain situations, according to RBI guidelines and DGFT advisories.
Nevertheless, such exemptions are few and are rigid, and the majority of economic transactions relating to foreign trade require an IEC.
4. Relevance for Service Providers
Service providers that receive foreign currency payments for service exports are also required to have an IEC. Even though the service is intangible and cannot be physically delivered, foreign payments from abroad still need an IEC for legal and accounting purposes.
5. IEC for E-Commerce Exporters
With increased exports of e-commerce, it has become mandatory to have an IEC, even for small companies and startups selling goods or services online through channels like Amazon, Flipkart, or Shopify. Many platforms also mandate sellers to submit an IEC before permitting them to sell worldwide.
6. IEC for Freelancers and Consultants
Freelancers and independent consultants who get payments from foreign clients for their services, such as content writing, website development, graphic design, or any other professional work, should obtain an IEC in case the payments are recurring in nature and commercial.
7. Applicability for Exporters Claiming Benefits
Companies desirous of availing benefits under schemes of export promotion like MEIS, SEIS, RoDTEP, RoSCTL, etc., need a valid IEC. These schemes form a part of India’s Foreign Trade Policy and involve identification using IEC.
8. Validity and Renewal
IEC code remains effective for the life of the entity and does not need to be renewed annually. Yet, according to DGFT’s recent guidelines, all IEC holders are required to update and validate their IEC information between April and June annually, whether or not there are any changes. A default in updating results in the deactivation of the IEC.
Benefits of DGFT IEC Code
The Importer Exporter Code (IEC) is not just a legislative necessity, but rather it is an introduction to international commercial opportunities. The IEC is associated with a number of benefits, including facilitating speedy commercial transactions and bank remittances, utilising government facilities, and establishing business credibility. It is a simple enrollment process, perpetual validity, and increasing relevance in e-commerce and service exports make it a valuable tool for any organization looking to succeed in the global market.
1. Legal Permission to Import and Export
The IEC is a legal requirement for importing or exporting business in India. Without it, neither individuals nor businesses can clear consignments through customs or receive foreign payments. It ensures that your overseas economic transactions are recognised and approved under Indian law.
2. Access to Global Markets
Having an IEC enables businesses to extend their operations abroad, reaching international clients and suppliers. It is an exclusive identifier in international business transactions and is required by customs, banks, and government agencies engaged in international transactions.
3. No Compliance Burden or Renewal Obligation
After issuance, the IEC is effective for the lifetime of the organisation and does not need to be renewed. Apart from a yearly update or renewal (which became mandatory beginning in 2021), there are no compliance filings, renewals, or ongoing requirements, which makes this registration process exceptionally easy.
4. Easy Customs Clearance
Exporters and importers are asked to present their IEC at the customs clearance stage. It is used in tracking shipments as well as confirming the authenticity of trade transactions. Having an IEC ensures that your products can be exported or imported without unnecessary delays or legal issues.
5. Facilitates the Receipt of Foreign Currency
Banks need an IEC when companies import or export foreign currency for import/export business. IEC makes foreign exchange transactions involving trade go smoothly, allowing timely payments to and from foreign clients.
6. Increases Business Credibility
Having an IEC increases the credibility and professionalism of a business. It indicates that the company follows international trade laws and is duly recognised by Indian officials as a valid importer or exporter.
7. Mandatory for E-commerce and Online Exports
IEC is important for businesses exporting through e-commerce platforms such as Amazon, Flipkart, eBay, or Shopify. Such platforms typically require sellers to have an IEC before listing products for overseas sale, which opens the door for small businesses to reach consumers worldwide.
8. Useful for Service Exporters and Freelancers
IEC registration is beneficial for service providers such as freelancers, consultants, IT companies, and creative professionals receiving payments from overseas clients. It makes it easier for banks to process foreign remittances and promotes the growth of the export of the services industry.
9. Simplifies Foreign Trade Transactions
The IEC serves as a universal identifier for all import and export transactions. It does away with multiple registrations in different departments and makes interactions with customs, the DGFT, banks, and logistic service providers easy.
10. Easy Online Application Process
The IEC application is fully online, with minimal documentation and rapid processing through the DGFT website. This minimises paperwork and regulatory delays and makes it easier for startups, MSMEs, and first-time exporters.
Conclusion
IEC Code, established by the DGFT, is a must-have for anyone engaged in foreign trade from India, whether an individual or a company. Not only is it a legal requirement, but it also simplifies customs clearance, foreign currency payments, and access to export incentives as outlined in the Foreign Trade Policy. With its permanent validity and easy online application process, the IEC is a valuable tool for companies planning to expand globally.
