Do I need to file a Softex form?
If you are an exporter of software related goods or services, you may need to file a softex. So much confusion on the Softex form (right from the time it was made applicable).
Confused? We've got your back.
Let's start from scratch. What's included in this guide:
What is "Softex"?
Softex is a form that needs to be filed by every software exporter within 30 days from the date of invoice / the date of last invoice raised in a month.
The form is filed for certification of export value of the software by the competent authority.
What is included in "Software"?
Software is defined under the RBI regulations to mean any computer programme, database, drawing, design, audio/video signals, any information by whatever name called. The definition given is exhaustive and includes all kinds of software that may be shared in any medium other than in physical medium. It implies both Information Technology (IT) and Information Technology Enabled Services (ITES) exports.
‘IT’ covers both Software products including Software as a Service (SaaS) and Software services. Software services has a huge ambit to cover development, consulting, design, implementation, maintenance, re-engineering of a Software or a Software product.
‘ITeS’ covers all those services that are delivered to clients across borders of India using an IT driven system and process over a telecom/internet link (include BPO, KPOs, Digitization, Call centres, Data processing etc.)
Who is required to file Softex?
Simple answer is only those exporters whose exports are not goods or Software can escape the filing of SOFTEX.
Slightly absurd right? Unfortunately, that’s how wide the applicability is. Check it out:
Here's the issue - the above definitions might mean that freelancers working with overseas Companies may also need to file a Softex form.
If you're a freelancer or employed with a foreign company, check out our comprehensive guide on tax for freelancers.
In light of the above, it might be in your best interest to file a Softex form if you are in any way providing IT related goods or services and claiming the same as exports.
Software through physical medium:
Software exported in physical medium is treated as goods and declarations as applicable for goods will equally apply to such software exported in physical medium. This means that to these exporters, softex will not apply.
STP or SEZ
Exporters i.e., both IT and ITeS registered under Software Technology Park (STP) and Special Economic Zone (SEZ) must file SOFTEX form with the STPI or SEZ Division.
Non-STP and Non-SEZ
However, Exporters of Software that are not registered in STP or SEZ or other Export Oriented Units (EOU) must also file SOFTEX, according to the foreign trade policy.
Such exporters are commonly called non-STP units and can file the SOFTEX form with the concerned jurisdictional Director of Software Technology Parks of India (STPI).
Exports of services that do not fall under IT and ITeS category are not liable to file the export declarations or the SOFTEX form.
Penalties for non-filing of Softex
If a softex is not filed, the remittance received is treated as ‘general services’ and not as an export proceed which shall act detrimental to the business entities in claiming that they have previous export performance for participation in tenders related to software projects.
Another issue that might creep up in the future is the zero-rated GST supply. Exporters are allowed to export goods or services without payment of GST by filing a Letter of Undertaking. When the eventual linking of the RBI database and GST database does happen, this might cause a headache.
Further, entities engaged in exports are entitled to claim refund of the input GST paid on inputs and input services received for undertaking exports. In order to process these refund claims, the concerned tax authorities insist the business entities engaged in software exports to submit softex forms for the purpose of processing of such refund claims.
Worst case, banks have been known to freeze accounts in case Softex forms are not filled. However, this is in extreme cases where multiple reminders have been sent.
I haven't filed Softex. Now what?
We know what you are thinking - I've been exporting goods/ services for years and no one has asked for a softex form. Why now?
Here's the thing - we're not trying to scare you. Based on our discussions with banks and authorities, we have come to the conclusion that filing softex may be required in all export cases where IT or ITeS is involved.
Good part is - there are no monetary penalties for non-filing of softex at this point of time. This might change in the future though.
What we've been seeing is that systems are getting stronger. There might be a time 2-3 years from now when the RBI starts sending notices to everyone who exports IT related goods or services for non-filing of softex.
Makes sense to file your softex forms to ensure compliance so you don't have any headaches in the future.
How do I file Softex?
Simple answer? Contact Galactic Advisors!
More complicated answer? See below:
Generate Softex number through the RBI facility
Fill in the online Softex Form available on the STPI website not later than 30 days from the date of invoice or date of last invoice raised in a month.
Upload the filled Softex Form along with the Invoices, Contracts (if not pre-registered), Softex letter as generated from the RBI facility portal and the data com bill.
Download the application copy of Softex Form.
Digitally sign the Application copy and submit it for certification of the STPI officer.
The certification process will be smooth and generally the values declared in the invoices issued towards software exports will be accepted and certified. Rejections are only in cases where there exists a doubt on genuineness of the export transaction undertaken.
The copy of SOFTEX form duly certified by the designated authority of STPI/SEZ shall be submitted to the banker for the purpose of realization of export proceeds.
The data submitted through SOFTEX forms shall be transmitted electronically from STPI/SEZs to RBI.
The data received by RBI will be made available in The Export Data Processing and Monitoring System (EDPMS) portal through which the bankers can access the said information to match the inward remittance of export proceeds and accordingly bankers shall issue a Bank Realisation Certificate.
Too complex? Don't worry. We've got your back. Just contact us and our team of experts will help you sort things out.
Here's some bonus content for you eager readers:
Interested in the History of Softex?
Exports generally means sending ‘goods and service’ to clients in foreign country (outside territorial borders of India) for purpose of sale. Physical goods are exported through a physical port of shipping (a sea port, airport or foreign post office) monitored by Central customs department.
When physical goods leave borders, from any port of shipment, the exporter in India is required to declared value of goods in a form called ‘EDF’ (Export Declaration Form). The value so declared is required to be accepted and certified by the customs office, at the port of shipment. This process is called “valuation of export”. Once the valuation of export is complete, the value so certified by the Customs Officer is accepted both by RBI and the exporter’s bank that then monitors, the inward remittance of an equivalent value in foreign currency in exporter’s bank account.
A ‘Software’ exported through a physical medium (CD/DVD, magnetic tapes etc.) has to pass through similar steps as when exported physically through a port of shipment, it is treated as physical goods.
In early 1990s, when Software Technology Park (STP) scheme came in to existence, the need to export Software through data communication links emerged. Customs department had difficulty in managing this, as nothing physical was visible in a Software transmitted through the telecom links.
DeitY (then Department of Electronics) thus enabled an innovation in government policy and could get RBI to announce SOFTEX form and STPI being the administrative authority of STP scheme, became the designated authority for “Software export valuation” and certification of softex form, in place of Customs. As on date the jurisdictional STPI Directors and SEZ Commissioners are the designated authority for softex valuation.
Thus the purpose with which softex form is introduced is to certify the value of software exports made by a software exporter. The only difference between certification of value for physical goods through the EDF and that for Software exports through the Softex is that EDFs are submitted and valued, simultaneous to the exports actually happening from port of shipment whereas, Softex form is a post-facto approval, after the actual export of Software has actually taken place.
Under the Foreign Trade Policy, Software (IT and ITeS) thus carries a special status in international trade equivalent to ‘goods’.