FREELANCING

THE DIGITAL
TRANSFER OF JOB
WORKS
RELEVANT STATUTORY
PROVISIONS (INDIA)

Ranjith Xavier Attokaran

Advocate, High Court of Kerala

CAVEAT & DISCLAIMER

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.

20th day of January, 2009.

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.

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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.

Code Clause Service Taxed Date

Online Information & Data Base Access
029 65(105)(zh) 16-07-2001
or retrieval
Transport of goods other than water
071 65(105)(zzz) 16-06-2005
through pipeline or other conduit
Support services of business or
088 65(105)(zzzq) 01-05-2006
commerce
Information Technology Software
101 65(105)(zzzze) 16-05-2008
Services

Consult your chartered accountant for more accurate and updated information on
this regard.

2
PERSPECTIVE OF FOREX LAWS

FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA)

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,

(ii) provision of services from India to any person outside India;

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):

"Service" means service of any description which is made available to potential

users and includes the provision of facilities in connection with banking, financing,
insurance, medical assistance, legal assistance, chit fund, real estate, transport,
processing, supply of electrical or other energy, boarding or lodging or both,
entertainment, amusement or the purveying of news or other information, but
does not include the rendering of any service free of charge or under a contract of
personal service;”

Definition of Foreign Exchange

Section 2(n):

"Foreign exchange" means foreign currency and includes,-

(i) deposits, credits and balances payable in any foreign currency,

(ii) drafts, travelers cheques, letters of credit or bills of exchange,

expressed or drawn in Indian currency but payable in any foreign
currency,

(iii) drafts, travelers cheques, letters of credit or bills of exchange drawn

by banks, institutions or persons outside India, but payable in Indian
currency;

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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.

Duty to furnish declaration by exporter of Service

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

The method and manner in which the declaration is to be furnished is prescribed

in the Foreign Exchange Management (Export of goods and services) Regulations,
2000 discussed later.

Realisation and repatriation of foreign exchange

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. “

Section 9 prescribes certain exceptions to Section 8. Consult your chartered

accountant to know your individual case comes under the exceptions.

THE FOREIGN TRADE (DEVELOPMENT AND REGULATION)

ACT,1992

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.”

Definition of Import and Export

"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:

“Goods" includes any article, animal, substance or property whatsoever;”

The Foreign Exchange Management Act, 1999 does not define the term “Goods”.

The General Clauses Act, 1897 does not define the term “Goods”.

Section 7 of the Sale of Goods Act, 1930 defines goods as:

“Goods” means every kind of movable property other than actionable claims and
money; and includes stock and shares growing, crops, grass and things attached to
or forming part of the land which are agreed to be served before sale or under the
contract of sale;”

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”.

In common parlance, “Goods” means merchandise or movable property in physical

form.

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.

FOREIGN EXCHANGE MANAGEMENT (EXPORT OF GOODS AND

SERVICES) REGULATIONS, 2000

Hereafter, the word “Regulation” would mean Foreign Exchange Management

(Export of goods and services) Regulations, 2000.

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.

Under this regulations;

Definition of “Export” in the Regulation

'Export' includes the taking or sending out of goods by land, sea or air, on
consignment or by way of sale, lease, hire-purchase, or under any other
arrangement by whatever name called, and in the case of software, also includes
transmission through any electronic media.

Definition of “Software” in the Regulation

'Software' means any computer programme, database, drawing, design,
audio/video signals, any information by whatever name called in or on any
medium other than in or on any physical medium.

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

6
and video files); ANY INFORMATION by whatever name called (other than, in
or on any physical medium – includes any kind of information).
Declaration

Under this Regulation, every exporter of GOODS or SOFTWARE (either in

physical form or through any other form), (directly or indirectly), to any place
outside India, (other than Nepal and Bhutan), shall furnish to the specified
authority, a declaration in the prescribed form annexed to the Regulation.

In that declaration, the following details are to be furnished, as prescribed, along

with evidences:

(i) The full export value of the goods or software

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.

If there is no such form prescribed, in respect of export of any services, the

exporter may export such services without furnishing any declaration, but shall be
liable to realise the amount of foreign exchange (payment in foreign currency for
the work done) which becomes due or accrues on account of such export, and to
repatriate the same to India in accordance with the provisions of the Act, and these
Regulations, as also other rules and regulations made under the Act (Foreign
Exchange Management Act, 1999).

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.

Exceptions (from the necessity to submit declarations)

The Regulation narrates several exceptions where such a declaration is not
necessary. (Hereafter referred as “Exception”) One such exception is that:

Export of goods or services can be made without furnishing the

declaration if the goods or software is accompanied by a declaration by
the exporter that such goods or software are not more than twenty five
thousand rupees in value.”

This exception may be particularly applicable to the domain of freelancing jobs.

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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.

IMPORTER-EXPORTER CODE NUMBER (IEC Number) is allotted by the

Director General of Foreign Trade under Section 7 of the Foreign Trade
(Development & Regulation) Act, 1992 (22 of 1992)

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.

EXPORT IMPORT POLICY (INDIAN FOREIGN TRADE POLICY 2004 -

09) / (EXIM POLICY)

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.

Definition of Service Provider

3.48 "Service Provider" means a person providing

(i) supply of a "service" from India to any other country;

(ii) supply of a "service" from India to the service consumer of any other
country in India; and

8
 (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.

PERSPECTIVE OF CONTRACT LAW

Indian Contract Act, 1872, statutes pertaining to contract, of the of the client’s
nation, international treaties and conventions etc., will be applicable, depending
on the facts and circumstances. Consult your lawyer to know more, based on your
individual case.

PERSPECTIVE OF CRIMINAL LAWS

Indian Penal Code, 1860, Information Technology Act, 2000, other relevant penal
statutes in India, the penal statutes of the client’s nation, international treaties and
conventions etc., will be applicable, depending on the facts and circumstances.
Consult your lawyer to know more, based on your individual case.

LINKS

EXIM Policy

Income Tax Act, 1961 ,

Information Technology Act, 2000

Imports and Exports (Control) Act , 1947

The Foreign Exchange Management Act, 1999

The Foreign Trade (Development and Regulation) Act,1992

Foreign Exchange Management (Export of goods and services) Regulations, 2000