Barter Trade

[YAGAY andSUN]

Barter Trade whether Allowed in context with Indian Customs Laws, Foreign Trade Policy, Foreign Trade (Development and Regulation) Act & Rules and as per RBI Master Directions.

Barter trade, which involves the exchange of goods or services directly for other goods or services without using money, is a practice that is not explicitly prohibited under Indian Customs Laws, the Foreign Trade Policy (FTP), or the Foreign Trade (Development and Regulation) Act, 1992, and the Foreign Trade (Regulation) Rules, 1993. However, there are important regulations and considerations under Indian law that govern such transactions.

1. Indian Customs Laws:

• Customs Duties & Valuation: If barter trade involves the movement of goods across international borders, Customs duties, taxes, and valuation rules would apply. Customs authorities will determine the value of the goods being traded and may levy customs duties accordingly.
• Imports and Exports: While barter itself is not prohibited, any goods involved in the barter transaction will be subject to the same import/export procedures as traditional trade, including the need for proper declarations, compliance with restricted or prohibited goods lists, and payment of applicable duties.

2. Foreign Trade Policy (FTP):

• The Foreign Trade Policy of India (which is updated periodically) regulates international trade and outlines specific procedures for export and import. While FTP generally focuses on promoting trade through monetary exchange, barter transactions can technically fall under the purview of the policy if they involve international transactions.
• The Export and Import Policy will govern any goods that are being exported or imported as part of the barter trade. Exporters/importers involved in barter trade are required to comply with licensing requirements and ensure that no goods traded are on the restricted or prohibited list.

3. Foreign Trade (Development and Regulation) Act, 1992:

• Under the Foreign Trade (Development and Regulation) Act, 1992, the government has the authority to regulate foreign trade, including the movement of goods and services. While the Act emphasizes regulation of trade through monetary exchange (e.g., currency, payment systems), barter trade involving goods or services is not expressly prohibited.
• The Director General of Foreign Trade (DGFT) administers the policy, and transactions, including barter trade, must comply with the Act’s provisions, especially if they involve the export or import of goods.

4. RBI Master Directions (Foreign Exchange Management Act - FEMA):

• The Reserve Bank of India (RBI), under the Foreign Exchange Management Act, 1999 (FEMA), controls and regulates foreign exchange transactions, which includes payments in foreign currency or equivalent for goods and services.
• Barter transactions in international trade can be tricky from an exchange control perspective, as they do not involve the direct transfer of foreign exchange or currency. Therefore, if barter trade results in goods crossing borders, proper reporting and compliance with RBI guidelines on payments and receipts in foreign currency may still be required.
• If the barter trade is conducted without using foreign exchange (i.e., through an exchange of goods), the RBI might expect compliance with certain documentation requirements or declarations, especially if goods are being exported or imported.
• Barter trade within India (domestic barter) does not directly involve foreign exchange and thus is typically outside FEMA's direct scope. However, transactions involving international barter may require clearance or reporting to the RBI or DGFT.

Relevant Para as mentioned in the RBI Master Direction – Export of Goods and Service

(Updated as on 16-01-2025)

A.9 Border trade with Myanmar

In supersession of instructions contained in A.P. (DIR Series) Circular No. 17 dated October 16, 2000, barter system of trade at the Indo-Myanmar border has been discontinued and replaced with normal trade with effect from December 1, 2015. Accordingly, all trade transactions with Myanmar, including those at the Indo-Myanmar border with effect from December 1, 2015 shall be settled in any permitted currency in addition to the Asian Clearing Union mechanism.

 

A.10 Counter –Trade arrangements with Romania

The Reserve Bank will consider counter trade proposals from Indian exporters with Romania involving adjustment of value of exports from India against value of imports made into India in terms of a voluntarily entered arrangement between the concerned parties, subject to the condition, among others that the Indian exporter should utilize the funds for import of goods from Romania into India within six months from the date of credit to Escrow Accounts allowed to be opened.

C.26 Set-off of export receivables against import payables

C.26.1. AD category –I banks may deal with the following requests received from their Exporter/Importer constituents for allowing set-off of outstanding export receivables against outstanding import payables:

• Set-off of outstanding export receivables against outstanding import payables from/to the same overseas buyer/supplier.
• Set-off of outstanding export receivables against outstanding import payables with their overseas group/associate companies either on net basis or gross basis, through an in-house or outsourced centralized settlement arrangement.

 The set-off shall be subject to the following conditions:

• The arrangement shall be operationalised/supervised through/by one AD Category – I bank only
• AD Category – I bank is satisfied with the bonafides of the transactions and ensures that there are no KYC/AML/CFT concerns;
• The invoices under the transaction are not under investigation by Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency;
• Import/export of goods/services has been undertaken as per the extant Foreign Trade policy
• The export / import transactions with ACU countries are kept outside the arrangement;
• Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa.
• AD Category – I bank shall ensure that import payables/export receivables are outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year.
• In case of bilateral settlement, the set-off shall be in respect of same overseas buyer/supplier subject to it being supported by verifiable agreement/mutual consent.
• In case of settlement within the group/associates companies, the arrangement shall be backed by a written, legally enforceable agreement/contract. AD Category – I bank shall ensure that the terms of agreement are strictly adhered to;
• Set-off shall not result in tax evasion/avoidance by any of the entities involved in such arrangement.
• Third party guidelines shall be adhered to by the concerned entities, wherever applicable;
• AD Category – I bank shall ensure compliance with all the regulatory requirement relating to the transactions;
• AD Category – I bank may seek Auditors/CA certificate wherever felt necessary.
• Each of the export and import transaction shall be reported separately (gross basis) in FETERS/EDPMS/IDPMS, as applicable.
• AD Category – I bank to settle the transaction in E/IDPMS by utilizing the ‘set-off indicator’ and mentioning the details of shipping bills/bill of entry/invoice details being settled in the remark column (including details of entities involved).

C.27 Netting-off of export receivables against import payments – Units in Special Economic Zones (SEZs)

AD Category - I banks may allow requests received from exporters for ‘netting off’ of export receivables against import payments for units located in Special Economic Zones subject to the following:

1. The netting off of export receivables against import payments is in respect of the same Indian entity and the overseas buyer / supplier (bilateral netting) and the netting may be done as on the date of balance sheet of the unit in SEZ.
2. The details of export of goods are documented in EDF (O) forms / DTR as the case may be while details of import of goods / services are recorded through A1 / A2 form as the case may be. The relative EDF will be treated as complete by the designated AD Category – I banks only after the entire proceeds are adjusted / received.
3. Both the transactions of sale and purchase in R- Returns under FETERS are reported separately.
4. The export / import transactions with ACU countries are kept outside the arrangement.
5. All the relevant documents are submitted to the concerned AD Category – I banks who should comply with all the regulatory requirements relating to the transactions.

Key Considerations:

• Documentation: Proper documentation should be maintained for barter trade transactions, particularly in cross-border trade, to ensure compliance with Indian laws.
• Exchange Control Compliance: Even though barter trade may not directly involve foreign currency exchange, any indirect impact on foreign exchange or cross-border payments may be subject to RBI regulations.
• Taxes: Goods involved in barter trade may be subject to Goods and Services Tax (GST) under Indian tax law, and any indirect taxes on imports/exports will need to be considered.

Conclusion:

In summary, while barter trade is not expressly prohibited by Indian laws, it is subject to the same regulations governing international trade, customs, and foreign exchange. Both the Foreign Trade Policy and the Foreign Trade (Development and Regulation) Act govern the trade of goods and services, while RBI Master Directions will apply in cases involving foreign exchange. Additionally, Customs duties and taxes may apply depending on the nature of the barter transaction, especially if goods cross borders. The key is to ensure that proper legal and regulatory compliance is followed in the process.