The Connection Between AD Code and Foreign Inward Remittance Certificates (FIRC)

The banks use the AD (Authorized Dealer) code to report the international transaction records to the RBI. In addition, RBI-authorized banks are responsible for issuing the AD code to Indian exporters who deal in international trade. AD code registration is the primary prerequisite before shipping the goods. After the successful export payment by international buyers, the same bank issues the FIRC (Foreign Inward Remittance Certificate). Both AD code and FIRC are linked to each other, but serve different functions for exporters. This guide will explore how the authorized dealer code and FIRC are interlinked, including their role for exporters.

1. AD Code Registration: Why is it necessary for remittances?

The Authorized Dealer (AD) code is a 14-digit unique character code that is generally granted by the banks that have permission from the Reserve Bank of India (RBI). The Reserve Bank of India (RBI) selects the banks for handling the foreign exchange. The responsibility falls on banks to handle the AD code registration process and verify the account details of exporters, their business existence, and much more. After the final verification, the 14-digit code letter for customs is issued, which allows businesses to trade internationally and receive foreign exchange. On the other hand, the importance of AD code in foreign remittance is vital for export businesses or new export houses. 

Here is the breakdown of the AD code necessary for remittances:

• AD code registration on ICEGATE is crucial for shipping bill filing. Through the shipping bill certificate, the export authority verifies details and then clears goods from ports.
• For the tracking of foreign currency transactions, the Reserve Bank of India (RBI) uses the AD code. Holding the AD code demonstrates that your business adheres to the Foreign Exchange Management Act (FEMA). 
• The AD code process ensures that the foreign remittances are performed through a legally recognized channel. It is crucial to avoid illegal currency transfer. 
• For financial ecosystem management, the AD code allows the regulatory authority to track the foreign exchange inflow and outflow.
• AD code links the current bank account to import-export activities. This linking allows the exporters to claim the government incentives that are credited directly to the holder’s bank account. 
• The authorized dealer (AD) facilitates smooth banking transactions. 

2. The FIRC Certificate: What is it and What’s it For? 

Before we discuss how the AD code registration ensures hassle-free foreign remittances, we should start by clarifying what the FIRC certificate is used for. A FIRC, or Foreign Inward Remittance Certificate, is a formal proof document issued by a duly recognized bank in India. The certificates act as proof for the foreign currency transfer into an Indian bank account. The certificate highlights the foreign transaction details, including the foreign currency amount transferred and the Indian rupees. In the certificate, the names of the sender and the recipient are also mentioned. 

The main use of the Foreign Inward Remittance Certificate (FIRC) is

• Acts as a Payment Proof: FIRC certificates function as some evidence showing that foreign remittances, called Foreign Inward Remittances, received by the bank have been completed. 
• Helps to Comply with RBI: The remittance certificate is important to adhere to the RBI (Reserve Bank of India) and the FEMA Act, rules & laws.
• Use for Tax Benefits: It is used by the exporters during income tax return filing. This is because, with it, they can claim tax advantages and exemptions.
• Claim Government Schemes: To access the export-related schemes and incentives, a certificate is often required. With it, exporters can utilize the GST refunds or apply for loans. 
• Use for Auditing Purpose: For the auditing purpose, the certificate serves as the formal record. It helps in ensuring the accurate recording of business and export individuals.

3. What is the Role of AD Code in FIRC Issuance?

The foreign exchange management journey starts from the AD code registration at customs. It is essential for the approval of the Foreign Inward Remittance Certificate if a foreign currency transfer is involved. This code allows the banks to track foreign exchange, confirm information, and report to the Reserve Bank of India (RBI).  The steps that take place prior to the process preceding the issuance of the FIRC refer to:

Step 1: Approval of “AD Code”

The RBI authorized banks to issue the AD code letter to the exporters. Once registered on the ICEGATE portal, the AD code connects the exporter’s bank account to foreign transactions. This connection is necessary to ensure that the process of foreign exchange is executed through a legal route. 

Step 2: Reporting to EDPMS

For the RBI’s Export Data Processing and Monitoring System (EDPMS), the AD code is a central requirement. When a foreign transaction is made by an international buyer, the bank uses the AD code to report on inward remittances to EDPMS. When a bank publishes an Inward Remittance Message (IRM), it is generated before e-FIRC approval.

Step 3: Verification by Regulatory Body

The AD code ensures regulatory authority that the foreign inward remittance is performed through a legally recognized channel. After the FIRC issuance, it is confirmed that foreign remittance adheres to regulatory compliance.

Step 4: Purpose Code Requirement

For the approval of the FIRC certificate, the exporter is required to submit their purpose code. The authorized bank will verify the details and give approval for e-FIRC issuance. 

4. Wrapping Up | The Importance of AD Code FIRC Certificate

AD code and FIRC play different roles, but both are important for a successful foreign exchange transaction. Under the RBI and FEMA Acts, both are integral to comprehensive regulatory compliance. AD code registration is a comprehensive process for facilitating smooth transactions and helps track foreign currency earnings. On the other hand, the role of the FIRC certificate is to work as a legal document that receives inbound remittances of foreign currency earnings. The FIRC certificate letter is used for tax and other regulatory purposes. To get the tax-related benefits, apply for AD code registration on ICEGATE or seek a legal consultant. 

5. Check Out Our FAQs to Quickly Find Answers and Save Time

(a) What is the role of the FIRC Certificate?

Ans. The Foreign Inward Remittance Certificate (FIRC) is needed as evidence that the foreign payment has been received by the bank from an overseas source successfully.

(b) What does the RBI classify as foreign inward remittances?

Ans. RBI guidelines highlight that it permits inward remittance from the banking channels. However, for it, the exporters are required to showcase their purpose code and adherence to FEMA regulations.

(c) Who issues the FIRC certificate to exporters?

Ans. In India, the Foreign Inward Remittance Certificate (FIRC) is issued by the RBI-authorized banks. It is an issue after the AD code registration process.

(d) What is the difference between FIRC and FIRS?

Ans. The Foreign Inward Remittance Certificate (FIRC) is used for proof of foreign payment. The Foreign Inward Remittance Statement (FIRS) is used for multiple payment reports.

(e) What documents are required for the FIRC certificate?

Ans. To get the FIRC certificate, the exporters are required to provide multiple documents, such as:

• Name of AD code holder and bank account number
• The details of remitters
• Transactions Reference Number
• Remittance date
• Foreign currency amount and its equivalent in INR
• The purpose code for the foreign payment reason