India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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Rohit Khuranna

India’s service export industry is booming and how.&nbsp; As of 2023, India's service exports soared by an impressive <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/indias-services-exports-grow-11-4-in-2023-unctad-report/articleshow/109602819.cms?from=mdr">11.4%</a>, outpacing China and hitting a remarkable <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/indias-services-exports-grow-11-4-in-2023-unctad-report/articleshow/109602819.cms?from=mdr">$345 billion</a>!

A major driver of this exponential growth is the Indian government's proactive strategy to boost exports. Recognizing the potential of the services sector, the government launched initiatives like the <a href="https://www.dgft.gov.in/CP/?opt=seis">Service Exports from India Scheme (SEIS) </a>to give Indian service exporters a competitive edge in the global market. So, without much ado, let’s dive into the what, why, and who of SEIS.

Understanding SEIS and Its Importance for Service Exports

SEIS, or its full form, Service Exports from India Scheme, was introduced by the Directorate General of Foreign Trade (DGFT) on April 1, 2015. It's a reward-based incentive program designed to boost India's service exports.&nbsp; In this blog, we will be breaking down the details of what these rewards and incentives are, what are the eligibility criteria for availing SEIS,&nbsp; how you can apply for the scheme, and more. &nbsp;You can also find the detailed guidelines for this scheme in Chapter 3 of the <a href="https://content.dgft.gov.in/Website/FTP%20Chapter%203%20as%20on%20June%2030%202019.pdf">Free Trade Policy 2015-20.&nbsp;</a>

The Service Exports from India Scheme (SEIS) supports service exporters by granting them Duty Credit Scrips. These scrips are certificates issued by the government that exporters can use to pay <a href="https://delhicustoms.gov.in/files/tughlakabad-imports/public-notices/SCAN0220.PDF">various taxes and duties</a> associated with exporting services from India. The value of these scrips is<a href="https://nacin.gov.in/resources/file/e-books/Service%20Exports%20from%20India%20Scheme%20(SEIS).pdf"> 3% or 5% </a>of the exporter’s <a href="https://content.dgft.gov.in/Website/FTP%20Chapter%203%20as%20on%20June%2030%202019.pdf">net foreign exchange earnings</a>—the total foreign exchange earned by an exporter minus all expenses incurred.

For example, if a service exporter’s net earnings are Rs. 10,00,000 for a particular order, they can receive Duty Credit Scrips worth Rs. 30,000 to Rs. 50,000, depending on the type of export services.

These Duty Credit Scrips can significantly reduce the cost of exporting services by covering various customs duties and taxes, thereby boosting profit margins. Since the scrips are based on foreign exchange earnings, they also provide a buffer against foreign exchange risks and uncertainties in international trade.

Eligibility Criteria for SEIS Participation

Here are the eligibility criteria for exporters to register themselves for the SEIS scheme:

Note that if you receive foreign remittances against the following activities, you will not be eligible for SEIS:

Here is a <a href="https://nacin.gov.in/resources/file/e-books/Service%20Exports%20from%20India%20Scheme%20(SEIS).pdf">detailed table with major services and rates of rewards</a> under the SEIS scheme:&nbsp;

Application Process for SEIS Benefits&nbsp;

If you're a <a href="https://www.skydo.com/blog/guide-for-tech-exporters-on-global-compliance?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">service exporter</a> aiming to avail of benefits under the SEIS scheme, here's a breakdown of the application process:

4. Last Date For Filling Application&nbsp;

There’s no doubt that it is only onwards and upwards for Indian exporters from hereon. However, despite government initiatives, service exporters often lose a chunk of their earnings due to hefty bank and forex charges on international payments.

At <a href="https://www.skydo.com/">Skydo</a>, we're dedicated to helping exporters retain more of their hard-earned money. With a flat, minimal transaction fee and zero forex or hidden charges, Skydo ensures that receiving international payments is both cost-effective and seamless. Make the switch to <a href="https://www.skydo.com/">Skydo</a> today and feel the difference.

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Wise (formerly TransferWise) is a global money transfer platform operating worldwide. While it initially started out as a peer-to-peer (P2P) remittance service, <a href="https://wise.com/?no_follow=true/">Wise</a> has since diversified its offerings to cater to businesses by introducing multi-currency accounts for both individuals and enterprises.&nbsp;

Beyond money transfers, Wise provides debit/expense cards for use in 175+ nations. The platform uses a mid-market foreign exchange rate without levying any forex markup. It levies a conversion fee that varies across currencies. However, broadly speaking it is around <a href="https://exiap.com.in/guides/wise-fees?no_follow=true">1.78% of the transaction amount</a>.

Coming to customer experience, Wise offers a user-friendly interface, however, some users have noted that their customer <a href="https://www.g2.com/products/transferwise/reviews?utf8=%E2%9C%93&amp;filters%5Bnps_score%5D=1#survey-response-9454134?no_follow=true">support occasionally lacks the effort</a> to understand and resolve queries fully

Here’s a quick snapshot of Wise’s offerings and pricing along with some of its  Pros and Cons:

Take a look at a few of the leading alternatives to Wise and see how you can be wiser while receiving international payments.&nbsp;

5 Wise Alternatives for Receiving International Payments

Skydo is a global payment solution that simplifies cross-border payments for freelancers and businesses in India. It offers virtual international bank accounts to its users in under 5 minutes and also supports an entire payments ecosystem consisting of payment tracking, invoice generation and more. 

Skydo simplifies payment conversions by using live Forex rates without any currency conversion fees or hidden charges. It provides a clear and straightforward fee structure making it a viable wise alternative.&nbsp;

Additionally, to ensure utmost adherence to RBI and government regulations, Skydo offers free and instant FIRA, ready to download after every transaction. Each user is assigned a representative to assist with the onboarding process and to address any questions at any time.

However, Skydo currently supports only inward remittances. This means Indian businesses cannot send money internationally through Skydo. 

<a href="https://www.skydo.com/blog/paypal-in-india-charges-review-alternatives">PayPal</a> is a go-to payment solution worldwide, both for personal and business transactions. It offers a comprehensive ecosystem for payments, including e-commerce integration, invoicing, international money transfers, and credit/debit card services making it a <a href="https://www.skydo.com/blog/top-paypal-india-alternatives-for-international-payment">solid alternative</a> to Wise.

However,<a href="https://www.paypal.com/in/home?no_follow=true/"> PayPal</a> can be an expensive option for receiving international payments. The costs include a 4.4% transaction fee, a USD 0.30 flat fee, and an additional 4% markup on the exchange rate. PayPal provides Indian businesses with <a href="https://www.paypal.com/in/webapps/mpp/firc-certificate?no_follow=true">monthly digital FIRA</a>. This means that all international transactions of the previous month will be referenced in a single FIRA, which will only be available by the 15th of the subsequent month.

In terms of customer experience, PayPal is widely applauded for its ease of use and convenience, however, some users have complained about its <a href="https://www.g2.com/products/paypal-paypal/reviews/paypal-review-9475980?no_follow=true/">inadequate customer support. </a>

Founded in 2005, <a href="https://www.skydo.com/blog/payoneer-payment-gateway-features-fees">Payoneer</a>&nbsp;is quickly becoming a popular payment solution for businesses and freelancers worldwide. It facilitates international transfers by providing users with virtual bank accounts in multiple currencies and integrating with leading marketplaces like Fiverr and Toptal.

Payoneer's pricing includes 2% forex markup on the exchange rate for withdrawal in different currency and a fixed fee for withdrawal in same currency. There is also a 3% transaction fee for credit card payment and 1% fee for ACH Bank Debit.  Additionally, there is a USD 29.95 annual account fee for 12 months of inactivity, making it a relatively costly alternative to Wise.

To simplify compliance, Payoneer offers free digital FIRAs to Indian businesses and freelancers. However, many users have expressed dissatisfaction with <a href="https://www.g2.com/products/payoneer/reviews/payoneer-review-8804769?no_follow=true">Payoneer's customer support.</a>

Established in 2015, <a href="https://in.pingpongx.com/in/index?no_follow=true/">PingPong</a>&nbsp;is an emerging name in the cross-border payments arena, aiming to simplify international payments for freelancers, businesses, and e-commerce sellers. It offers multiple virtual accounts in global currencies and allows businesses to pay VAT/GST and other taxes with no additional costs.

PingPong charges a competitive 1% transaction fee, which is attractive but can become substantial for larger transactions. Additionally, since there is a lack of clarity around Ping Pong’s forex rate, there is a possibility of a markup on that rate. 

For compliance, PingPong provides free digital FIRAs to Indian businesses and freelancers, making it a viable alternative to Wise. While their customer service is generally prompt, some users have found the <a href="https://www.g2.com/products/pingpong-payments/reviews/pingpong-payments-review-8133929?no_follow=true">onboarding process slightly cumbersome.</a>

<a href="https://stripe.com/in?no_follow=true/">Stripe</a>, an Irish-American company, is a renowned payment processing and merchant services platform. Accepting over 135 currencies, it stands as a solid alternative to Wise for international payments.&nbsp;

<a href="https://stripe.com/in/pricing?no_follow=true">Stripe's fee </a>for international transfers includes a 4.3% transaction fee, depending on the payment method, and an additional 2% currency conversion fee.

Stripe does not provide FIRA to Indian businesses and freelancers, adding to their compliance burdens. Users have also expressed concerns about transparency in their communication and inadequate customer service.

In a world where domestic payments are as simple as a scan and tap, international transactions should be just as seamless. That's why at Skydo, we're not just building a payment platform; we're creating an entire ecosystem to simplify the process. Let us handle all the payment logistics while you focus on growing your business globally!

Lastly, remember to compare transfer fees, exchange rate markups, features, and reputation before choosing your international payment provider. Your business deserves the best!

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Wise alternative

Whether you are planning to splurge on a big international vacation or buy that coveted designer bag, there might be a surprise tax waiting to take a bite out of your hard-earned cash. This hidden tax is called Tax Collected at Source (TCS). Since the 2023 Union Budget, a whopping 20% TCS applies to certain foreign transactions under the <a href="https://www.skydo.com/blog/what-is-lrs?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Liberalised Remittance Scheme (LRS)</a>.&nbsp;

So next time you make a big foreign payment, expect to pay extra for TCS which is collected by the receiving bank or business.

TCS Meaning: How is TCS different from TDS?

Given the lack of discussion on TCS, it's easy to mix it up with TDS. Let's clear the air and distinguish between the two.

TDS is the tax deducted by the payer while making certain payments. The most common instance is the TDS deducted by companies while paying salaries.&nbsp; TCS on the other hand, is the tax collected by the seller on the sale of certain goods. For example, when you buy alcoholic liquor, the price includes 1% TCS. In a nutshell, TDS is deducted by the payer while TCS is collected by the seller.&nbsp;

Let's dive deeper to understand everything about TCS on foreign remittance so&nbsp; that you can minimise your tax burden.

Applicability of Tax Collected at Source (TCS) on Foreign Remittance

Online internal shopping has become extremely popular, making it easier to purchase from global brands. However, remember online shopping from international shopping websites above Rs. 7 lakhs attracts TCS because it's considered foreign remittance.

Other transactions that involve sending money abroad for different purposes, such as purchasing items, foreign investment, tuition fees, and foreign travel also come under foreign remittance, and TCS is applicable on such activities.

Tax collected at source (TCS) applies when you send over INR 7 lakhs abroad in a financial year. For instance, if you are&nbsp; buying foreign company stocks worth INR 9 lakhs, you need to pay 20% TCS on 2 lakh (9 lakhs - 7 lakhs).

Prior to 2023, TCS on foreign remittances under the LRS was 5%. However, in the 2023 budget, the new TCS rate was increased from <a href="https://pib.gov.in/PressReleasePage.aspx?PRID=1936105">5% to 20% to boost</a> tax revenue and promote domestic spending.&nbsp;

The TCS on foreign remittance for medical and educational expenses stands at 5% if the amount remitted exceeds INR 7 lakh.&nbsp; However, if medical and educational expenses are funded by a financial institution, 0.5% TCS will be applicable.

The new TCS rates became applicable from October 1, 2023.

Here are the activities on which TCS will be applicable:&nbsp;

4. Medical and Educational Expenses&nbsp;

Here is the breakdown for new and old TCS rates on different types of foreign remittances. Note that the new TCS rates will be applicable from 1st September 2023.&nbsp;

Calculation and Rates of TCS on Foreign Remittance Post Budget 2023

Let's try to understand the applicability of TCS via certain examples.&nbsp; 

Consider buying stocks worth INR. 10 lakh in a US company. Now, since the amount remitted is greater than INR 7 lakhs, 20% TCS will be applicable.&nbsp;

As mentioned, TCS will be collected on the amount exceeding INR 7 lakhs, which in this case is&nbsp; INR 10 Lakhs - INR. 7 lakhs, which comes to INR 3 Lakhs. As mandated, 20% TCS will be collected from INR 3 Lakhs which equals to INR Rs. 60,000

So if you are investing INR 10 lakhs in US stocks, you are effectively investing only INR 9,40,000 as the rest INR 60,000 will be collected as TCS.&nbsp;

Now consider that you are sending the same INR 10 lakh to your sister studying in the US to pay her fee. Since this amount is being remitted for educational purposes, instead of 20%, 5% TCS will be applicable on the amount exceeding Rs. 7 lakh.&nbsp;

Therefore, the total taxable amount&nbsp; will stay at INR 3 lakhs (Rs. 10 Lakhs - Rs. 7 lakhs)

However this time, instead of 20%, 5% TCS will be collected bringing the total amount to INR 15,000 (5% of INR 3 lakhs).&nbsp;

However, note that if you are unable to prove that the money sent abroad is for educational or medical purposes, 20% will be applicable.

Let's say the total remittance for the year adds up to INR 8 lakh, and this amount is financed through an education loan taken from a bank approved by the Reserve Bank of India (RBI).&nbsp;

In this scenario, a TCS of 0.5% would be applicable only on the amount exceeding the threshold of INR 7 lakh.&nbsp;

So, in this case, TCS would be charged on INR 1 lakh (INR 8 lakh - INR 7 lakh) at a rate of 0.5%, which translates to INR 500 (0.5% of INR 1 lakh)

While Tax Collected at Source (TCS) might seem like an extra burden, you can consider it as an advance payment towards your income tax. Here's how to minimise its impact:

#1: Adjust the TCS Against Your Final Tax Liability

If you have no or low tax liability, you can get the TCS on foreign remittance as refund while filing your ITR. Make sure to keep the following documents handy:

For example, let's say you purchase a foreign tour package worth Rs. 9 lakh. With the new regulations, a 20% Tax Collected at Source (TCS) applies to the amount exceeding Rs. 7 lakhs, totaling Rs. 40,000. If your total income tax liability for the year is INR 1 lakh, you can offset the Rs. 40,000 collected as TCS against your liability, reducing the total tax payable to Rs. 60,000.&nbsp;

While filing your income tax return, you will find a section dedicated to claiming deductions for taxes paid. Under the appropriate section, include the TCS amount you paid for the foreign tour package. Double-check to ensure the TCS amount claimed matches the amount reflected in your TCS receipt.

Here’s a quick read to understand <a href="https://www.skydo.com/blog/how-to-file-itr-for-freelancer?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">how to file your income tax return</a>.

#2: Make Foreign Investments Through LLPs

If you're making foreign investments, consider doing so through a Limited Liability Partnership (LLP), as these entities are <a href="https://www.google.com/amp/s/www.livemint.com/money/personal-finance/loophole-in-indian-investment-rules-how-llps-can-help-ordinary-indians-invest-abroad-and-avoid-taxes/amp-11690477164919.html">exempt from TCS</a>. LLPs are permitted to invest abroad via two modes: overseas direct investments (ODI) and overseas portfolio investments (OPI). In case of overseas portfolio investments, the 20% TCS rate doesn’t apply.&nbsp;

TCS is not applicable to payments made through international credit cards while overseas. Therefore, you can make international credit card payments while travelling abroad to reduce TCS liability.

Visa and Mastercard are the two major payment networks that offer international credit cards through various Indian banks. Many banks like SBI Cards, HDFC Bank, ICICI Bank, and Axis Bank provide credit cards powered by Visa or Mastercard that can be used internationally.

Additionally, American Express (Amex) is another network offering international credit cards in India. You can find Amex cards through banks like IndusInd Bank and YES Bank.

Remember, if your total foreign remittances (excluding travel packages) are less than Rs 7 lakh in a year, TCS doesn't apply. Each family member can use their own Rs 7 lakh limit, so plan your foreign remittances accordingly.&nbsp;

Also, as we have mentioned, educational and medical expenses abroad are exempt from the 20% TCS rule. Keep the relevant documents handy to claim this benefit.

The introduction of TCS on foreign remittance addresses two crucial concerns: tax revenue and domestic spending. It's imperative to clarify that TCS isn't an additional tax but rather a mechanism ensuring financial transparency and compliance, particularly in cross-border payments.

Here at Skydo, we're committed to streamlining international payments while adhering to compliance and transparency standards. With Skydo, receive international payments swiftly, free from forex or conversion fees,&nbsp; in a secure and compliant manner.

Have further questions about TCS on foreign remittance? Join our global community, where our panel of experts assist you in navigating the ever-evolving regulatory landscape.

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Whether you’re a business exporting goods or services globally, or a freelancer working with international clients, it's essential to share the appropriate purpose code with your bank or payment processor to receive your international payments smoothly.

In this article, we'll explain RBI purpose codes, why they're important, and how to find the right one for your transactions. And yes, we know finding the right <a href="https://www.skydo.com/blog/what-is-purpose-code-and-why-is-it-required">Purpose code</a> for your inward remittance can be confusing, that’s why we have built this purpose code finder tool to help you find the right code without losing your mind!&nbsp;

So let’s jump straight in and explore everything you need to know about purpose codes!

Simply put, a purpose code is an alphanumeric code assigned to every type of international transaction to indicate the nature and purpose of the fund transfer. For instance, if you're a tech service provider receiving payment from international clients for providing software consultancy, you should use code P0802. Alternatively, if you receive your salary from a foreign company while working remotely in India, purpose code P1401 will apply.&nbsp;

In India, businesses and freelancers use RBI purpose codes to specify why they’re receiving international payments. This helps RBI and other authorities understand each transaction precisely, ensuring accurate reporting and compliance with regulations.

How to Find the Right RBI Purpose Code for Inward Remittance?

Finding the right code for your inward remittance can be confusing, thanks to technical jargon and overlapping descriptions. Having assisted over 3,000 customers, we understand this challenge well.

To ensure accuracy, clearly define your transaction's purpose and stay updated with the <a href="https://www.rbi.org.in/upload/notification/pdfs/52220.pdf?no_follow=true">RBI's purpose code list.</a>

Or, use our Purpose Code Finder tool! It simplifies the process, helping you quickly find the correct code for your payments.

Find the right purpose code for your remittance with Skydo

Our purpose code finder is your shortcut to identifying the correct code and knowing when to use it. You can either search for the activity to find the relevant purpose code or directly look up the specific purpose code for a simple explanation of when to use it.&nbsp;

&nbsp;For complete compliance and accuracy, it's always advisable to get in touch with your financial advisor for professional advice.&nbsp;

For exporters, sharing the correct RBI purpose code with their banks is crucial for receiving international payments. An incorrect purpose code can result in delays or even cancellation of the transaction. And, while it is not very common, in some instances, sharing the incorrect purpose code can also lead to compliance issues later on for exporters.&nbsp;&nbsp;

Beyond these practical reasons, purpose codes are instrumental in monitoring global payments and preventing suspicious activities. Here’s how:

Breaking down some of the most commonly used RBI Purpose Codes

While there are over 150 RBI purpose codes for inward remittance, we break down below some of the commonly used ones:

RBI Category:&nbsp;Computer &amp; Information Services

RBI Description:&nbsp;Software implementation/consultancy  (other than those covered in SOFTEX form)

When to use:&nbsp;This code signifies a foreign payment in exchange for software consultancy or implementation service, provided to a foreign client. It's important to note that P0802 applies specifically to software consultancy or implementation services that are not reported under the <a href="https://vjmglobal.com/fema/fema-fema/introduction-to-software-export-declaration-softex-form/?no_follow=true">SOFTEX form.</a> If your services fall under SOFTEX, a different code might be used.

RBI Description:&nbsp;Realisation of export bills (in respect of goods) sent on collection (full invoice value)

When to use:&nbsp;This code is used when an Indian company exports goods and receives payment for the full invoice value. Note that this purpose code is applicable only when the foreign client has received the shipment.

RBI Description:&nbsp;Advance receipts against export contracts (export of goods only)

When to Use:&nbsp;This is used when businesses receive advance payment against the contract of the goods to be exported. In other words, here the company receives payment for goods before they are shipped.

RBI category:&nbsp;Other Business services

RBI Description:&nbsp;Business and management consultancy and public relations services

When to Use:&nbsp;This code is applicable when an exporter receives payment against providing a combination of business expertise and/or public image management services to a foreign client.

RBI Category:&nbsp;Other Business services

RBI Description:&nbsp;Advertising, trade fair, market research and public opinion polling services

When to Use:&nbsp;This code is used when exporters receive a payment from a foreign client for providing  advertising, trade fair, market research or public opinion polling services.

RBI Description:&nbsp;Value of export bills negotiated/purchased/discounted etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills etc.)

When to Use:&nbsp;P0101 is used when an Indian company exports goods and receives a foreign payment that is usually backed up by official export documentation like GR, PP, SOFTEX, or EC copy of shipping bills.

RBI Description:&nbsp;Goods sold under merchanting / Receipt against export leg of merchanting trade*

When to Use:&nbsp;This code applies to situations where an Indian company acts as a middleman in an international trade transaction, but the goods themselves never physically enter India.

RBI category:&nbsp;Computer &amp; Information Services

RBI Description:&nbsp;Hardware consultancy

When to Use:&nbsp;This code is used when exporters receive foreign payment for providing hardware consultancy or implementation services abroad. 

What Happens When You Choose the Wrong RBI Purpose Code?

Whether you're a large enterprise billing thousands of dollars or a freelancer getting your first payment, you will not be able to receive inward remittance without sharing the relevant purpose code with your bank or financial institution.&nbsp;

When you share the purpose code, the bank’s internal team reviews it. If they find it incorrect, they may reject it, especially if the remittance amount is significant, leading to the cancellation of the transaction. More often, banks will ask you to revise the application and submit the correct purpose code, but this back-and-forth can cause significant delays in the transaction.

Beyond financial consequences, providing an incorrect code can also lead to legal trouble. If you provide an incorrect RBI purpose code and the bank processes it, the discrepancy can be discovered later during an audit of the bank, or of your business. And if it's found that the incorrect code was deliberately used to bypass compliance, you could face serious legal issues.

To avoid these problems, ensure you thoroughly understand the relevant purpose codes and select the correct one. If you have any questions or doubts, it's always best to seek professional advice.

If you handle multiple foreign clients and regularly send out invoices, manually entering purpose codes can not only be tedious but also prone to errors. With Skydo’s auto-filled purpose codes, you eliminate manual effort and reduce the chances of sharing an incorrect purpose code. Skydo remembers your default purpose code and automatically prefills it for future invoices.&nbsp;

Switch to Skydo today and experience the advantage of hassle-free, transparent international payments.

Decoding RBI Purpose Code: Essential Guide

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It has always been a hassle for small taxpayers, such as small businesses and freelancers, to file taxes effectively. Freelancers, in particular, juggle multiple roles and receive payments from multiple sources, both domestic and international. To ease their burden regarding taxes and compliance, the government has devised a specialised scheme called the Presumptive Taxation Scheme. If you run a small business or are a professional, such as a freelancer, you can choose the Presumptive Taxation Scheme as an ideal method for filing taxes for freelancers in India.&nbsp;

The Presumptive Taxation Scheme is a tax scheme introduced by the Central Board of Direct Taxes (CBDT) to allow small taxpayers, such as small businesses or freelancers, to pay income tax on presumptive income and not actual profits. Section 44AD and Section 44ADA define the rules and guidelines for the presumptive taxation scheme.&nbsp;

Understanding Section 44AD: Presumptive Scheme for Businesses

Section 44AD specifies that a business can opt for the presumptive taxation scheme if its annual turnover does not exceed Rs. 2 crores (or Rs. 3 crores if 95% of the receipts are through online modes).