Decoding RBI Purpose Codes: Essential Guide

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 purpose codes, why they're important, and how to find the right one for your transactions. And yes, we know finding the right Purpose code 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! 

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

What is an RBI Purpose Code?

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. 

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 due 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 RBI's purpose code list.

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. 

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

Why does RBI Purpose Code Matter?

For exporters, sharing the correct 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.  

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 purpose codes for inward remittance, we break down below some of the commonly used purpose codes:

Purpose Code: P0802
RBI Category: Computer & Information Services

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

When to use: 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 SOFTEX form. If your services fall under SOFTEX, a different code might be used.

Purpose Code: P0102

RBI Category: Export (Of Goods)

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

When to use: 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.

Purpose Code: P0103

RBI Category: Export (Of Goods)

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

When to Use: 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.

Purpose Code: P1006

RBI category: Other Business services

RBI Description: Business and management consultancy and public relations services

When to Use: 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.

Purpose Code: P1007

RBI Category: Other Business services

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

When to Use: 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

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. 

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.

Parting Words

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. 

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