Decoding RBI Purpose Codes: Essential Guide

Contents

What is RBI Purpose Code?

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

Why does RBI Purpose Code Matter?

Breaking down some of the most commonly used RBI Purpose Codes

What Happens When You Choose the Wrong RBI Purpose Code from the RBI Purpose Code List?

Parting Words

Decoding RBI Purpose Codes: Essential Guide

Q: What will happen if I use an incorrect Purpose Code?

An incorrect purpose code can result in delays or even cancellation of the transaction. 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.

Q: When shall I use purpose code P0108?

As per RBI, this code applies for "Goods sold under merchanting / Receipt against export leg of merchanting trade". In other words this code applies to situations where an Indian company acts as a middleman in an international trade transaction, but the goods never physically enter India.

Q: What is Purpose Code P0803

This code applies when an exporter receives foreign payment for data processing services abroad. This could be relevant for companies like Business Process Outsourcers (BPOs)

Q: What is Purpose code P0807

This code indicates an Indian company receiving payment for software or IT services provided to a foreign client, with the work done in India.

Rohit

20 June 2024

Decoding RBI Purpose Code: Essential Guide

Rohit20 June 2024

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 explore the RBI purpose code list for inward remittance, understand why purpose codes are important, and how to find the right one for your transactions. And yes, we know finding the right Purpose code from the purpose code list can be confusing, that’s why we have built a purpose code finder tool to help you find the right code from the RBI purpose code list without losing your mind!

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

What is 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. The RBI offers a purpose code list for inward remittance and a purpose code list for outward remittance, covering all the necessary codes for international transfers. These codes ensure each transaction is properly classified.

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 from the Purpose Code List 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 businesses and 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 from purpose code list for inward remittance with Skydo

Our purpose code finder is your shortcut to identifying the correct code from the RBI purpose code list and explaining 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.

Purpose code finder toolFind out the correct purpose code under RBI for your inward and outward remittance.

Code	Category (as per RBI) Category(as per RBI)	Description (as per RBI) Description(as per RBI)	When to use?
P0017	Capital Account	Receipts on account of Sale of non-produced non-financial assets (Sale of intangible assets like patents, copyrights, trademarks etc., land acquired by government, use of natural resources) -Government	This code applies to situations where the Indian government sells intangible assets like patents, copyrights, trademarks etc to a foreign entity. This however excludes any kind of financial assets.
P0019	Capital Account	Receipts on account of Sale of non-produced non-financial assets (Sale of intangible assets like patents, copyrights, trademarks etc., use of natural resources) - Non-Government	P0019 is used when a private company or organization in India sells intangible assets like patents, copyrights, trademarks, or even the right to use natural resources (with government permission) to a foreign entity. This however excludes any kind of financial assets.
P0101	Exports (of Goods)	Value of export bills negotiated / purchased/discounted etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills etc.)	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.
P0102	Exports (of Goods)	Realisation of export bills (in respect of goods) sent on collection (full invoice value)	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.
P0103	Exports (of Goods)	Advance receipts against export contracts (export of goods only)	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.
P0108	Exports (of Goods)	Goods sold under merchanting / Receipt against export leg of merchanting trade*	This code applies to situations where an Indian company acts as a middleman in an international trade transaction, but the goods never physically enter India.
P0302	Travel	Business travel	This code is used for foreign exchange transactions related to business travel, particularly when someone converts currency for a work trip abroad.
P0801	Computer & Information Services	Hardware consultancy	This code is used when exporters receive foreign payment for providing hardware consultancy or implementation services abroad.
P0802	Computer & Information Services	Software implementation/consultancy (other than those covered in SOFTEX form)	This code is applicable for any sort of software developement, implementation and/or consultancy work done other than those covered in SOFTEX form.
P0803	Computer & Information Services	Data base, data processing charges	This code applies when exporters are receiving foreign currency for providing data processing services abroad. This could be relevant for companies like Business Process Outsourcers (BPOs)
P0805	Computer & Information Services	News agency services	P0805 is used when when an Indian entity receives international payment for providing news agency services abroad. For example An Indian news agency receives payment from a foreign media outlet for news content.
P0806	Computer & Information Services	Other information services- Subscription to newspapers, periodicals, etc.	This is a catch-all code to track foreign payments for various information services not explicitly mentioned in other codes under P08. This can include subscriptions to specialized databases, newspaper periodicals etc.
P0807	Computer & Information Services	Off-site Software Exports	This code signifies that an Indian company is receiving payment for software development or IT services provided to a foreign client, but the work itself is done in India.
P1002	Other Business services	Trade related services - Commission on exports/imports."	This code applies when an Indian company is receiving payment for working as a commission agent for foreign parties. The commission agent helps the foreign party to sell in India or buy from India.
P1004	Other Business services	Legal services	This code is used when an Indian entity receives payments for providing legal services to foreign clients.
P1005	Other Business services	Accounting, auditing, book keeping services	This code is applicable when an Indian entity receives international payment from foreign clients for providing financial expertise in the field of accounting, auditing, book keeping and tax consultation
P1006	Other Business services	Business and management consultancy and public relations services	This code is used when exporters receive a payment from a foreign client for providing business consultancy, management consultancy or public relations services.
P1007	Other Business services	Advertising, trade fair, market research and public opinion polling services	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
P1008	Other Business services	Research & Development services	This code is used when exporters receive a payment from a foreign client for providing research & development services.
P1009	Other Business services	Architectural, engineering and other technical services	This code is used when exporters receive a payment from a foreign client for for providing architectural, engineering and other technical services
P1010	Other Business services	Agricultural, mining and on -site processing services - protection against insects & disease, increasing of harvest yields, forestry services, mining services like analysis of ores etc.	This code is used when exporters receive a payment from a foreign client for providing Services related to Agriculture, Forestry, and Mining. This includes analysis, protection of sites, and on-site processing.
P1011	Other Business services	Inward remittance for maintenance of offices in India	This code is used when exporters receive a transfer of funds from abroad specifically for the maintenance and upkeep of an office located in India.
P1013	Other Business services	Environmental services	This code is used when exporters, receive a payment from a foreign client for services related to protecting, managing or maintaining the environment.
P1101	Personal, Cultural & Recreational services	Audio-visual and related services -services and associated fees related to production of motion pictures, rentals, fees received by actors, directors, producers and fees for distribution rights.	This code applies when exporters receive a payment from a foreign client for services related to the prodction, direction, rental, distribution, or use of audio-visual content. It also includes fees paid to actors, performers and associates related to such audio-visual content.
P1201	Government, not included elsewhere (G.n.i.e.)	Maintenance of foreign embassies in India	This code applies when a foreign government transfers funds for the maintenance and upkeep of foreign embassies in India.
P1203	Government, not included elsewhere (G.n.i.e.)	Maintenance of international institutions such as offices of IMF mission, World Bank, UNICEF etc. in India.	This code applies when an international institution like the IMF, World Bank etc transfers funds for the maintenance and upkeep of their respective offices in India.
P1301	Transfers	Inward remittance from Indian nonresidents towards family maintenance and savings	This code is used when an Indian non-resident sends money back to India for family maintenance or savings
P1302	Transfers	Personal gifts and donations	This code is used when someone receives money from abroad that is either a gift or donation sent for personal reasons.
P1303	Transfers	Donations to religious and charitable institutions in India	This code is used when religious or charitable organizations in India (non-government) receive donation from abroad.
P1304	Transfers	Grants and donations to governments and charitable institutions established by the governments	This code is used when the government and charitable institutions established by the governments receive a transfer of funds from abroad as grants and donations.
P1401	Primary Income	Compensation of employees	This code is used while receiving payment from abroad that represents your salary, wages, bonus, or other forms of compensation for your work.
P1403	Primary Income	Inward remittance towards interest on loans extended to non-residents (ST/MT/LT loans)	This is used when you, receive interest payments on a loan you provided to a non-resident borrower abroad.
P1501	Others	Refunds / rebates on account of imports	This code is used when you receive a payment from abroad that is a refund for goods you previously imported into India.
P1502	Others	Reversal of wrong entries, refunds of amount remitted for non-imports	This code is used when you receive a refund for a non-import related remittance due to an error or cancellation.

Please note that this tool doesn't contain the exhaustive purpose code list for inward remittance. For complete compliance and accuracy, it's always advisable to get in touch with your financial advisor for professional advice.

Purpose Code list for Outward Remittance

Purpose code list for outward remittance contains purpose codes that are used while making an international transfer. These purpose codes signify the purpose for which you are making the transfer. Purpose codes for outward remittance start with S followed by the respective numericals.

For example, S0301 is a purpose code for outward remittance that is used when sending money abroad for business travel. You can find the purpose code list for outward remittance right here.

Check if your global business is compliant: 10 point checklist

Compliance guidelines

Must have documents

Expert Insights

Why does RBI Purpose Code Matter?

For exporters, sharing the correct RBI purpose code from the RBI purpose code list with their banks is crucial for receiving international payments. An incorrect RBI 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. That's why it is always advisable for exporters and freelancers to choose the correct code from the purpose code list of inward remittance.

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

Accurate Tracking of Cross-Border Transactions: The Foreign Exchange Management Act (FEMA) regulates the inflow and outflow of foreign currency, including payments received by exporters. The Indian government uses purpose codes to classify activities that bring foreign currency into the country, enabling banks to identify and categorise cross-border transactions. This classification is crucial for maintaining accurate financial records, conducting audits, adhering to RBI guidelines, and ensuring transparency in financial statements.
Ensuring Transparency: With purpose codes attached to every remittance, the purpose of each such financial transaction becomes clear to all stakeholders. This transparency ensures that the stated reason for the remittance aligns perfectly with the actual declaration.
Preventing Financial Fraud: Purpose codes make it easier for regulatory authorities to detect and prevent fraudulent activities, such as money laundering and terror financing. By specifying the nature of each transaction, they add a layer of security that helps identify suspicious activities

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:

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.

Purpose Code: P0101

RBI Category: Export (Of Goods)

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

When to Use: 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.

Purpose Code: P0103

RBI Category: Export (Of Goods)

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

Purpose Code: P0108

RBI Category: Exports (of Goods)

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

When to Use: 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.

Purpose Code: P0801

RBI category: Computer & Information Services

RBI Description: Hardware consultancy

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

Purpose Code: P0302

RBI Category: Travel

RBI Description: Business travel

When to Use: This code is used for foreign exchange transactions related to business travel, particularly when someone converts currency for a work trip abroad.

Purpose Code: P0807

RBI Category: Computer & Information Services

RBI Description: Off-site Software Exports

When to Use: This code signifies that an Indian company is receiving payment for software development or IT services provided to a foreign client, but the work itself is done in India.

Check if your global business is compliant: 10 point checklist

Compliance guidelines

Must have documents

Expert Insights

What Happens When You Choose the Wrong RBI Purpose Code from the RBI Purpose Code List?

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 for inward remittance 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 from the purpose code list 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.

Check if your global business is compliant: 10 point checklist

Compliance guidelines

Must have documents

Expert Insights

Frequently asked questions

When should I use Purpose Code P0802?

This code signifies a foreign payment in exchange for software consultancy or implementation service, provided to a foreign client. This could encompass a wide range of software-related activities, such as:

Software development and implementation
Software customisation and integration
Software maintenance and support
Software licensing and training

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.