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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 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. 

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 . 

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 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 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.

RBI Category:  Export (Of Goods)

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 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.

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.

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.

When is Purpose Code P1006 to be used?

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. Some of these services include:

• Strategic planning and business development
• Organizational restructuring and process improvement
• Media relations and crisis communication
• Reputation management and brand building

What is Purpose Code P1401?

This code is used while receiving payment from abroad that represents your salary, wages, bonus, or other forms of compensation for your work.

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.

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. 

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) 

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.

What is purpose code P1401