How to Account for Bank Charges on Inward Remittance in India
TL;DR - Summary
- What are bank charges on inward remittance? - These are fees charged by the receiving bank or deducted by intermediary and correspondent banks. Their size depends on the bank, route and payment instructions.
- How do you account for bank charges on inward remittance? - Debit Bank for the net credit, Bank Charges for supported fees and Input GST only where eligible. Credit the receivable at its INR carrying amount, and record any exchange gain or loss separately. Do not record revenue again when collecting an invoice already booked.
- What is an example of an accounting entry for bank charges on inward remittance? - Assuming both the invoice and receipt use ₹83/USD, no earlier revaluation and eligible intrastate GST credit, a $1,000 receipt less a $15 intermediary fee, ₹200 bank fee and ₹36 GST gives: Bank debit ₹81,519, Bank Charges debit ₹1,445, Input CGST debit ₹18, Input SGST debit ₹18, and Accounts Receivable credit ₹83,000.
- What are the common mistakes when accounting for bank charges on inward remittance? - Common mistakes include netting fees against revenue, mixing fees with exchange differences, misreading OUR/SHA/BEN instructions, using the wrong purpose code, losing remittance records, treating inward receipts as outward-remittance filings, and using the wrong account type.
What Are Bank Charges on an Inward Remittance?
Bank charges on an inward remittance are fees charged when an overseas payment reaches you. They can come from your own bank or from intermediary and correspondent banks in the SWIFT network. Intermediary deductions can happen before the money reaches India, but they are not always the largest cost.
For this guide, an inward remittance is a payment an Indian business or freelancer receives from an overseas client. It may be converted into INR or retained in a permitted foreign-currency account. The entries below assume an export invoice settled into an INR bank account.
Say a Bengaluru-based freelancer receives $1,000 from a US client for a software project. The amount that lands in the freelancer's account is the converted figure after the fees along the way have been deducted.
⚠️ COMMON MISCONCEPTION
A short bank credit is not always a fee charged by your Indian bank. Check the payment advice for intermediary deductions, local fees, GST and the exchange rate before posting the difference.
How to Account for Bank Charges on an Inward Remittance?
To account for an inward remittance against an existing invoice, separate the receivable, supported bank fees, eligible GST and net bank credit. Debit Bank for the net amount, Bank Charges for fees and Input GST only where eligible. Credit Accounts Receivable at its INR carrying amount and record any exchange gain or loss separately.
Start with these four components, then check for any exchange difference:
- Gross amount receivable: the foreign-currency invoice, initially translated at the transaction-date spot rate under the applicable accounting standard. Use its latest INR carrying amount when settling, including any earlier reporting-date revaluation.
- Bank, intermediary and SWIFT charges: fees deducted by correspondent or local banks before or at the time of crediting. You can read more about intermediary banks and their hidden fees.
- GST on bank charges: Taxable processing fees generally attract 18% GST. Currency conversion is also taxed, on its service value under separate GST valuation rules rather than on the whole remittance. Claim Input Tax Credit (ITC) only if the business and documents meet the GST conditions.
- Net amount received: the actual INR figure credited to your bank account.
For a full invoice settlement, where no exchange difference arises and GST credit is eligible, the journal entry is:
- Debit: Bank/Current Account (net amount actually credited).
- Debit: Bank Charges Expense Account (supported intermediary, SWIFT and local bank fees; add any non-creditable GST to expense).
- Debit: Input CGST and Input SGST Accounts, or Input IGST, only for eligible GST shown in the bank’s valid tax document.
- Credit: Accounts Receivable / Customer Account (the settled receivable’s INR carrying amount). Do not credit revenue again for an invoice already booked.
If GST is not creditable and no exchange difference arises, book the same invoice settlement as:
- Debit: Bank Account (net received).
- Debit: Bank Charges Account (supported fees, including any non-creditable GST).
- Credit: Customer / Accounts Receivable Account (the settled receivable’s INR carrying amount).
If the forex rate the bank applies differs from the rate reflected in the receivable’s latest carrying amount, record the settlement difference as an Exchange Gain or Loss, generally in profit or loss. An earlier year-end revaluation changes that carrying amount. Do not treat every short credit as a bank fee.
Before you pass the entry, run two checks:
- Use the bank’s credit advice and FIRC/e-FIRC where issued, plus the fee and GST documents, to check the exchange rate and deductions. A FIRA/FIRS or other receipt advice may be available instead; a FIRC is not issued for every ordinary export receipt. Ask for payment-trace details if deductions remain unclear.
- Obtain the bank’s tax invoice or permitted equivalent with the correct GSTIN. The bank's debit note or statement must meet these requirements before you use it for credit. Claim ITC only for eligible business use, with the applicable invoice details in GSTR-2B and the other GST conditions and time limit met. Registration and a separate GST line alone are not enough.
Example of Accounting for Bank Charges on an Inward Remittance
Here is a step-by-step example of how to record bank charges on an inward remittance, using a $1,000 receipt at ₹83/USD with a $15 intermediary bank charge. Assume a ₹83,000 receivable, no earlier revaluation or exchange difference, exporter-borne fees and full settlement. The ₹36 GST is eligible intrastate ITC. Only the listed charges are included; add any separately billed conversion GST or other fees and adjust the net credit.
- Invoice/remittance amount sent: $1,000 at the assumed ₹83.00/USD = ₹83,000 gross.
- Intermediary/correspondent bank charge: $15 × ₹83 = ₹1,245, deducted in transit.
- Indian bank processing fee: ₹200.
- GST on Indian bank processing fee: 18% on ₹200 is ₹36.
- Net INR credited to bank account: ₹81,519 (₹83,000 − ₹1,245 − ₹200 − ₹36).
The entry balances at ₹83,000. Bank Charges is ₹1,245 + ₹200 = ₹1,445; eligible GST is ₹18 CGST plus ₹18 SGST. Use IGST where applicable, or expense the ₹36 if ITC is unavailable.
| Date | Account Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Receipt date | Bank / Current Account (Net amount credited) | 81,519 | - |
| Receipt date | Bank Charges / Remittance Expense A/c (Intermediary + processing fees) | 1,445 | - |
| Receipt date | Input CGST A/c (9% of ₹200 bank fee) | 18 | - |
| Receipt date | Input SGST A/c (9% of ₹200 bank fee) | 18 | - |
| Receipt date | To Accounts Receivable A/c | - | 83,000 |
What Are the Common Mistakes When Accounting for Inward Remittance Charges?
Common mistakes include netting fees against revenue, mixing fees with exchange differences, misreading OUR/SHA/BEN instructions, using the wrong purpose code, losing remittance evidence, applying outward-remittance forms to inward receipts, and using the wrong account type.
Mistake 1: Recording Only the Net Amount (Ignoring Intermediary and Bank Fees)
Recording only the net bank credit as revenue understates sales when the invoice was earned at its full amount. Record revenue under the applicable recognition rules, then settle the receivable separately through the net bank credit, supported fees, eligible GST and any exchange difference. Do not record the sale a second time.
Mistake 2: Misunderstanding OUR, SHA, and BEN Fee Instructions
OUR instructs the sender to bear all transfer charges. If an OUR payment arrives short, ask the sender’s bank to trace the payment and explain the deduction rather than treating it as the expected charge allocation.
SHA means the sender pays its bank’s charges and the beneficiary bears overseas or receiving-bank charges. BEN means the beneficiary bears all transfer charges. Confirm the instruction with your client and request a payment trace if the credit is short.
Mistake 3: Using Incorrect or Generic RBI Purpose Codes
Choose the RBI purpose code that matches the underlying transaction, such as software services, goods exports or consultancy. A mismatch can lead to bank queries or reporting corrections. Ask your authorised dealer bank to confirm the code when the invoice covers more than one activity.
Mistake 4: Delayed or Missing e-FIRA
Keep the bank credit advice and available FIRA or realisation records with the invoice and fee documents. Obtain relevant BRC/FIRC details where the export or refund process requires them, including GST refunds for exported services. An e-FIRA is not universally mandatory for every inward receipt.
Mistake 5: Overlooking Form 15CA and 15CB Compliance
Forms 145 and 146, formerly Forms 15CA and 15CB, concern applicable payments to non-residents, not ordinary inward export receipts. A high-value inward customer payment does not by itself trigger these forms. Use the compliance guideline for inward remittance to check receipt-side records, and retain the credit advice and relevant export realisation evidence.
Mistake 6: Misapplying Account Types
Use an account permitted for your residency, business and receipt type. Business export proceeds, investments and loans can have different reporting requirements; labelling a capital receipt as sales does not make it revenue. Check the receiving account and purpose with your authorised dealer bank.
How Does Skydo Simplify Receiving International Payments?
Bank charges and intermediary deductions can make it harder to reconcile an overseas invoice. Use the credit advice to separate fees, taxes and exchange differences rather than assuming every short credit is a cost.
Skydo simplifies receiving international payments with published transaction-based pricing and zero forex markup. The final INR amount still depends on the conversion rate, GST and any incoming-route deductions, so reconcile each receipt against the settlement advice.
- Fees: Standard bank-transfer pricing is $19 up to $2,000, $29 for $2,001–$10,000, and 0.3% above $10,000, plus 18% GST on the fee. Skydo advertises zero forex markup. Local transfers avoid SWIFT charges, but incoming international SWIFT payments may carry sender or intermediary deductions.
- Free virtual accounts: Skydo offers free local receiving details in USD, EUR, GBP, SGD, AUD and CAD, subject to availability. Clients can use supported local routes rather than SWIFT; funds are converted and settled to your linked Indian bank account. These receiving details are not traditional deposit accounts.
- Free FIRA: Skydo automatically generates a free Foreign Inward Remittance Advice for each payment. Keep it with your invoice and settlement records as evidence of receipt. It does not by itself complete GST/LUT compliance, eBRC generation or export-record closure.
- eBRC assistance: Skydo offers DGFT account linking, bulk shipping-bill upload and automatic IRM matching to help exporters generate eBRCs. Valid records and exporter self-certification are still required. Closure of EDPMS entries is a separate Authorised Dealer bank process.
- Settlement and support: For standard bank-transfer receipts, Skydo’s terms provide for commercially reasonable efforts to credit payments within T+1 to T+3 business days after successful screening, depending on currency and corridor and subject to checks by the institutions involved. Skydo provides India-based support by WhatsApp, phone and email, with no setup or monthly fee.
What does inward remittance look like on a bank statement?
An inward remittance usually appears as a bank credit with a payment reference and a bank-specific description, such as “SWIFT credit” or “Inward remittance”. For an INR account, the credited amount is normally after conversion and deductions. Use the reference to match the credit with the invoice and available remittance advice; statement wording varies by bank and route.
What is the journal entry for bank charges on inward remittance?
How do you record a foreign currency transaction in accounting?
Is tax applicable on inward remittance?
