Planning any international travel or making an international purchase? You might be in for a surprise when it comes to taxes. Since the 2023 Union Budget, Tax Collection at Source (TCS) has become a crucial part of foreign remittances, impacting your tax obligations. If you’re sending money abroad or making outward money transfers, you could be facing a 20% tax 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>.

So next time you make a big foreign payment, expect to pay extra for TCS which is collected by the receiving bank or business. This blog will give a thorough understanding of TCS to help you navigate the complexities of cross-border payments.&nbsp;

What is TCS or tax on foreign remittance?

TCS (Tax Collected at Source) is a tax system in India where the seller collects a tax from the buyer on specific goods or services. This collected tax is then remitted to the Income Tax Department. One example is its application to transactions like sending money abroad under the Liberalised Remittance Scheme (LRS), which we'll be discussing in this blog. The primary purpose of TCS is to track large transactions and prevent tax evasion. The tax rate varies depending on the type of transaction and is added to the sale price.

Difference between TCS and TDS on foreign remittance

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 from various sources. The most common instance is the TDS deducted by companies while paying salaries. 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 that you can minimise your tax burden.

When is Tax Collected at Source (TCS) on Foreign Remittance applicable?

Tax collected at source (TCS) applies when you send over INR 7 lakhs abroad in a financial year. For instance, if you are 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" target="_blank"> </a><a href="https://pib.gov.in/PressReleasePage.aspx?PRID=1936105" target="_blank">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. 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:

Note that the new TCS rates will be applicable from 1st September 2023.&nbsp;

TCS rate 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 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 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) is not completely avoidable, here are some strategies you can use 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 an overseas tour program 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;

Submitting an erroneous TCS return can lead to penalties as per Section 271H. The penalty for such errors can range from a minimum penalty of Rs. 10,000 to a maximum penalty of Rs. 1,00,000. It is important for tax collectors to ensure the accuracy of their TCS returns to avoid facing these penalties and maintain compliance with tax regulations.

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" target="_blank"> </a><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" target="_blank">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, 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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The Reserve Bank of India (RBI) serves as the supreme authority overseeing and regulating India's money market. RBI imposes penalties on banks and Non-Banking Financial Companies (NBFCs) for failing to comply with prescribed frameworks and guidelines, implementing necessary restrictions when required.

A significant recent operational restriction imposed by RBI was on Paytm Payments Bank. This blog aims to provide insights into the <a href="https://www.rbi.org.in/commonperson/English/scripts/FAQs.aspx?Id=3573#:~:text=After%20March%2015%2C%202024%2C%20you,Bank%20after%20March%2015%2C%202024">Paytm Payments Bank RBI ban</a> and explore strategies for ensuring better compliance moving forward. Join us to understand this important development and its implications.

It was all smooth sailing for Paytm and its subsidiary, Paytm Payments Banks, until January 31st when the RBI announced that it had placed major restrictions on the NBFC. The RBI was exercising its right under Section 35A of the Banking Regulation Act of 1949, to issue directives to banks and NBFCs to protect their customers’ financial interests.&nbsp;

On January 31, RBI imposed the following restrictions on Paytm Payments Bank, which it extended till March 15th.

Why Did RBI Put Restrictions on Paytm?&nbsp;

Here are the main reasons that led to RBI putting restrictions on Paytm and Paytm Payments Bank.

Under RBI’s guidelines for payment banks, they can not undertake lending activities. However, RBI identified that although Paytm Payments Bank does not lend to customers directly, it indirectly provides third-party <a href="https://www.niti.gov.in/sites/default/files/2023-02/DigitalBanking07202022_compressed.pdf">credit-dispensing products</a>.&nbsp;

One example is when you apply for loans from Paytm’s platform, they do not provide the loan directly but offer credit-dispensing products from top NBFCs.&nbsp;&nbsp;

Paytm owns 49% of Paytm Payments Bank, and the remaining 51% is owned by its founder and CEO, Vijay Shekhar Sharma. Although founders and parent entities can own a business, RBI requires the operations to be run independently by the company management to ensure they are aligned with customer interests.&nbsp;

RBI noted that although Paytm has maintained that the bank is run independently without any external influence, the governance has been highly influenced by Paytm and its CEO.&nbsp;

Thousands of bank accounts were identified to have been linked with a single PAN. RBI noted that if multiple fake accounts are created without the PAN holder's knowledge, the intention must be to use them for laundering money because it is difficult to identify the beneficial owner in such cases.&nbsp;

Furthermore, it drastically eroded the trust of users and seriously jeopardised the operational and security protocols needed for regulatory compliance.&nbsp;

Paytm and its founder and CEO Vijay Shekhar Sharma have announced that they are in frequent touch with RBI and holding talks to determine the next course of action to ensure the lifting of Paytm bank RBI ban. In an official response, Paytm announced that the ban would hurt its annual earnings by a staggering <a href="https://www.ndtv.com/india-news/paytm-paytm-news-explained-why-rbi-has-put-restrictions-on-paytm-payments-bank-4970845">₹300 crore to ₹500 crore</a>. Meanwhile, Paytm Payments Bank has paused its primary services, such as credit and deposit transactions, FASTag services, and onboarding of new customers.&nbsp;

Best Compliance Practices For Fintechs in India

The fintech segment in India has to comply with extensive regulatory and supervisory compliance requirements from various authorities such as the RBI and SEBI. Similar to Paytm, there are over <a href="https://www.cashfree.com/blog/fintech-companies-in-india/#:~:text=According%20to%20the%20reports3,amalgamation%20of%20finance%20and%20technology.">3,000 fintech firms in India.&nbsp;</a>

However, to ensure that they don’t experience the same restrictions as Paytm, here are some of the best compliance practices to consider.

Since the Paytm Payments bank, customers and merchants have been forced to look at alternatives. However, the platform or institution they choose must have ideal policies and frameworks to ensure seamless RBI compliance.&nbsp;

Similarly, with international payments, you need a platform that complies with RBI guidelines to ensure you receive payouts smoothly. Skydo is one such platform that facilitates international payments while staying true to all RBI regulations. Here’s how it works.

How Skydo Ensures Seamless RBI Compliance? 

Skydo ensures effective compliance through the following features and policies.

Skydo ensures effective compliance with industry regulations as it follows guidelines set by the Reserve Bank of India (RBI) under the OPGSP framework. RBI has set <a href="https://www.skydo.com/blog/pacb-circular-and-opgsp-update">guidelines</a> related to Online Payment Gateway Service Providers (OPGSPs) and their arrangements with Authorised Dealer (Category I) Banks.&nbsp;

Skydo constantly monitors the RBI framework to regulate its operations and ensure it follows the RBI’s OPGSP guidelines.&nbsp;

A <a href="https://www.skydo.com/blog/importance-of-fira-for-freelancers?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Foreign Inward Remittance Advice (FIRA)</a> is a document issued by Indian banks to Indian beneficiaries who receive foreign remittances into their bank accounts. Skydo offers Automated Digital FIRA, where the document is automatically generated immediately when you receive foreign funds in your virtual Skydo account. This saves time and ensures you are GST-compliant with every completed transaction.&nbsp;

Furthermore, when you execute an international transaction on Skydo, your <a href="https://www.skydo.com/blog/what-is-purpose-code-and-why-is-it-required?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">purpose codes</a> are automatically saved and seamlessly integrated into your invoices. This allows effective regulatory compliance, risk management, and transaction transparency.&nbsp;

For financial platforms and institutions, adequate KYC (Know Your Customers) and KYB (Know Your Business) processes are vital as penalties for flouting such processes by RBI are the most common.&nbsp;

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> has created detailed yet quick KYC and KYB processes to prevent money laundering, terrorist financing, and other illicit activities.

Skydo monitors every transaction you execute through your virtual currency account and ensures there are no unusual activities, to maintain a safe and trustworthy environment.&nbsp;

Creating an account and executing transactions leave a data trail about the sender and the receiver. Skydo ensures the safety of your money, data, and client/business information through top-grade encryption.&nbsp;

<a href="https://www.skydo.com/blog/why-skydo-is-your-trusted-international-payment-partner?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Skydo</a> keeps your data in a virtual safe, with an extra layer of security access. Furthermore, <a href="https://www.skydo.com/">Skydo</a> follows processes aligned with the new Data Protection Act to ensure your data is handled with the utmost care and in compliance with evolving regulations.

Financial Intelligence Unit - India (FIU-IND) is a national agency that receives, processes, analyses, and disseminates information relating to suspicious financial transactions. Skydo has registered with FIU-IND to report suspicious activity.

RBI has set guidelines and frameworks to protect customer data and money, and it should be the foremost priority of platforms and institutes to ensure their operations and processes comply with RBI guidelines.&nbsp;

For businesses, compliance helps in identifying and mitigating risks related to financial, operational, and reputational matters, safeguarding against potential losses and liabilities. It is crucial for fintechs or any other financial entities to adopt the best compliance practices to avoid regulatory scrutiny.&nbsp;

Hence, Skydo has prioritised developing policies and processes to ensure individuals and businesses onboard Skydo do not have to worry about any lapses in compliance for cross-border transactions.&nbsp;

When you sign up with Skydo, it handles your personal information carefully, strictly following its extensive Privacy Policy. Access to your data is limited to authorised personnel, ensuring its security. If you want a smoother and more compliant payment platform, visit <a href="https://www.skydo.com/">Skydo</a> today.&nbsp;

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What is the Interest Equalisation Scheme in India?

In international trade, access to affordable finance is a crucial factor that impacts the&nbsp; profitability of exporters. Recognising this, governments often institute schemes to support exporters in accessing finance at competitive rates.&nbsp;

Interest Equalisation Scheme (IES) is one such scheme that provides pre and post-shipment credit to exporters at subsidised interest rates. It allows exporters easy access to credit and reduces their cost of borrowing.

Key Features of the Interest Equalisation Scheme

The Government of India launched The Interest Equalisation Scheme (IES) on 1st April 2015. Initially, the scheme was valid for five years until March 31, 2020. However, it has undergone several extensions in response to evolving circumstances, including the challenges posed by the COVID-19 pandemic.

According to a recent notification from the Reserve Bank of India, the government has extended the scheme until June 30, 2024. This extension offers specific benefits to various categories of exporters. Manufacturers and merchant exporters dealing with specified 410 <a href="https://mpeda.gov.in/exporters/?page_id=1840">HS lines</a> will be entitled to a 2% interest equalisation rate. Additionally, MSME manufacturers exporting under any HS line will receive a higher rate of 3%.

Eligible Exporters and Industries by HS code

Exporters can identify eligibility based on industry classification using Harmonised System (HS) codes. These codes categorise export products into specific industries, determining their eligibility for the scheme. The scheme extends to specific export products meeting predefined criteria, ensuring that it targets industries with significant export potential. 	

Official channels, such as the Indian trade portal, provide a comprehensive list of eligible exporters and industries and the corresponding interest equalisation rates. Below are some covered sectors:

Criteria for Export Products under the Scheme&nbsp;

Exports under the scheme must originate from India. The Rules of Origin in the Foreign Trade Policy 2015-20 outlines the minimum processing criteria to qualify as ‘originating from India.’ These include:

New applicants can successfully register for the scheme by following these steps:&nbsp;

One significant advantage of the Interest Equalization Scheme is its ability to lower borrowing costs for eligible exporters.&nbsp;

For example, XYZ Exporters, a medium-sized enterprise specialising in the export of textiles, is seeking export credit. If it takes credit from banks, it will have to pay the base interest + 3%-5% above the base rate. However, if it’s eligible for the Interest Equilisation Scheme, it can get export credit at a subsidized 3% interest rate.&nbsp;

The concessional interest rate enables them to lower their overall financing expenses and improve their profitability.&nbsp;

Furthermore, XYZ Exporters could offer more competitive pricing in the international market, attracting more customers and expanding their market share. They could redirect saved funds toward business expansion initiatives, product diversification, or enhancing operational efficiency.

Interest Equalisation Scheme in India provides exporters access to affordable finance. By subsidising interest rates on bank loans, the scheme effectively reduces borrowing costs, empowering exporters to optimise their financial resources and expand their business operations.&nbsp;

For eligible exporters, the time is now to explore the IES's benefits and take proactive steps toward gaining them. By initiating the registration process, engaging with relevant authorities, and adhering to the scheme's guidelines, exporters can unlock opportunities to lower financial burdens, improve competitiveness, and drive sustainable growth.



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Skydo is a leading cross-border <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">B2B payment gateway</a> tailored for Indian businesses, spanning freelancers, sole proprietorships, and companies alike. We're dedicated to making B2B payment processing seamless, compliant, and cost-effective.

At the heart of our operations lie four fundamental pillars: regulatory compliance, secure money handling, data security, and prompt fund availability. These pillars are paramount in fostering trust and security, ensuring that businesses can conduct <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border payments</a> with confidence.

Let's explore how Skydo simplifies cross-border payments while prioritizing trust and security.

Skydo has received the in-principle Payment Aggregator – Cross Border (PA-CB) approval from the Reserve Bank of India. This approval indicates that Skydo meets the regulatory requirements set by the RBI to operate as a payment aggregator for cross-border transactions. It covers key aspects such as transaction security, fund flow management, data protection, and user grievance redressal. For users, this means that Skydo’s processes align with RBI’s standards for safety, transparency, and compliance in handling international payments.

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Ensuring the safety of your funds is our utmost priority at Skydo. We take security seriously and have implemented strong measures similar to those top financial institutions use to protect your funds.&nbsp;

We've partnered with respected financial institutions like <a href="https://www.dbs.com/in/index/default.page">DBS</a>, <a href="https://www.bankingcircle.com/">Banking Circle</a> and <a href="https://www.currencycloud.com/">Currencycloud</a> (a Visa entity) known for their commitment to security and reliability. These partnerships guarantee the safety of your funds and provide added assurance about how Skydo handles your finances as a payment partner.

At Skydo, safeguarding your <a href="https://www.skydo.com/blog/a-quick-guide-to-using-the-skydo-platform?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">privacy</a> is paramount, and we use a multi-layered approach to ensure the security of your data.

With these robust data security measures in place, Skydo ensures that your information is safeguarded at every step, giving you peace of mind while using our platform.

At Skydo, we understand the urgency of accessing your <a href="https://www.skydo.com/blog/seamlessly-accept-international-payments-in-india">funds</a> without delay. That's why we ensure that once we receive your funds, they are swiftly brought back to India within 12 hours. Following this, the conversion process takes place, and your funds are promptly transferred to your bank account.

This streamlined approach minimizes the risk associated with potential bank collapses and ensures quicker access to your funds when you need them the most.

Skydo is committed to providing you with a seamless and secure experience for cross-border payments. Our focus on regulatory compliance, secure money handling, data security, and prompt fund availability ensures transparency and trustworthiness in every transaction.

Delve deeper into what <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> offers and consider us for your cross-border payment requirements. With Skydo, you can confidently handle your transactions with the utmost reliability, security, and professionalism.&nbsp;

Trust Skydo for a reliable and secure solution for your B2B payment processing.



Why Skydo is Your Trusted International Payment Partner?

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On October 31, 2023, the Reserve Bank of India (RBI) issued a master circular on the import of goods and services titled <a href="https://m.rbi.org.in//Scripts/NotificationUser.aspx?Id=12561&amp;Mode=0">Regulation of Payment Aggregator – Cross Border</a>.&nbsp;&nbsp;

According to the circular, the RBI will regulate all Indian entities facilitating online cross-border payments for the import and export of permissible goods and services. Moreover, these entities will be collectively termed Payment Aggregators Cross Border (PA-CB).

The circular comprises guidelines to streamline the existing cross-border payment framework in India. Previously, cross-border transactions were carried out through Online Payment Gateway Service Providers (<a href="https://www.skydo.com/blog/online-payment-gateway-service-provider-opgsp?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">OPGSPs</a>) as per a circular issued by RBI in 2015.

OPGSPs operate by partnering with an Authorised Dealer (Category I) Bank (AD Bank) and notifying the RBI. According to RBI guidelines, no formal license is needed to function as an OPGSP.

Hence, RBI has issued a circular to establish a concise and clear framework for cross-border payments. RBI will now oversee all cross-border payments in India related to the import and export of goods. The circular applies to PA-CB, PAs, authorised banks and OPGSPs.&nbsp;The PA-CB circular also denotes that there can’t be any new OPGSP.

This blog discusses the key provisions related to the latest RBI circular on the import of goods and services, RBI guidelines for payment gateway, and OPGSP guidelines.

Master Circular on Import of Goods and Services: RBI Bank Guidelines

The following are the key guidelines mentioned in the circular.

The following entities need to adhere to RBI guidelines/instructions provided in the circular.

Here are the key developments included in the new PACB circular.

Categories of Authorisation as per PA-CB Activity&nbsp;

Based on the cross-border payment activity undertaken by the PA-CBs, they can seek authorisation for one of the following three categories.

PA-CB, facilitating cross-border payments for Indian exporters, has to open an Export Collection Account (ECA) with an AD bank.&nbsp;

ECAs can be opened in either Indian currency or foreign currency. In the case of the latter, various ECAs have to be opened for different currencies.

The PA-CBs will credit all export proceeds in the respective ECAs. Additionally, export PA-CBs need to follow the below guidelines:

Similar to export PA-CBs, import PA-CBs have to open an Import Collection Account (ICA) with an AD bank.&nbsp;

They will collect the payment from importers in an escrow account managed by the payment aggregator. It will then be transferred to ICA and will eventually be transferred to the bank account of the foreign merchants.

These entities are allowed to directly onboard foreign merchants, e-commerce marketplaces, or other overseas entities that offer payment aggregation services.&nbsp;

Here are the guidelines Import PA-CBs need to follow.

Those PA-CB who engage in both import and export activities have to comply with the requirements for both Import PA-CB and Export PA-CB.

They also need to ensure that the maximum value per unit of exported or imported goods or services should be ₹25,00,000.

Non-banks who want to provide PA-CB services will have to seek authorisation from RBI. However, before seeking RBI authorisation, it is necessary to register with the Financial Intelligence Unit-India (FIU-IND).&nbsp;

However, RBI has issued the following net-worth criteria for non-banks providing PA-CB services.

The accounts of existing non-bank PA-CB who are unable to meet the net worth requirement will be closed by banks by 31 July 2024.

Snapshot Comparison Between OPGSP Circular (2015) and PA-CB Circular (2023)&nbsp;

Here are the key differences between the OPGSP Circular (2015) and the PA-CB Circular (2023)

Here is the process of seeking approval from RBI for existing or new PA-CBs.

Step 1: Draft the application through Form A, which includes the following parts.

Step 3: The RBI will process the application.

(RBI may raise queries related to various aspects such as shareholding, product processes, etc.)&nbsp;

Step 4: In principle approval from RBI.

Step 5: Filing of system Audit Report

(RBI may raise queries related to SAR audit observations)&nbsp;

Step 6: Final authorisation(state additional conditions that must be complied with)&nbsp;

The evolving cross-border payments environment and the emergence of several OPGSPs and other fintech entities encouraged RBI to issue the circular. Its main purpose is to ensure seamless and more transparent cross-border payment transactions.

Even though regulatory authorities are constantly working on making cross-border payment transactions seamless, transparent, secure, and quicker, businesses often face difficulties in receiving timely payments.&nbsp;

Skydo aims to simplify the cross-border payment landscape for businesses by automating various tasks and helping businesses open foreign bank accounts. <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Join Skydo today</a> to streamline your invoicing and financial management activities!

Q1. RBI’s master circular on the import of goods and services and cross-border payments applies to which entities?

Ans. AD banks, PAs, and PA-CBs involved in the online processing/settlement of cross-border payment transactions related to the import and export of goods and services have to comply with the guidelines mentioned in the circular.

Q2. What are various compliances according to RBI payment aggregator guidelines for cross-border payments?

Ans. All PA-CBs have to follow the guidelines provided in the circular dated October 31, 2023. Additionally, they also have to follow the various guidelines for payment aggregators mentioned under a circular issued by RBI on March 17, 2020.&nbsp;The circular includes guidelines related to customer grievance redressal and compliance with Baseline Technology Guidelines to ensure fraud prevention and risk management.

Q3. How can PA-CB seek authorisation for facilitating cross-border payment transactions?

Ans. AD banks do not need to seek authorisation to facilitate cross-border payment transactions. However, a non-bank PA-CB can seek authorisation from RBI by sending the application to the Department of Payment and Settlement Systems (DPSS), RBI, Central Office (CO), by April 30, 2024. PA-CB entities must fulfil the minimum net worth criteria before applying to RBI.

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As an exporter or freelancer dealing with global clients, using the wrong purpose code can cause major problems—like transaction cancellations or even RBI investigations.

But before we dive into the consequences, let’s first break down what is a purpose code and why it’s so important.

A purpose code is a specific alphanumeric code assigned to transactions, indicating the nature and purpose of the fund transfer.&nbsp;

There are two types of purpose codes, purpose code for inward remittance and purpose code for outward remittance. By assigning a purpose code to a transaction, exporters clarify the intended use of the funds, aiding regulatory authorities in monitoring and regulating <a href="https://www.skydo.com/blog/how-you-can-streamline-international-transactions-for-your-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border financial flows</a>&nbsp;and ensuring&nbsp; regulatory compliance

When Do You Need to Use the Purpose Code?

Purpose codes are mandatory for <a href="https://www.skydo.com/blog/seamlessly-accept-international-payments-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Indian exporters</a> engaging in international transactions. These codes are required when receiving or making payments for goods and services across borders.

Purpose codes differ based on whether you are receiving or making an international transfer.

These purpose codes are used when you are receiving an international transfer. These purpose codes signify the purpose for which you are receiving the transfer. Purpose codes for inward remittance start with P followed by the respective numericals.

For example, P0802 is a purpose code for inward remittance that is used when an exporter receives a foreign payment in exchange for software consultancy or implementation service, provided to a foreign client. You can find some of the popular<a href="https://www.skydo.com/blog/rbi_purpose_code_for_inward_remittance"> purpose codes for inward remittance right here.</a>

2. Purpose Code for Outward remittance&nbsp;

As the name suggests, these purpose codes are used while making an international transfer.&nbsp;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,&nbsp;S0301 is a purpose code for outward remittance that is used when sending money abroad for business travel.

The RBI assumes a key role in overviewing and regulating international transactions. The key aspects of the RBI's role include:

Compliance Requirements for Indian Exporters

Indian exporters engaging in <a href="https://www.skydo.com/blog/real-time-tracking-of-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international transactions</a> must adhere to specific compliance requirements related to purpose codes. Key considerations include:

Significance of Purpose Code for Inward Remittance

For exporters, sharing the correct purpose code with their banks is crucial for receiving international payments especially concerning countries like China. . 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, highlighting the importance of adherence to regulations.

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

Facilitating Accurate Tracking of Foreign Exchange Transactions

The purpose codes provide a standardized framework for financial institutions and regulatory bodies to track the flow of funds precisely.&nbsp;

Role in Preventing Financial Fraud and Ensuring Transparency

Purpose codes ensure that financial transactions align with the intended purposes declared by Indian exporters. It also helps detect and prevent illicit activities such as money laundering and fraudulent financial practices.&nbsp;

Growing Global

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