Netting Off Export & Import Dues Under FEMA: Full Guide
TL;DR - Summary
- What is netting off of export and import dues under FEMA? - Netting off of export and import dues under FEMA is the practice where an Indian exporter sets off the amount receivable from a foreign buyer against an amount payable to the same party for imports, so only the net balance is remitted across borders, and it needs prior AD bank approval.
- Who can use netting off of export and import dues under FEMA, and under what conditions? - Goods exporters, service exporters and agencies, and freelancers with a contra arrangement can use netting off under FEMA when the export and the import involve the same foreign counterparty, both transactions are genuine and documented, and the AD bank has approved the arrangement before the net remittance is made.
- How does the AD bank approval process for netting off work? - The AD bank approval process for netting off starts with an eligibility check and document preparation, then a written request to your AD bank stating the gross export value, gross import value and net amount, and once the bank approves, the net is remitted while the FIRC and eBRC reflect the gross export value.
- What are the penalties for unapproved netting off under FEMA? - Unapproved netting off under FEMA is treated as a failure to realise and repatriate export proceeds in full, which can lead to compounding proceedings, and penalties can go up to INR 10 lakhs or more, with a documented case confirming INR 10 lakhs.
What Is Netting Off of Export and Import Dues Under FEMA?
Netting off under the Foreign Exchange Management Act (FEMA) is the practice where an Indian exporter sets off (adjusts) the amount receivable from a foreign buyer against an amount payable to the same party for imports, so only the net balance is actually remitted across borders. It needs prior approval from an Authorised Dealer (AD) bank.
It's a regulated mechanism. Beyond the bank's approval, it requires specific documentation under FEMA's Master Direction on Export of Goods and Services.
Say an Indian IT services firm exports $50,000 worth of software services to a US client. The same client supplies the firm with $8,000 worth of licensed software. Instead of two separate cross-border transfers, the firm legally remits only the net $42,000, after getting AD bank approval and maintaining the right documentation.
Who Can Use Netting Off, and When Is It Permitted?
Netting off is permitted under FEMA only when the export transaction and the import transaction involve the same counterparty, meaning the same foreign buyer or supplier, and only after your AD bank approves the arrangement. AD banks can approve netting off on their own authority, so you don't need a separate RBI application each time, but you must approach the AD bank before the net remittance is made. It applies to goods exporters, service exporters and agencies, and freelancers with a contra arrangement. It cannot be used to offset dues from two unrelated foreign parties.
Before the bank permits netting off, you must satisfy its eligibility criteria and documentation requirements. What that looks like depends on the kind of exporter you are.
- Goods exporters: Netting off is most straightforwardly permitted when the same overseas entity is both the buyer of your exported goods and the supplier of your imported goods.
- Service exporters and agencies: Netting off applies equally to you. Partial payments, retainers and milestone-based invoicing mean you must be especially careful to document each export invoice individually, so the gross export value can be proven independently of the net remittance.
- Freelancers: Suppose a client provides you a SaaS tool or subscription worth a defined dollar amount and deducts it from your payment. Treat this as a potential netting off situation that requires AD bank approval. It is a contra arrangement, not a routine deduction.
Netting off is not permitted in three situations:
- The import liability is unrelated to the same foreign party.
- The transaction involves parties or countries under RBI sanctions.
- You haven't yet received AD bank approval for the specific arrangement.
✅ PRO TIP
If you manage retainer clients, document each monthly invoice separately and flag any deductions to your AD bank upfront. Don't treat the net figure as the invoice value.
How Does the AD Bank Approval Process for Netting Off Work?
Netting off approval from your AD bank works in six steps. You check eligibility, prepare your documents, submit a written request to your AD bank, wait for the bank's review and approval, remit the net amount, and then close your FIRC and eBRC entries on the gross export value.
- Check eligibility: Confirm that the export receivable and the import payable involve the same foreign counterparty. Confirm that both transactions are genuine and arms-length, and that each has its own separate invoice.
- Prepare your documents: Gather the export invoice(s), the import invoice(s) or purchase order from the same party, proof of the import liability (such as an import bill, contract or agreement), and any existing FIRC or inward remittance records for prior transactions with this party. The gross export value must be demonstrable independently of the net amount.
- Approach your AD bank: Submit a formal written request to the bank through which you route international transactions. Explain the contra arrangement, attach all supporting documents, and state the gross export value, the gross import value and the proposed net settlement amount.
- Wait for review and approval: The AD bank reviews your request against FEMA Master Direction guidelines. It doesn't need RBI's case-by-case permission. The AD bank itself has the authority to permit or reject the arrangement. Timelines vary by bank but are typically a few working days for straightforward cases.
- Remit the net amount: Once approved, the net amount is remitted. The AD bank issues documentation reflecting the gross export value (for FIRC and eBRC purposes), even though only the net amount moved. Your eBRC and FIRC must reflect the full gross export value to ensure proper repatriation compliance.
- Close your FIRC and eBRC: Make sure your FIRC is issued for the gross export value. Use the FIRC to close your Export Declaration / EDPMS entry. The eBRC must also reflect the gross proceeds to satisfy export obligation and repatriation requirements.
What Does a Netting Off Transaction Look Like in Practice?
In practice, an Indian IT services firm that invoices a US client $50,000 for software development, and buys $8,000 of licensed software tools from the same client, can have the client remit only the net $42,000 once the AD bank has approved the arrangement. The AD bank records the gross $50,000 export proceeds for FIRC and eBRC purposes, even though only $42,000 crossed the border. Without that prior approval, the $8,000 shortfall shows up as unrealised export proceeds.
The firm invoices the US client $50,000 for software development services. Under a separate agreement, the same client supplies the firm with $8,000 worth of licensed software tools. Here is how the transaction plays out in three ways.
- Without netting off approval: The firm should receive the full $50,000 inward remittance and separately pay $8,000 outward for the import. Both transactions are documented individually, and the FIRC reflects $50,000 received.
- With approved netting off: After AD bank approval, the US client remits only $42,000, the net. The firm's AD bank documents the arrangement so that the gross export proceeds of $50,000 are recorded for FIRC and eBRC purposes. This satisfies repatriation requirements even though only $42,000 physically crossed the border inward.
- Netting informally without approval: The AD bank sees only a $42,000 inward remittance against a $50,000 export invoice. The $8,000 shortfall appears as unrealised export proceeds. This can trigger non-repatriation proceedings under FEMA, compounding applications and penalties, even if the underlying import was legitimate.
For service exporters, the takeaway is that the legality of the arrangement depends on whether the AD bank approved the netting arrangement before the net remittance was made. The import being real doesn't decide it. Even when netting off is planned, always issue two separate documents, one export invoice and one import purchase order. That is the paper trail your AD bank needs.
Proving the gross export value independently of the net remittance is what makes the legal process work. Skydo auto-generates a free FIRC for every inward remittance. That gives service exporters a clean, bank-ready audit trail, which makes the AD bank conversation straightforward when you apply for netting off approval. Skydo is fully digital, setup takes 10–15 minutes, and there are no monthly fees. You pay only when you transact.
⚠️ WATCH OUT
RBI's updated FEMA export-import trade regulations (2026) revised the timelines for realization and repatriation. If you use netting off, the gross export proceeds must be realized within the prescribed period, which is currently 9 months for most goods and 12 months for software/services in certain cases.
Netting Off vs. Set-Off vs. Write-Off Under FEMA: What Is the Difference?
Netting off and set-off both mean offsetting an export receivable against an import payable with the same counterparty, and both need AD bank approval. Write-off is different: the exporter permanently gives up the right to realise the outstanding export proceeds. The key distinction is whether money is expected to be realised (netting off and set-off) or permanently foregone (write-off).
| Term | What It Means | When It Is Permitted | Approving Authority |
|---|---|---|---|
| Netting Off | Gross export receivable is offset against gross import payable with the same counterparty; only the net is remitted | Permitted with prior AD bank approval; both parties must be the same; genuine documented transactions required | AD Bank (no separate RBI permission needed per transaction) |
| Set-Off | Broadly similar to netting off: the outstanding export proceeds are set off against an outstanding import liability with the same overseas party | Permitted by AD banks under FEMA Master Direction on Export of Goods and Services; conditions similar to netting off | AD Bank |
| Write-Off | The exporter gives up the right to realise the outstanding export proceeds; the amount is permanently written off rather than collected | Permitted within limits (AD banks can allow up to a certain percentage; beyond that, RBI approval may be needed); requires evidence that recovery is not possible | AD Bank (within limits); RBI (beyond limits) |
Set-off and netting off are often used interchangeably in practice and in RBI Master Directions. Both offset export receivables against import payables with the same counterparty. With a write-off, no recovery is expected, and the proceeds are forgone.
All three terms appear in the same RBI Master Direction on Export of Goods and Services, which is why exporters frequently confuse them.
✅ PRO TIP
If a foreign client disputes part of an invoice and you agree to waive it, that is a write-off situation under FEMA, not a netting off, and it needs separate approval.
What Are the Penalties for Unapproved Netting Off Under FEMA?
Unapproved netting off under FEMA is treated as a failure to realise and repatriate export proceeds in full, because the AD bank sees only the net amount as received. Such violations are subject to compounding proceedings, where the exporter applies to compound (settle) the contravention. Penalties can go up to INR 10 lakhs or more, depending on the quantum of unrealised proceeds and the period of delay.
One documented case involved an exporter who set off export proceeds against import payables without prior AD bank approval. The exporter was subject to compounding proceedings, and the penalty confirmed was INR 10 lakhs. The RBI and the Enforcement Directorate treat the unapproved shortfall as a FEMA contravention regardless of whether the underlying import was genuine.
The monetary penalty isn't the only consequence. Your AD bank relationship can be affected too. Banks can flag the account, restrict future transactions, or require enhanced documentation for all subsequent international remittances.
Proactive Compliance Checklist
- Always get AD bank approval in writing before any net remittance is made.
- Keep both the export invoice and the import invoice or purchase order on file for the same counterparty.
- Make sure your FIRC reflects the gross export value.
- Close your EDPMS and FIRC entries based on gross proceeds, not net remittance.
- Monitor repatriation deadlines on the gross export value (9 months for most goods; 12 months for software/services in certain cases under the updated 2026 FEMA regulations).
✅ PRO TIP
If you have already made a net remittance without approval, approach your AD bank immediately about voluntary compounding. Delayed disclosure typically attracts higher penalties.
How Skydo Simplifies Netting Off Compliance for Indian Service Exporters
The core compliance challenge in netting off is proving the gross export value independently of the net remittance that actually arrived. That gets harder for service exporters managing multiple foreign clients, each with different payment structures, retainers or milestone payments, because every payment needs its own clear, per-transaction audit trail. Skydo addresses this directly.
- Free FIRC on every payment: Every inward payment processed through Skydo automatically generates a free Foreign Inward Remittance Certificate (FIRC) that records the full transaction value. That is the document your AD bank needs to verify gross export proceeds.
- Real-time payment visibility: You can match each inward remittance to a specific invoice, even when clients pay in irregular cycles, which suits service exporters with retainers and milestone payments.
- EDPMS and eBRC closure assistance: Link your DGFT account once, then bulk upload shipping bills to auto-map IRMs and generate an eBRC in a click. This is directly relevant when netting off arrangements require the eBRC to reflect gross export value, not net.
- Flat, predictable pricing: Under $2,000 costs a $19 flat fee. From $2,000 to $10,000 costs a $29 flat fee. Over $10,000 costs 0.3%. There are no monthly fees, so you pay only when you transact, and setup takes 10–15 minutes.
- Free virtual accounts: Virtual accounts are available in USD, EUR, GBP, SGD, AUD and CAD, all free. You can receive payments from different geographies under a single platform, with every remittance auto-documented, which makes AD bank conversations simpler.
- India-based support: You can get help over WhatsApp, call and text when you need to coordinate between your AD bank and your payment records, without waiting in a global support queue.
You can find out more at Skydo.
Can freelancers use netting off under FEMA?
Yes, freelancers can use netting off if they have a genuine, documented import liability with the same foreign client, for example when the client deducts the cost of a tool or subscription from the invoice. This requires prior AD bank approval, exactly like any other exporter. Freelancers cannot treat a client-side deduction as a routine billing adjustment under FEMA.
What is the penalty for unapproved netting off under FEMA?
Does the AD bank need RBI permission each time for netting off?
Is netting off allowed for services exports, not just goods?
What documents prove that the import liability existed?
