P1407 Purpose Code: Receipt of dividends by Indians

Purpose code P1407 is used when an Indian shareholder receives dividends from a company abroad.

What is the P1407 purpose code?

Purpose code P1407 covers dividends an Indian shareholder receives from a company outside India. A dividend is a distribution of profits by a separate company to those who own its shares, which is what distinguishes it from profit remitted by an overseas branch: a branch is part of the same legal entity as its Indian parent and so remits profit rather than declaring a dividend. More recent versions of the code list divide dividends by the nature of the holding, with separate codes for direct investment and portfolio investment, so the kind of shareholding you have is worth establishing. Under RBI FEMA guidelines, this inward payment is classified under Primary Income and reported accordingly.

When to use P1407 purpose code?

Use P1407 where dividends on shares held in an overseas company are received in India. The current version of the code list splits dividends between direct investment and portfolio investment, so confirm with your bank which applies to your holding rather than relying on an older list. The distinction turns on whether you hold a controlling or lasting interest in the company or simply own shares in it, and it determines the code under the current structure.

When to use a different code:

• Use P1409 when the dividend comes from an overseas enterprise in which you hold a direct investment
• Use P1412 when the dividend arises on a portfolio investment made abroad
• Use the matching S-code when money is being sent abroad rather than received

Who typically uses P1407 purpose code

Indian individuals, companies and institutions holding shares in companies outside India and receiving dividends on those holdings. It concerns investment income rather than business receipts, so the recipient is a shareholder rather than a supplier of goods or services.

Examples of transactions covered under P1407 purpose code

• Dividends received by an Indian shareholder on shares in a foreign company
• A distribution from an overseas subsidiary to its Indian shareholder
• Periodic dividend income on an overseas equity holding
• A special dividend declared by a foreign company and remitted to India

When NOT to use P1407 purpose code

• The dividend comes from an overseas enterprise in which you hold a direct investment (use P1409)
• The dividend arises on a portfolio investment made abroad (use P1412)
• The money is profit remitted by an overseas branch rather than a dividend from a separate company (use P1408)
• Money is being sent abroad rather than received (use the matching S-code)

Documents required for P1407 purpose code

To receive a payment under P1407, keep the following documents ready so your bank can verify the transaction and report it correctly under FEMA.

How is a P1407 Purpose Code declared?

Declaring the code is pretty straightforward. Here's how the payment gets tagged and reported.

1. Confirm the nature of the holding: Establish whether your shareholding is a direct investment or a portfolio investment, since the current list splits dividends between the two.
2. Receive the dividend: The overseas company remits the distribution to your Indian account.
3. Declare the purpose: State the purpose of the inward remittance on your bank's form.
4. Submit supporting documents: Provide evidence of the shareholding and the dividend advice so the bank can verify the receipt.
5. Get your FIRA: Once processed, your FIRA is issued as proof and the payment is reported under FEMA.

Common mistakes to avoid while using P1407 purpose code

A few common slips can cause reporting problems.

1. Ignoring the direct and portfolio split: Using a single dividend code without checking, when the current list separates dividends from direct investments and from portfolio holdings and your bank will expect the one matching your position.
2. Confusing branch profit with a dividend: Coding profit remitted by an overseas branch as a dividend, when a branch is not a separate company and cannot declare one.
3. Confusing dividends with capital: Applying P1407 to proceeds from selling the shares, when disposing of a holding is a capital account transaction rather than income on it.
4. Code and document mismatch: The code not matching what the dividend advice describes, which flags the payment.
5. Incomplete documents: Missing evidence of the shareholding, so the bank cannot establish what the dividend arises on and holds the payment until provided.
6. Using an inward code for an outward payment: Applying a receipt code to money being sent out instead of the matching outward code.

How Skydo helps you receive international business payments

P1407 covers dividends on overseas shareholdings, which is investment income rather than business earnings and is not something Skydo processes. If your business invoices foreign clients for goods or services, here is how Skydo helps you get paid.

1. Complete onboarding: Share PAN, Aadhaar, and Indian bank details. Setup is fully online.
2. Get virtual account details: Receive account details in USD, GBP, EUR and other currencies your clients pay in.
3. Your client pays like a local: They send a domestic transfer in their own country, no SWIFT and no wire fee on their end.
4. FIRA is generated automatically: Free e-FIRA on every payment, stored in your dashboard for GST and audits.
5. INR settles within 24 hours: Mid-market rate with a flat, visible fee, no FX markup.