P1502 Purpose Code: Reversal of wrong entries, refunds of amount remitted for non-imports

Purpose code P1502 is used when money comes back to India because a payment was made in error, or because an outward remittance for something other than imported goods is being refunded.

What is the P1502 purpose code?

Purpose code P1502 covers two related situations. The first is the reversal of a wrong entry, where money returns because a payment was duplicated, misdirected or booked in error and nothing commercial took place. The second is a refund of money that was properly remitted abroad for something other than imported goods, such as a service that was not delivered or a subscription that was cancelled. Both are corrections rather than earnings, which is why they sit alongside the import refund code in the same group. What separates the two refund codes is simply what the original payment was for. Under RBI FEMA guidelines, this inward payment is classified under Others and reported accordingly.

When to use P1502 purpose code?

Use P1502 when money returns to India either because a remittance was made in error, or because an outward payment for something other than an import of goods is being refunded. That second case covers most of what a services business buys from abroad: software, subscriptions, professional services and similar. Where the original payment was for imported goods, the import refund code applies instead.

When to use a different code:

• Use P1501 when the refund relates to an import of goods
• Use P1306 when the money is a refund of taxes rather than a supplier refund or reversal
• Use the matching S-code when money is being sent abroad rather than received

Who typically uses P1502 purpose code

Indian businesses and individuals receiving money back on outward remittances that were not for imported goods, including services businesses refunded by overseas software, subscription and professional service providers, along with anyone receiving a reversal of a payment made in error.

Examples of transactions covered under P1502 purpose code

• A duplicated outward payment returned by the beneficiary or the bank
• Money returned after a remittance was sent to the wrong account
• Refund from an overseas software or subscription provider on a cancelled service
• Money back from a foreign service provider where the service was not delivered

When NOT to use P1502 purpose code

• The refund relates to an import of goods (use P1501)
• The money is a refund of taxes paid abroad (use P1306)
• The money is payment from a customer for goods or services you supplied, which is export income under the relevant code
• Money is being sent abroad rather than received (use the matching S-code)

Documents required for P1502 purpose code

To receive a payment under P1502, keep the following documents ready so your bank can verify the transaction and report it correctly under FEMA.

How is a P1502 Purpose Code declared?

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

1. Establish what is being reversed: Identify the original outward remittance and the reason the money is coming back.
2. Receive the money: The beneficiary, provider or bank returns the funds to your Indian account.
3. Declare the purpose: State the purpose of the inward remittance on your bank's form, identifying it as a reversal or refund.
4. Submit supporting documents: Provide evidence of the original remittance and the refund advice so the bank can connect the two.
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 P1502 purpose code

A few common slips can cause reporting problems.

1. Coding a refund as income: Treating returned money as a receipt from a customer, when a reversal or refund is a correction and coding it as income overstates what your business earned.
2. Using the import refund code by default: Applying P1501 to any refund from abroad, when that code covers imports of goods and refunds on services and other remittances belong here.
3. Failing to link the refund to the original payment: Declaring the money without evidence of what it reverses, so the bank cannot establish why it has come back.
4. Code and document mismatch: The code not matching what the refund advice describes, which flags the payment.
5. Incomplete documents: Missing the original remittance records, so the bank 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

P1502 covers reversals and refunds on money you sent abroad, which is not a flow 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.