S0108 Purpose Code: Goods acquired under merchanting, payment against import leg of merchanting trade

Purpose code S0108 is used when an Indian importer pays a foreign supplier for goods acquired under merchanting, specifically for the import leg of a merchanting trade.

What is the S0108 purpose code?

Purpose code S0108 is used when an Indian business sends money abroad to pay for goods acquired under a merchanting transaction, specifically the import leg. It covers outward remittances to overseas suppliers where you buy goods from one foreign country and sell them to another foreign buyer, while acting as an Indian merchanting trader. It does not cover regular physical imports of goods into India, which are reported under the standard goods import purpose codes such as S0101 to S0107 and S0109. Under RBI FEMA guidelines, this outward payment is classified under imports and reported accordingly.

When to use S0108 purpose code?

Use S0108 when you are paying an overseas supplier for the import leg of a merchanting trade, where you as an Indian merchant trader buy goods from one foreign country and sell them to another without the goods entering India. It is the correct RBI purpose code for import payments in a qualifying merchanting transaction, regardless of whether you operate as a company, LLP or proprietorship. S0108 is specific to merchanting trade and not to regular imports into India.

When to use a different code:

• Use the general goods import purpose codes when you are importing goods that physically enter India
• Use the relevant service import purpose codes when the payment is for services rather than goods
• Use the matching P code when you are receiving money rather than paying

Who typically uses S0108 purpose code?

Indian merchant traders, export houses and trading companies that structure cross-border deals where goods are bought from one foreign supplier and sold to another foreign buyer without entering India. It applies whether you are set up as a private limited company, LLP or proprietorship, as long as you are conducting eligible merchanting trade under RBI guidelines.

Examples of transactions covered

• Payment to a foreign manufacturer for goods purchased under a merchanting trade contract, to be shipped directly to a third-country buyer
• Advance payment to an overseas supplier for inventory that will be on-sold to a foreign customer without routing the goods through India
• Settlement of the import leg invoice in a back-to-back merchanting deal where your foreign buyer has already paid you
• Balance payment to a foreign exporter after successful delivery of goods to your third-country customer under a merchanting trade arrangement

When NOT to use S0108 purpose code

• The payment is for regular import of goods that physically enter India (use the appropriate standard goods import purpose code such as S0101 to S0107 or S0109)
• The payment is for imported services like consultancy, royalty or technical fees (use the relevant service import purpose code)
• The payment is for freight, insurance or other logistics charges related to shipping rather than for the goods themselves (use the corresponding freight or transport purpose code)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S0108, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S0108 Purpose Code declared?

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

1. Receive the supplier invoice: Your overseas supplier issues an invoice for the goods under the merchanting trade contract, clearly linking it to the merchanting transaction.
2. Determine taxability: Establish whether the payment for the goods is chargeable to tax in India, since that decides which part of Form 145 you file.
3. File Form 145: Submit the declaration before remitting, with Form 146 from your CA where the taxable amount exceeds ₹5 lakh in the Tax Year.
4. Complete Form A2: State the purpose of the outward remittance as S0108 and submit the supporting documents to your bank.
5. Get your MT103: Once the payment is sent, request the SWIFT MT103 as proof and retain your Form A2 and merchanting documents for your records.
6. With a traditional bank you handle each step of the payment journey. But with a platform built for cross-border payments, you can preselect a default purpose code so the payments go out smooth.

Common mistakes to avoid

A few common slips can hold up your payment or cause compliance issues. Here's what to watch for.

1. Mixing merchanting with regular import: Tagging a normal goods import into India under S0108 instead of the appropriate standard goods import purpose code.
2. Code and invoice mismatch: The code not matching what your supplier invoice and contracts describe, which can flag or delay the payment.
3. Assuming a Rule 220(3) exemption: Skipping Form 145 on a payment that is not clearly covered by the specified exempt list, which carries a ₹1,00,000 penalty per instance if you are wrong.
4. Incomplete documents: Missing invoice, merchanting contracts or Form A2, so the bank holds the remittance until everything is provided.
5. Missing PAN or KYC: Incomplete KYC or incorrect PAN details can stop the bank from releasing the payment.
6. Using an outward code for an inward receipt: Applying an S code to money coming in instead of the corresponding P code for receipts.

How Skydo helps with payments under S0108 Purpose Code

With a bank, you fill a fresh Form A2 and chase documents for every single vendor payment. With Skydo, your outward payments run on the same account you already collect into.

1. One account, both directions: Receive from international clients and pay overseas vendors from a single onboarded account, with one KYC.
2. Purpose code applied consistently: Set S0108 as your default for eligible merchanting payments so every remittance is tagged the same way.
3. Documentation in one place: Your invoices, Form A2 records and payment proofs stay together, ready for your CA and your AD bank.
4. A rate you can see: You get the live mid-market rate with a transparent fee, instead of a markup hidden inside the bank's rate.
5. Payments that go out on schedule: Your vendor gets paid without a branch visit or a week of back and forth.