S0602 Purpose Code: Freight insurance relating to import and export of goods

Purpose code S0602 is used when an Indian business pays a foreign insurer or broker for freight insurance related to import or export of goods.

What is the S0602 purpose code?

Purpose code S0602 is used when an Indian business sends money abroad to pay for freight insurance connected to the import or export of goods. It covers premiums and related charges you pay to an overseas insurer or insurance broker for marine, cargo or transit insurance on your international shipments. It does not cover the underlying purchase or sale of the goods themselves, which fall under the import or export trade purpose codes. Under RBI FEMA guidelines, this outward payment is classified under insurance and pension services and reported accordingly.

When to use S0602 purpose code?

Use S0602 when you are paying an overseas insurer or broker for freight insurance that covers goods you are importing into or exporting from India. It is the correct RBI purpose code for marine or cargo insurance purchased from a foreign insurance provider as part of your cross-border trade. S0602 covers the insurance service, not the value of the goods or freight charges.

When to use a different code:

• Use the relevant import trade code when the payment is for the goods themselves
• Use the relevant transport services code when the payment is for freight or shipping charges
• Use the matching P code when you are receiving money rather than paying

Who typically uses S0602 purpose code?

Indian importers and exporters that buy freight insurance from overseas insurers or brokers for their international cargo. It applies whether you operate as a private limited company, LLP, partnership or proprietorship, as long as the insurance service is provided from outside India for your cross-border shipments.

Examples of transactions covered

• Premium payment to a foreign marine insurance company covering a shipment of machinery imported into India
• Payment to an overseas insurance broker for arranging transit insurance on goods exported from India to Europe
• Additional premium to a foreign insurer for extending coverage on an import consignment due to shipment delays
• Settlement of annual cargo insurance charges billed by an international insurer for your global import and export movements

When NOT to use S0602 purpose code

• The payment is for the import of goods themselves (use the appropriate import of goods purpose code)
• The payment is for international freight or logistics charges rather than insurance (use the appropriate transport services purpose code)
• The payment is for a domestic insurance policy issued in India (use the relevant domestic payment purpose code your bank specifies)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S0602, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S0602 Purpose Code declared?

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

1. Receive the insurance documentation: Your overseas insurer or broker issues an invoice or debit note, along with the policy or cover note describing the freight insurance for your shipment.
2. Determine taxability: Establish whether the payment 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 S0602 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 record.
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. Confusing insurance with freight: Tagging freight or logistics charges as freight insurance under S0602 when they should be classified under transport services.
2. Code and invoice mismatch: The code not matching what your insurer or broker invoice describes, which flags the payment.
3. Assuming a Rule 220(3) exemption: Skipping Form 145 on a payment that is not on the specified list, which carries a ₹1,00,000 penalty per instance.
4. Incomplete documents: Missing invoice, policy schedule, contract or Form A2, so the bank holds the remittance until provided.
5. Missing PAN or KYC: Incomplete verification stops the bank from releasing the payment.
6. Using an outward code for an inward receipt: Applying a payment code to money coming in instead of the matching P code.

How Skydo helps with payments under S0602 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 S0602 as your default for these 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.