S0701 Purpose Code: Financial intermediation, except investment banking, Bank charges, collection charges, LC charges etc.

Purpose code S0701 is used when an Indian business pays a foreign bank or financial intermediary for bank charges, collection charges, LC charges and similar financial intermediation services.

What is the S0701 purpose code?

Purpose code S0701 is used when an Indian business sends money abroad to pay a foreign bank or financial intermediary for financial intermediation services, other than investment banking. This includes bank charges, collection charges, letter of credit (LC) charges, correspondent banking fees and similar service fees raised by an overseas financial institution. It does not cover investment banking fees, which fall under a different RBI purpose code. Under RBI FEMA guidelines, this outward payment is classified under financial services and reported accordingly.

When to use S0701 purpose code?

Use S0701 when you are paying an overseas bank or financial intermediary for bank charges, collection charges, LC charges or other non investment banking financial intermediation services linked to your trade or business. It is the correct RBI purpose code for service fees charged by a foreign bank or intermediary, whatever your business structure. S0701 covers the intermediation service fee itself, not the underlying goods or services you are importing.

When to use a different code:

• Use this code when the payment is for routine bank or collection charges to an overseas financial institution
• Use the appropriate import of goods code when the payment is for the actual goods rather than the bank charges around them
• Use the matching P code when you are receiving money rather than paying

Who typically uses S0701 purpose code?

Indian importers, exporters and other businesses that pay overseas banks or financial intermediaries for services such as collection charges, LC charges and correspondent banking fees. It applies whether you pay as a private limited company, LLP, partnership or proprietorship, as long as the financial intermediation service is provided from outside India.

Examples of transactions covered

• Payment of LC issuance and confirmation charges to a foreign bank under an import letter of credit
• Remittance of collection charges to an overseas bank for handling export bill collections
• Settlement of correspondent banking fees charged by a foreign bank for routing international payments
• Payment of amendment or discrepancy charges on documentary credits billed by a bank outside India

When NOT to use S0701 purpose code

• The payment is for investment banking or capital market advisory fees, which use a different RBI financial services code
• The payment is for the underlying import of goods, which should be tagged under the relevant import of goods purpose code
• The payment is for a non financial business service such as software, consulting or marketing, which belongs under the matching service import code
• You are receiving money rather than paying (use the matching P code)

Documents required for S0701

To send a payment under S0701, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S0701 Purpose Code declared?

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

1. Receive the charge advice or invoice: Your overseas bank or financial intermediary bills you for LC charges, collection charges or other fees, clearly describing the service.
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 S0701 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 bank fees with the main trade payment: Tagging the full import or export value under S0701 instead of reserving it for the foreign bank or intermediary charges only.
2. Code and invoice mismatch: Using S0701 when the invoice describes non financial services or goods, which can flag the payment for extra checks.
3. Assuming a Rule 220(3) exemption: Skipping Form 145 on a payment that is not on the specified exemption list, which carries a ₹1,00,000 penalty per instance.
4. Incomplete documents: Missing the bank charge advice, LC copy, contract or Form A2, so the bank holds the remittance until provided.
5. Missing PAN or KYC: Incomplete verification or inconsistent KYC details can stop the bank from releasing the payment.
6. Using an outward code for an inward receipt: Applying S0701 to money coming in instead of using the matching P purpose code for receipts.

How Skydo helps with payments under S0701 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 S0701 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.