S0901 Purpose Code: Franchises services

Purpose code S0901 is used when an Indian business pays a foreign franchisor for franchise services and related intellectual property use.

What is the S0901 purpose code?

Purpose code S0901 is used when an Indian business sends money abroad to pay for franchise services obtained from a foreign franchisor. This covers payments like initial franchise fees, ongoing royalties for using the brand and business system, and other charges for support and know-how under a cross-border franchise agreement. It applies to the franchise service and the right to use the intellectual property, not to separate imports of goods like branded equipment or inventory, which use the relevant goods import code. Under RBI FEMA guidelines, this outward payment is classified under charges for the use of intellectual property n.i.e and reported accordingly.

When to use S0901 purpose code?

Use S0901 when you are paying an overseas franchisor for franchise services, including the right to use their brand, processes and business format in India. It is the correct RBI purpose code for cross-border franchise arrangements where you pay fees or royalties to a foreign brand owner, whatever your business structure. S0901 covers the franchise service and IP use, not the physical goods you may import under the franchise.

When to use a different code:

• Use this code when your payment is for franchise fees or royalties under a cross-border franchise agreement
• Use the relevant import of goods code when the payment is for branded equipment, stock or other physical goods under the franchise
• Use the matching P code when you are receiving money rather than paying

Who typically uses S0901 purpose code?

Indian companies, LLPs, franchises and proprietorships that pay foreign brand owners for the right to operate under their franchise in India. It applies to businesses in sectors like food and beverage, retail, education or services that remit franchise fees or royalties to an overseas franchisor.

Examples of transactions covered

• Initial franchise fee paid to a US brand owner for setting up a master franchise in India
• Monthly royalty payment to a foreign franchisor based on sales from your Indian franchise outlets
• Annual renewal fee for continued use of an international franchise brand and operating manuals
• Payment to an overseas franchisor for training and support services bundled into the franchise agreement

When NOT to use S0901 purpose code

• The payment is primarily for hardware, equipment or fit-outs supplied under the franchise (use the relevant import of goods code)
• The payment is for standalone software or IT services unrelated to the franchise arrangement (use the appropriate software or IT services purpose code)
• The payment is for separate consulting or management services not covered by the franchise agreement (use the relevant business or management consultancy purpose code)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S0901, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S0901 Purpose Code declared?

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

1. Receive the franchisor invoice: Your overseas franchisor bills you for franchise fees or royalties, clearly describing the period and basis of the charge.
2. Determine taxability: Establish whether the franchise 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 S0901 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 franchise with generic services: Tagging franchise royalties or fees under a general consultancy or advertising code instead of S0901.
2. Code and invoice mismatch: The code not matching what your vendor 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, franchise agreement 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 S0901 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 S0901 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 franchisor gets paid without a branch visit or a week of back and forth.