S1306 Purpose Code: Remittance towards payment or refund of taxes

Purpose code S1306 is used when an Indian business pays a foreign government or overseas tax authority towards tax payments or tax refunds.

What is the S1306 purpose code?

Purpose code S1306 is used when an Indian business sends money abroad to pay or refund taxes to a foreign government or overseas tax authority. This covers outward remittances such as settling foreign tax assessments, paying tax liabilities on income earned overseas, or returning excess tax refunds as directed by the overseas authority. It is specific to tax payments or refunds and does not cover other statutory levies or fines that may fall under different purpose codes. Under RBI FEMA guidelines, this outward payment is classified under Secondary Income and reported accordingly.

When to use S1306 purpose code?

Use S1306 when you are paying a foreign government or overseas tax authority for taxes payable abroad or remitting back an overpaid tax refund. It is the correct RBI purpose code for cross-border payments that specifically relate to tax dues or tax adjustments outside India, irrespective of your business structure. S1306 covers the tax payment or refund itself, not the underlying business transaction or professional fees.

When to use a different code:

• Use the appropriate services purpose code when the payment is for professional or consultancy services rather than tax
• Use the relevant goods import purpose code when the payment is for importing products instead of settling tax
• Use the matching P code when you are receiving money rather than paying

Who typically uses S1306 purpose code?

Indian companies, firms and proprietorships that need to pay or refund tax to a foreign government or overseas tax authority on income or activities outside India. It applies whether you are a private limited company, LLP or other business entity, as long as the remittance is a tax payment or refund going out of India.

Examples of transactions covered

• Payment to a foreign tax authority to settle assessed corporate tax on profits earned in that country
• Remitting withholding tax to an overseas revenue department as required under a local tax notice
• Returning an excess tax refund amount to a foreign tax office after a reassessment of prior year filings
• Paying interest and tax shortfall demanded by an overseas tax authority under a final assessment order

When NOT to use S1306 purpose code

• The payment is for professional or consultancy services, such as an overseas tax advisor's fees (use the relevant services purpose code)
• The payment is for importing goods or equipment from abroad (use the appropriate goods import purpose code)
• The payment is for regulatory fees, penalties or other government charges that are not taxes (use a matching statutory or services purpose code)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S1306, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S1306 Purpose Code declared?

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

1. Receive the tax notice or instruction: Your overseas tax authority issues an assessment, demand, or refund adjustment clearly stating the tax amount and period.
2. Determine taxability: Establish whether the remittance itself 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 S1306 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.

Common mistakes to avoid

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

1. Tagging non-tax payments as tax: Using S1306 for regulatory fees, penalties or professional charges that should sit under other purpose codes.
2. Code and invoice mismatch: The code not matching what your tax notice or supporting documents describe, 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 tax notice, assessment order 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 Indian businesses with cross-border payments

S1306 covers income repatriation, which sit outside the PA-CB framework and which Skydo does not process. If you also invoice foreign clients or pay overseas vendors, here is where Skydo fits.

1. Complete onboarding: Share PAN, Aadhaar and business details. Setup is fully online and takes about five minutes.
2. Get virtual account details: Receive from international clients in USD, GBP, EUR and other currencies they already pay in.
3. Pay your overseas vendors: Send payments to foreign suppliers, software platforms and service providers under Skydo's outward approval.
4. Documentation in one place: Your invoices, remittance records and payment proofs stay together for your CA and your AD bank.
5. A rate you can see: The live mid-market rate with a transparent fee, instead of a markup hidden inside the bank's rate.