S1401 Purpose Code: Compensation of employees

Purpose code S1401 is used when an Indian business or organisation pays a non-resident individual abroad for salary, wages or other employment compensation earned in India.

What is the S1401 purpose code?

Purpose code S1401 is used when an Indian entity sends money abroad to pay a non-resident individual for compensation of employees, such as salary, wages or bonuses. It covers regular or lump-sum employment payments to staff who qualify as non-residents under Indian tax law and who receive their pay outside India. It does not apply to professional or technical service fees paid to independent contractors, which fall under service import codes instead of employee compensation. Under RBI FEMA guidelines, this outward payment is classified under primary income and reported accordingly.

When to use S1401 purpose code?

Use S1401 when you are paying a non-resident employee or staff member outside India for salary, wages, bonus, allowances or other employment-related income earned from work for your Indian organisation. It is the correct RBI purpose code for cross-border payroll or settlement of employee dues to non-residents, whether the employer is a company, LLP, partnership, trust or other institution. S1401 covers employment compensation, not independent professional fees or business profits.

When to use a different code:

• Use the service import salary / HR services code when the payment is for outsourced payroll or HR services provided by a foreign company
• Use the professional and technical services code when the payment is for fees to an independent foreign consultant, not an employee
• Use the matching P code when you are receiving money rather than paying

Who typically uses S1401 purpose code?

Indian companies, startups, NGOs, educational institutions and other organisations that pay non-resident employees or expatriate staff outside India for their employment with the Indian entity. It applies whether you remit from a private limited company, LLP, partnership, trust or government body, as long as the payment is employment compensation to a non-resident individual.

Examples of transactions covered

• Monthly salary remittance to a non-resident employee who has relocated abroad but continues to work for your Indian company
• Bonus payment to an expatriate staff member credited to their overseas bank account for services rendered in India
• Settlement of outstanding salary dues to a departing foreign employee after their exit, paid to their account outside India
• Payment of overseas allowances and benefits to a non-resident employee working for your Indian branch or subsidiary

When NOT to use S1401 purpose code

• The payment is for professional or consulting fees to an independent foreign contractor (use the appropriate professional services code)
• The payment is for services provided by a foreign company or firm rather than an individual employee (use the relevant service import code)
• The payment represents dividends, interest or other investment income to a non-resident (use the specific investment income code)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S1401, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S1401 Purpose Code declared?

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

1. Receive the payroll instruction: Your HR or finance team prepares the salary or compensation advice for the non-resident employee, with clear breakup of components and the overseas account details.
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 S1401 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. Treating contractors as employees: Using S1401 for payments to independent foreign consultants who should be tagged under professional or technical service codes.
2. Code and invoice mismatch: The code not matching what your HR or payroll 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 employment contract, payroll sheet 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 S1401 to money coming in instead of the matching P code.

How Skydo helps Indian businesses with cross-border payments

S1401 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.