S1405 Purpose Code: Remittance towards interest payment by ADs on their own account (to VOSTRO account holders or the OD on NOSTRO account)

Purpose code S1405 is used when an authorised dealer bank in India pays interest abroad on its own account, such as to VOSTRO account holders or on overdrafts on its NOSTRO account.

What is the S1405 purpose code?

Purpose code S1405 is used when an authorised dealer (AD) bank in India sends money abroad to pay interest on its own account. This covers interest payments to foreign VOSTRO account holders and interest on overdrafts on the bank’s NOSTRO account with overseas correspondent banks. It is not meant for customer interest or principal remittances, which follow separate RBI purpose codes and customer-level reporting. Under RBI FEMA guidelines, this outward payment is classified under primary income and reported accordingly.

When to use S1405 purpose code?

Use S1405 when an authorised dealer bank is remitting interest abroad on its own balance sheet exposures, such as interest on overdrafts on NOSTRO accounts or interest payable to VOSTRO account holders. It is the correct RBI purpose code for an AD bank’s own interest remittances, not for customer transactions channeled through the bank. S1405 applies only to the interest income payable to overseas counterparties, not to the underlying principal movements.

When to use a different code:

• Use the appropriate trade-related code when the payment relates to import or export transactions of a customer
• Use the relevant capital account code when the payment relates to equity, debt or other capital flows
• Use the matching P code when you are receiving money rather than paying

Who typically uses S1405 purpose code?

Purpose code S1405 is typically used by authorised dealer banks in India when they remit interest abroad on NOSTRO overdrafts or on balances due to VOSTRO account holders. It does not apply to individual or corporate customers directly, since those remittances are tagged under the specific trade, service or capital account purpose codes that describe the underlying transaction.

Examples of transactions covered

• Interest payment by an Indian AD bank to a foreign correspondent bank on an overdraft in its NOSTRO account
• Quarterly interest remittance by an AD bank on credit balances maintained by an overseas VOSTRO account holder
• Settlement of accumulated interest charges on temporary funding provided by an overseas bank through a NOSTRO overdraft
• Adjustment of interest payable by an AD bank on VOSTRO balances as part of its periodic reconciliation with a foreign correspondent

When NOT to use S1405 purpose code

• The payment relates to a customer’s import of goods or services rather than the bank’s own interest obligation (use the appropriate trade or service import code)
• The remittance is interest on a customer’s external commercial borrowing or other customer debt (use the relevant borrowing or loan interest code)
• The payment is principal or fee settlement on NOSTRO or VOSTRO arrangements rather than interest (use the matching capital or current account service code)
• You are receiving money rather than paying (use the matching P code)

Documents required

To send a payment under S1405, keep the following documents ready so your authorised dealer bank can verify the transaction and report it correctly under FEMA.

How is a S1405 Purpose Code declared?

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

1. Verify the interest liability: Confirm the interest due on the NOSTRO overdraft or VOSTRO balance from your correspondence and account statements with the overseas bank.
2. Determine taxability: Establish whether the interest payment is chargeable to tax in India under the Income-tax Act, 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 S1405 and submit the supporting documents to your bank’s internal compliance or treasury operations team.
5. Get your MT103: Once the payment is sent, obtain the SWIFT MT103 as proof and retain your Form A2 and tax records for audit and regulatory review.

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 and customer flows: Tagging customer-related interest or trade payments under S1405 when they belong under the customer’s specific RBI purpose code.
2. Code and invoice mismatch: Using S1405 when the documentation or internal notes describe principal, fees or trade flows rather than pure interest.
3. Assuming a Rule 220(3) exemption: Skipping Form 145 on an interest payment that is not on the specified exemption list, which carries a ₹1,00,000 penalty per instance.
4. Incomplete documents: Missing interest computation, agreement or Form A2, so the remittance is held up until the records are provided.
5. Missing PAN or KYC: Incomplete verification or outdated KYC records stop the bank from releasing the outward remittance.
6. Using an outward code for an inward receipt: Applying S1405 to incoming interest instead of the matching P code for receipts.

How Skydo helps Indian businesses with cross-border payments

S1405 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.