Purpose Code P0022 - Investment in ADRs/GDRs

The P0022 purpose code is for money received in India from foreign investors through American or Global Depositary Receipts (ADRs/GDRs). Check when it applies, how it differs from FDI and portfolio codes, and the documents behind this inward remittance.

The P0022 purpose code is used when money comes into India as investment through depositary receipts. An ADR or GDR is a certificate traded on a foreign stock exchange that stands for shares of an Indian company. ADRs trade in the US; GDRs trade in markets such as London. The RBI description is "receipts on account of other investment in ADRs/GDRs". The P0022 purpose code is a capital account code, because the money is an investment, not income. Issues are governed by the Depository Receipts Scheme, 2014 and FEMA rules on foreign investment. A domestic custodian holds the underlying shares in India and files reports with Indian regulators.

This Purpose Code should be used only where the transaction fits its defined regulatory scope. Here's when you should and shouldn't use this code:

You should use this code when:

• Fresh ADR or GDR issue - Proceeds raised abroad when an Indian company issues new shares to a foreign depository, which then issues receipts to investors.
• Sponsored issue by existing shareholders - Sale proceeds when existing shareholders offer their shares into a sponsored depositary receipt issue abroad.
• Issue by an unlisted company - Proceeds of depositary receipts issued by an unlisted Indian company, where the 2014 scheme permits it.

Do not use this code when:

• A foreign investor buys shares of an Indian company directly under the FDI route (use P0006 instead).
• A foreign portfolio investor buys listed Indian shares on an Indian stock exchange (use P0009 instead).
• An employee sells shares received under an employee stock option plan (use P0021 instead).
• The company raises money through foreign currency convertible bonds or other borrowing from abroad (use P0012 instead).

RBI purpose codes are mandatory under FEMA to classify the nature of cross-border transactions entering or leaving India. They allow banks and regulators to accurately track foreign exchange flows and apply the correct regulatory, tax, and reporting treatment.

For individuals, businesses and institutions, correct purpose code usage:

• Ensures transactions are classified correctly under FEMA.
• Enables accurate reporting to the RBI and other regulators.
• Reduces delays caused by compliance checks or misclassification.
• Supports clean audit trails and tax reconciliation.

Bottom-line:

Using the correct purpose code helps ensure smooth processing, regulatory compliance, and faster credit of funds.

1. Select "P0022 – Investment in ADRs/GDRs" when the bank asks for the purpose of the inward remittance.
2. Share the offer document, the deposit agreement and the board and shareholder approvals.
3. Give the FEMA declaration and the domestic custodian's confirmation of the shares issued.
4. The bank checks the documents, credits the proceeds and completes its regulatory reporting.

Additional Notes:

• The shares behind the receipts must stay within the sector's foreign investment limit.
• Issue pricing cannot be lower than the price allowed for the same kind of issue to Indian investors.
• Later dividends on the underlying shares are paid out of India and are not reported under P0022.

• Using a generic or incorrect purpose code instead of the exact RBI-prescribed purpose code can lead to misclassification of the transaction under FEMA and trigger additional compliance checks by the bank.
• Mismatch between purpose code, invoice, and remittance narration may place the transaction on hold until clarification is provided.
• Submitting unclear or incomplete supporting documents that do not clearly describe the nature of the transaction often result in delays, as banks rely on documentation to validate FEMA compliance.
• Missing mandatory PAN or incomplete KYC documentation can prevent banks from releasing funds until verification is completed.
• Using service-related purpose codes for non-service transactions like capital receipts, investments, gifts, or refunds can result in incorrect regulatory treatment and potential reporting issues.
• Assuming small or recurring transactions do not require accuracy and repeated misclassification can attract regulatory scrutiny over time.

Cross-border payments require accurate purpose code selection and complete compliance documentation. Xflow helps businesses and individuals receive international payments while staying aligned with RBI and FEMA requirements.

With Xflow, you can:

• Select the correct purpose code with clarity
• Organize and maintain supporting documents
• Reduce compliance back-and-forth with banks
• Support FEMA compliant inward remittances