Purpose Code P0607 - Non-life and term life insurance claim receipts

The P0607 purpose code is for receiving a non-life or term life insurance claim from a foreign insurer. Check when it applies, how it differs from P0608, and the tax points for this inward remittance.

Purpose code P0607 is used when a resident in India receives inward remittance from a foreign insurer to settle a claim on a non-life policy or a term life policy, and the P0607 purpose code is the one banks expect for these claims. The RBI description is "insurance claim settlement of non-life insurance; and life insurance (only term insurance)". Non-life means health, travel, motor, marine, cargo and property cover. Term life is pure life cover with no savings part. It is a current account transaction in the insurance and pension group. Claims on other life policies, such as endowment plans, use P0608.

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:

• Travel and health claims - A foreign insurer reimburses medical costs under a travel or health policy.
• Marine and cargo claims - An exporter receives a claim for goods lost or damaged in transit.
• Term life death claims - A nominee in India receives the sum assured under a foreign term life policy.
• Reinsurance recoveries - An Indian insurer recovers its share of a claim from a foreign reinsurer.

Do not use this code when:

• Claims on endowment, whole life or other savings-linked life policies (use P0608 instead).
• Insurance premium received by an Indian insurer (use P0601 or P0603 instead).
• Money received when a standardised guarantee is called (use P0612 instead).
• Regular pension payouts (use P0611 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 "P0607 – Insurance claim Settlement of non-life insurance; and life insurance (only term insurance)" when the bank asks for the purpose of the inward remittance, or when you request the FIRC or e-FIRA.
2. Upload the claim settlement letter, the policy schedule and, for death claims, the death certificate.
3. Give a FEMA declaration on the nature of the receipt where the bank asks for one.
4. The bank checks the documents, converts the funds and credits your account.

Additional Notes:

• Make sure the policy schedule shows the cover is non-life or term life; otherwise the bank may ask for P0608.
• A claim payment is compensation, not a supply, so GST does not apply to it.
• Death claims under a life policy are generally tax-free in the hands of the nominee.

• 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