Purpose Code P0608 - Life insurance claim receipts (excluding term)

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

Purpose code P0608 is used when a resident in India receives inward remittance from a foreign insurer for a life insurance claim, other than a term policy claim, and the P0608 purpose code is the one banks expect for these payouts. The RBI description is "life insurance claim settlements (excluding term insurance) received by residents in India". These are policies with a savings or investment part, such as endowment, whole life, money-back or unit-linked plans. It is a current account transaction in the insurance and pension group. Claims on pure term cover use P0607.

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:

• Maturity proceeds - The payout when an endowment or similar policy ends.
• Survival benefits - Fixed payouts during the term under a money-back type plan.
• Death claims on savings plans - The amount paid to a nominee under a whole life or endowment policy.
• Bonus payouts - Bonuses paid with the claim on a participating life policy.

Do not use this code when:

• Claims on a term life policy or any non-life cover (use P0607 instead).
• Regular pension payouts from a pension fund (use P0611 instead).
• Premium received by an Indian insurer (use P0601 instead).
• Proceeds from selling foreign shares or funds (use the capital account codes 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 "P0608 – Life insurance claim settlements (excluding term insurance) received by residents in India" when the bank asks for the purpose of the inward remittance, or when you request the FIRC or e-FIRA.
2. Upload the claim or maturity 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:

• Death claims on life policies are generally tax-free. Maturity proceeds are exempt only if the premium tests are met, for example premium not above 10% of the sum assured for newer policies.
• For a surrender before maturity, ask your bank whether the P0608 purpose code applies.
• Declare foreign policies and any taxable payout in your income tax return.

• 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