Purpose Code S0006 - Repatriation of FDI in equity shares

The S0006 purpose code is for sending money to a foreign investor who is exiting an equity stake in an Indian company. Check when it applies, the FC-TRS and tax points, and the documents for this outward remittance.

The S0006 purpose code is used when money goes abroad to a foreign investor who is taking back an equity investment made in India as foreign direct investment (FDI). The RBI description is "repatriation of Foreign Direct Investment made by overseas investors in India – in equity shares". Repatriation simply means sending the money home. It is a capital account transaction. The payment usually comes from a share sale to a resident, a buyback, a capital reduction or the winding up of the Indian company. Transfers between a non-resident and a resident must follow the FEMA pricing rules, and the deal is reported in Form FC-TRS on the RBI FIRMS portal within 60 days. FDI generally means a stake of 10% or more in a listed company, or any stake in an unlisted company. Smaller holdings in listed shares are portfolio investment and use S0009.

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:

• Secondary sale to a resident - An Indian promoter or investor buys out a foreign shareholder and pays the price abroad.
• Share buyback - The Indian company buys back shares from its foreign parent or investor.
• Capital reduction - Returning share capital to a foreign shareholder after a court or tribunal approved reduction.
• Liquidation proceeds - Paying out what is left to foreign shareholders when the Indian company is wound up.
• Exit from a startup - A foreign VC fund selling its stake in an unlisted Indian startup to an Indian buyer.

Do not use this code when:

• The foreign holder sells listed shares as a small portfolio investor (use S0009 instead).
• You are paying dividends to the foreign shareholder (use S1409 instead).
• You are repaying debentures or a loan from the foreign investor (use S0007 instead).
• You are paying interest to the foreign parent (use S1410 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 "S0006 – Repatriation of FDI in equity shares" on the bank's outward remittance request.
2. Upload the share purchase or buyback agreement, valuation certificate and FC-TRS acknowledgement where needed.
3. Deduct tax on the capital gain where it applies and file Form 145 (earlier Form 15CA) with a CA's Form 146 (earlier Form 15CB).
4. The bank checks pricing and tax papers and remits the money to the investor's account abroad.

Additional Notes:

• The price paid to a non-resident seller cannot be more than the fair value worked out under the FEMA pricing rules.
• The foreign investor may claim a lower tax rate under a tax treaty (DTAA). This needs their tax residency certificate (TRC) and Form 10F.
• Buybacks have their own tax treatment, which has changed in recent budgets. Get a CA's view before you pay.

• 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