Purpose Code S0104 - Intermediary trade / transit trade

The S0104 purpose code is for paying a foreign supplier for goods that pass through India on their way to a buyer in a third country. See when it applies, how it differs from merchanting under S0108, and the documents for this outward remittance.

The S0104 purpose code is used when an Indian trader pays a foreign supplier in an intermediary or transit trade. The RBI description reads "intermediary trade / transit trade, i.e., third country export passing through India". You buy from one country and sell to another, and the goods pass through India on the way. It is a current account transaction, because it is a trade payment. The goods are not cleared for use in India. They come in under customs transit or transhipment rules and leave for the final buyer. That is what separates the purpose code S0104 from merchanting under S0108. In merchanting, the goods never touch India at all.

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:

• Transit to neighbouring countries - A trader buys machinery from Germany and ships it through an Indian port to a buyer in a landlocked country.
• Transhipment trades - Goods from East Asia reach an Indian port and are moved on to a buyer in the Middle East.
• Re-export without clearance - Goods held in a customs-bonded area in India and then sent on without entering the local market.
• Third-country orders arranged from India - An Indian trading house buys from one foreign maker and sells to another country, with cargo routed through India.

Do not use this code when:

• The goods never pass through India (use S0108 instead).
• The goods are cleared for use in India (use S0102 instead).
• You pay an advance for goods to be imported into India (use S0101 instead).
• You only pay freight or port charges for the move (use a freight code, such as S0203 for sea freight, 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 "S0104 – Intermediary trade / transit trade" on Form A2 or the bank's import payment screen.
2. Upload the supplier invoice, the sale contract with the foreign buyer, and the transport documents showing transit through India.
3. Form 145 and Form 146 (earlier 15CA and 15CB) are not needed, as intermediary trade is on the list of payments exempt from them.
4. The bank checks the trade and pays the supplier, and tracks the matching inward receipt from the buyer.

Additional Notes:

• Route the payment to the supplier and the receipt from the buyer through the same bank, so it can match both legs.
• Keep customs transit or transhipment papers, as they prove the goods were not imported for use in India.
• The goods must be allowed for trade under India's foreign trade rules.

• 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