Purpose Code S0108 - Import leg of merchanting trade

The S0108 purpose code is for paying a foreign supplier for goods you resell abroad without them entering India. Check how merchanting trade works under the 2026 RBI rules, the documents and the tax points for this outward remittance.

The S0108 purpose code is used to pay for goods bought in a merchanting trade. The RBI description reads "goods acquired under merchanting / payment against import leg of merchanting trade". You buy from a supplier in one country and sell to a buyer in another, and the goods never enter India. The payment to the supplier is the import leg (S0108). The money you get from the buyer is the export leg, reported under P0108. Both are current account trade payments, reported gross, not netted off. From 1 October 2026, merchanting trade falls under the RBI's new rules on export and import of goods and services. Your bank (AD bank) now has more say over timelines, so ask for its current process before you sign a deal.

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:

• Commodity trades - Buying steel or chemicals from a Chinese mill and shipping them straight to a buyer in Africa.
• Electronics and components - Buying parts from Taiwan for delivery directly to a buyer's factory in Europe.
• Agricultural goods - Buying grains in one country and selling them to an importer in the Middle East.
• Drop-ship orders for foreign buyers - A trading house places orders abroad and has them shipped straight to its overseas client.
• Advances to the supplier - Paying the foreign seller upfront in a merchanting deal, where the bank allows it.

Do not use this code when:

• The goods pass through India in transit (use S0104 instead).
• The goods are imported for use in India (use S0102 instead, or S0101 for advances).
• You pay a commission to a foreign agent on the deal (use S1002 instead).
• You pay freight for the shipment separately (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 "S0108 – Import leg of merchanting trade" on Form A2 or the bank's trade payment screen.
2. Upload the supplier invoice, the sale contract with the foreign buyer and the transport documents.
3. Form 145 (earlier Form 15CA) is not usually needed for buying goods abroad, but follow your bank's checklist.
4. The bank links the payment to the export leg and tracks both until the deal is complete.

Additional Notes:

• The fixed nine-month limit to complete a merchanting deal no longer applies under the 2026 rules. Banks can allow more time where the reasons are commercially sound.
• The gap between paying the supplier and receiving the buyer's money is still limited, generally to six months, so plan your payment terms.
• Run both legs through the same bank. It may ask for a guarantee before letting you pay the supplier in advance.

• 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