Purpose Code S0602 - Freight insurance relating to import and export of goods

The S0602 purpose code is for paying a foreign insurer or broker to cover goods in transit for an import or export. Check when it applies, why it often needs no Form 145, and the documents for this outward remittance.

The S0602 purpose code is used when an Indian importer or exporter pays a foreign insurer for freight insurance. The RBI description reads "Freight insurance – relating to import & export of goods". Freight insurance, also called marine cargo or transit insurance, covers loss or damage to goods while they travel. It is a current account transaction in the RBI group for insurance and pension services. The code is for the insurance premium only. The freight charge to the shipping line or airline has its own codes. Who buys the cover depends on the trade term (Incoterm) in the contract. Under FOB or CFR imports, the Indian buyer arranges insurance and may pay a foreign insurer. Under CIF, the seller arranges it and builds it into the price.

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:

• Import cargo cover - An Indian importer buying FOB or CFR insurance on a shipment from a foreign insurer.
• Export cargo cover - An exporter selling on CIF or CIP terms who buys transit cover from an overseas insurer.
• Open cover policies - Premiums on a yearly marine cargo policy that covers all shipments under declarations.
• Broker-placed cargo premiums - Premiums paid through a foreign broker to the insurer for a shipment.
• War and strike risk add-ons - Extra premium for war, strike or route risks on a specific voyage.

Do not use this code when:

• You are paying the shipping line or airline for freight (use S0203 for sea freight on imports or S0209 for air freight on imports).
• The premium is for property, staff health or general business cover (use S0603 instead).
• You are paying only a broker's commission billed separately (use S0605 instead).
• The supplier added insurance into a CIF invoice (pay the whole invoice under S0102).

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 "S0602 – Freight insurance – relating to import & export of goods" on Form A2 or your bank's outward remittance screen.
2. Upload the insurance certificate or policy, the premium debit note, and the linked commercial invoice or bill of lading.
3. Check if Form 145 (earlier Form 15CA) is needed. Freight insurance is on the specified list of payments that need no Form 145.
4. The bank matches the premium to the trade and sends the payment.

Additional Notes:

• Customs adds insurance cost to the value of imported goods for duty. Keep the premium proof with your Bill of Entry.
• Insuring Indian cargo with a foreign insurer can be limited by Indian insurance law. Confirm the cover is allowed before you buy it.
• Quote the shipment or invoice number in the remittance narration so the bank can link the premium to the trade.

• 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