Purpose Code S0607 - Non-life and term life insurance claim settlement

The S0607 purpose code is for an Indian insurer paying a non-life or term life insurance claim to someone abroad. Check when it applies, how it differs from S0608, and the tax and document steps for this outward remittance.

The S0607 purpose code is used when an Indian insurer settles a non-life claim, or a term life claim, by paying someone outside India. The RBI description reads "Insurance claim Settlement of non-life insurance; and life insurance (only term insurance)". Non-life means general insurance: health, travel, motor, property, marine cargo and liability. Term life is grouped with these because, like them, it pays only when a risk happens. Life policies with a savings part go under S0608. It is a current account transaction in the RBI group for insurance and pension services. Very large one-off non-life claims can fall under the capital transfer codes (S0026 or S0027), so ask your bank where a claim is unusually big.

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:

• Marine cargo claims - An Indian insurer paying a foreign buyer or seller for goods lost or damaged in transit.
• Travel and health claims - Settling hospital bills abroad under an Indian travel or health policy.
• Term life death claims - Paying the death benefit on an Indian term policy to a nominee living abroad.
• Reinsurance recoveries - An Indian reinsurer paying its share of a claim to a foreign insurer it reinsured.
• Liability claims - Paying a third party abroad under an Indian liability or motor policy.

Do not use this code when:

• The claim is on an endowment, money-back or other non-term life policy (use S0608 instead).
• You are paying a premium, not a claim (use S0601, S0602 or S0603 instead).
• You are paying a loss adjuster or surveyor for assessing the claim (use S0605 instead).
• You are paying out on an invoked guarantee, not an insurance policy (use S0612 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 "S0607 – Insurance claim settlement of non-life insurance; and life insurance (only term insurance)" on the insurer's outward remittance request.
2. Upload the claim approval note, the policy, and the claimant's bank and identity details.
3. File Form 145 (earlier Form 15CA). Claim payments are usually not taxable income, so this is often the part for sums not chargeable to tax.
4. The bank checks the claim file and sends the payment to the beneficiary abroad.

Additional Notes:

• Banks may ask how the premium was paid and whether the policy was issued in foreign currency, as this can affect where the claim money may go.
• A term life death benefit paid to a nominee is generally not taxable, but keep the death certificate and nominee proof ready.
• Pay the claimant directly. Paying a third party needs the claimant's written mandate.

• 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