Purpose Code S0701 - Bank charges, collection charges and LC charges

The S0701 purpose code is for paying a foreign bank's charges, such as LC, collection or correspondent bank fees. Check when it applies, how it differs from S0702 and S0703, and the tax points for this outward remittance.

The S0701 purpose code is used when someone in India pays a foreign bank's charges for everyday banking services. The RBI description reads "Financial intermediation, except investment banking - Bank charges, collection charges, LC charges etc.". "Financial intermediation" means the normal work of banks: moving money, handling trade documents and giving credit. Typical charges are LC confirmation fees, document collection charges, reimbursement charges and correspondent bank fees. It is a current account transaction in the RBI group for financial services. Investment banking fees use S0702, and custody or regulatory fees use S0703.

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:

• LC confirmation and advising fees - Charges billed by a foreign bank for confirming or advising a letter of credit.
• Collection charges - Fees a foreign bank charges for handling documents under a documentary collection.
• Discrepancy and amendment fees - Charges for amending an LC or handling discrepant documents.
• Correspondent bank charges - Fees claimed separately by an intermediary bank on a cross-border payment.
• Standby LC and guarantee issuance fees - Commission to a foreign bank for issuing a standby LC or a one-off bank guarantee.

Do not use this code when:

• You are paying brokerage or underwriting fees to an investment bank (use S0702 instead).
• You are paying custody, depository or exchange regulatory fees (use S0703 instead).
• You are paying interest on a loan or buyer's credit (use S1403 instead).
• The fee is for a standardised guarantee scheme, such as export credit cover (use S0609 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 "S0701 – Financial intermediation, except investment banking" on Form A2 or your bank's outward remittance screen.
2. Upload the foreign bank's charge advice or debit note, and the LC or collection reference it relates to.
3. File Form 145 (earlier Form 15CA). Foreign bank charges are often not taxable in India, so this is usually the part for sums not chargeable to tax.
4. The bank checks the charge against the trade file and sends the payment.

Additional Notes:

• Most foreign bank charges are deducted from the payment itself (OUR, SHA or BEN terms). A separate S0701 remittance is needed only when the foreign bank bills you later.
• Whether GST reverse charge applies to foreign bank charges is not settled. Ask your tax adviser and keep the charge advices.
• Quote the LC or collection number in the narration so the bank can match the charge 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