Purpose Code S0901 - Franchise services

The S0901 purpose code is used when an Indian franchisee pays franchise fees to a foreign brand. See who can use it, the documents and tax points, and how to apply it to your outward remittance.

Purpose code S0901 is used when a business in India pays a foreign franchisor for franchise services. In plain words, it covers fees paid to a foreign brand owner for the right to trade under its name and follow its business model. Typical payments include the joining fee, the running royalty and renewal fees. The S0901 purpose code sits in the royalties and licence fees group of the RBI purpose code list. It is a current account transaction, so normal franchise payments need no RBI approval.

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:

• Initial franchise fee - The upfront fee a foreign brand charges to open an outlet, school or studio in India.
• Running royalty - The monthly or quarterly share of sales owed to the franchisor.
• Master or area franchise fee - Fees for exclusive rights to a region or the whole of India.
• Renewal and transfer fees - Charges to renew the term or transfer the outlet.
• Brand system fee - Payments for the operating manual, training and brand standards in the franchise package.

Do not use this code when:

• Paying for a standalone licence to use a trademark, patent or film with no franchise system (use S0902 instead)
• Buying kitchen equipment, inventory or branded goods from the franchisor (use S0102 for imports of goods)
• Paying separately for a specific ad campaign or trade fair space (use S1007 instead)
• Paying a foreign consultant for strategy advice outside the franchise deal (use S1006 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 "S0901 – Franchise services" on your bank's outward remittance request or Form A2
2. Upload the franchise agreement and the franchisor's invoice
3. Submit Form 145 (earlier Form 15CA), plus Form 146 (earlier Form 15CB) from a chartered accountant if taxable payments exceed Rs 5 lakh in the year
4. The bank verifies the documents and sends the payment to the franchisor's account abroad

Additional Notes:

• Franchise fees are usually taxed as royalty in India, so TDS normally applies before you remit.
• For a lower tax treaty rate, collect the franchisor's Tax Residency Certificate (TRC) and Form 10F first.

• 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