Purpose Code S0902 - Licence fees and royalties for IP

The S0902 purpose code is used when you pay a foreign owner to use its patent, trademark, copyright or film. See the documents, tax points and steps for this outward remittance.

Purpose code S0902 is used when an Indian business pays a foreign owner for the right to use its intellectual property (IP) under a licence. The RBI description covers payments, through licensing arrangements, for produced originals or prototypes (such as manuscripts and films), patents, copyrights, trademarks and industrial processes. The key word is "use": you rent the right to use the IP, you do not buy it. It is a current account transaction, so royalty payments need no RBI approval. The S0902 purpose code sits in the royalties and licence fees group of the RBI purpose code list.

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:

• Patent and technology licences - Royalty for using a foreign patented process or design to make goods in India.
• Trademark and brand licences - Fees to put a foreign brand name or logo on products you make or sell.
• Film, music and TV rights - Licence fees to screen, stream or broadcast foreign films, shows or music in India.
• Publishing rights - Royalties to a foreign author or publisher for printing or translating a book or manuscript.
• Character and design licensing - Fees to use cartoon characters, artwork or designs on merchandise.

Do not use this code when:

• Paying a franchisor for a full franchise package with business system and support (use S0901 instead)
• Paying for packaged or downloaded software such as SaaS licences (use S0807 instead)
• Buying the patent, trademark or copyright outright (use S0019, a capital account code for buying intangible assets)
• Paying a foreign firm to develop new technology for you (use S1008 for R&D services)

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 "S0902 – Licence fees and royalties" on your bank's outward remittance request or Form A2
2. Upload the licence agreement and the licensor's royalty invoice or statement
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 royalty to the licensor abroad

Additional Notes:

• Royalty paid to a non-resident is taxable in India, so TDS is normally deducted before you remit.
• Tax treaties often cut the royalty rate, but only with the licensor's Tax Residency Certificate (TRC) and Form 10F.

• 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