Purpose Code S1022 - Operational leasing without crew (shipping companies)

The S1022 purpose code is used when an Indian shipping company pays a foreign owner charter hire for a vessel leased without crew. See when it applies, how it differs from S0205, and the documents and tax points for this outward remittance.

Purpose code S1022 is used when an Indian shipping company pays a non-resident for an operating lease of a vessel without crew. The RBI description is "Operational leasing services (other than financial leasing) without operating crew, including charter hire - Shipping companies". In plain words, you rent the ship bare and put your own crew on it, often called a bareboat charter. You use the ship for a period and give it back. The S1022 purpose code is a current account transaction. A financial lease, where you in effect borrow to own the ship, falls under capital account rules instead.

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:

• Bareboat charter hire - Monthly or daily hire for a cargo vessel that your own crew operates.
• Dry lease of tugs or barges - Rent for harbour tugs, barges or small craft supplied without operators.
• Offshore support vessels without crew - Lease of supply or support vessels that you man yourself.
• Charter hire renewals and extensions - Ongoing hire under an existing bareboat charter party (charter contract).
• Short-term vessel hire without crew - A short operating lease to cover a peak season or a vessel under repair.

Do not use this code when:

• The vessel comes with its crew (use S0205 instead)
• The lessee is an airline leasing aircraft without crew (use S1003 instead)
• The lease is a financial lease or hire purchase of the vessel (check the capital account code with your bank)
• Paying freight to a foreign carrier for moving your cargo (use S0203 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 "S1022 - Operational leasing without crew, Shipping companies" on the bank's outward remittance request or Form A2
2. Upload the charter party and the owner's hire invoice
3. Attach Form 145 (earlier Form 15CA), and Form 146 (earlier Form 15CB) from a chartered accountant where the hire may be taxable in India
4. The bank checks the charter terms and remits the hire

Additional Notes:

• The charter party should state clearly that no crew is supplied. That is the main test between S1022 and S0205.
• Whether the hire is taxable in India depends on the contract and the tax treaty with the owner's country, so get a CA view.
• If the vessel is brought into India, customs and GST rules on the vessel may also apply.

• 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