Purpose Code S1402 - Interest on non-resident deposits

The S1402 purpose code is for interest on NRI deposits, such as NRE and FCNR(B) accounts, sent from India to the depositor abroad. See who uses it, how it differs from S0014, and the tax points for this outward remittance.

The S1402 purpose code is used when interest earned on a non-resident deposit in India is sent abroad. The RBI description is "remittance towards interest on Non-Resident deposits (FCNR(B)/NR(E)RA, etc.)". NRE accounts hold rupees, and FCNR(B) accounts hold foreign currency, both for NRIs. It is a current account transaction, meaning income on a deposit, not a movement of the deposit itself. It sits in the primary income group, which covers income from work or capital. The bank, not the NRI, reports this code. When an NRI asks the bank to send deposit interest to their foreign account, the bank reports it under S1402. The deposit amount itself, when withdrawn and sent abroad, uses S0014.

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:

• FCNR(B) deposit interest - Interest on foreign currency term deposits paid out to the NRI's foreign account.
• NRE deposit interest - Interest on NRE savings or fixed deposits, converted and sent abroad.
• Periodic interest payouts - Monthly or quarterly interest that the NRI has asked to be sent abroad.
• Interest on maturity - The interest part of a matured deposit, where the bank splits interest from principal.
• Interest to joint holders abroad - Interest on a joint NRI deposit sent to the account named by the holders.

Do not use this code when:

• The deposit principal is being sent abroad (use S0014 instead).
• An Indian company pays interest on a loan from a non-resident (use S1403 instead).
• A bank pays interest on its own borrowings or vostro balances (use S1405 instead).
• Interest is earned on Indian bonds held by a foreign portfolio investor (use S1411 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. The NRI gives a standing or one-time instruction to send deposit interest to a named foreign account.
2. The bank calculates the interest and any tax that applies.
3. The bank reports the payment as "S1402 – Remittance towards interest on Non-Resident deposits".
4. The bank converts the amount where needed and sends the outward remittance.

Additional Notes:

• Interest on NRE and FCNR(B) deposits is generally tax-free in India for non-residents, so no TDS is usually deducted.
• Interest on NRO accounts is taxable in India, and TDS is deducted before it can be sent abroad.
• If the depositor becomes a resident again, the account must be re-designated and the tax treatment changes.

• 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