Purpose Code S1408 - Remittance of profit by branches of foreign companies

The S1408 purpose code is for profits that an Indian branch of a foreign company, including a foreign bank branch, sends to its head office. Check the FEMA conditions, tax points and documents for this outward remittance.

The S1408 purpose code is used when the Indian branch of a foreign company sends its profits to the head office abroad. The RBI description is "remittance of profit by FDI enterprises in India (by branches of foreign companies including bank branches)". FDI means foreign direct investment. It is a current account transaction in the primary income group, which covers income from capital. A branch is part of the foreign company, not a separate Indian company, so it sends profits, not dividends. Under FEMA, a branch may send its profits abroad net of Indian taxes once its bank is satisfied about the profit figure. Liaison offices cannot earn income in India, so they never use this code.

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:

• Annual branch profits - The year's net profit, after Indian tax, sent to the head office after the accounts are audited.
• Foreign bank branch profits - Profits of an Indian branch of a foreign bank sent to its parent bank.
• Profits of past years - Retained profits from earlier years, once audited and taxed.
• Interim profit transfers - Part of the year's profit, where the bank accepts the CA's certified figures.

Do not use this code when:

• An Indian subsidiary pays dividends to its foreign parent (use S1409 instead).
• The branch pays the head office for services, such as management or IT support (use the service code that fits, such as S1006).
• The branch is closing and sending back its remaining capital and assets (use the capital code your bank advises, such as S0099).
• A foreign portfolio investor receives dividends on Indian shares (use S1412 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 "S1408 – Remittance of profit by FDI enterprises in India (by branches of foreign companies)" on your bank's outward remittance form.
2. Upload the audited balance sheet and profit and loss account for the year.
3. Attach a CA's certificate showing how the profit was worked out, that it came from permitted activities, and that it excludes revaluation gains.
4. File Form 145 (earlier Form 15CA) with Form 146 (earlier Form 15CB), and the bank sends the payment.

Additional Notes:

• The branch pays Indian income tax on its profits as a foreign company. Once that tax is paid, sending the profit to the head office does not attract a separate dividend tax.
• Keep the branch's RBI approval or registration details and annual activity certificate ready, as banks often check them.
• Foreign bank branches follow separate RBI banking rules on when profits can be sent.

• 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