Purpose Code S1410 - Payment of interest by FDI enterprises to parent company abroad

The S1410 purpose code is used when an Indian company with foreign investment pays interest to its parent company abroad. Check when it applies, the tax points and the documents for this outward remittance.

The S1410 purpose code is used when an Indian company that has foreign direct investment (an FDI enterprise) pays interest to its parent company abroad. The RBI description is "Payment of interest by FDI enterprises in India to their Parent company abroad." A common case is an Indian subsidiary that borrowed from its foreign parent through an external commercial borrowing (ECB, a foreign loan taken under RBI rules) and now pays the periodic interest. Interest on debt instruments held by the parent, such as debentures, also fits here. Interest is income earned on money lent, so this is a current account transaction under "primary income". Only the interest goes under S1410. Paying back the loan amount itself is a capital account transaction with its own 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:

• Interest on an ECB from the parent - Quarterly or half-yearly interest on a loan the foreign parent gave under the ECB rules.
• Interest on shareholder loans - Interest on group funding given by the parent that holds equity in the Indian company.
• Interest on debentures held by the parent - Coupon payments on debentures the foreign parent subscribed to.
• Interest on rupee loans from the parent - Interest on a loan the parent gave in Indian rupees but that is paid out to it abroad.
• Coupons on convertible debentures - Interest on compulsorily convertible debentures held by the parent before they turn into shares.

Do not use this code when:

• Paying interest on a loan from an unrelated foreign bank or lender, or on trade credit (use S1403 instead).
• Paying dividends to the foreign parent on its shares (use S1409 instead).
• An Indian branch of a foreign company sends profits to its head office (use S1408 instead).
• Repaying the loan principal to the parent (use S0012 or S0013, based on the loan term, 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 "S1410 – Payment of interest by FDI enterprises in India to their Parent company abroad" on Form A2 or the bank's outward remittance request.
2. Upload the loan agreement, the interest calculation for the period and the parent's debit note or interest invoice.
3. File Form 145 (earlier Form 15CA) and, where needed, a CA's Form 146 (earlier Form 15CB), and deduct TDS before paying.
4. The bank checks the loan record, books the FX rate and sends the outward remittance.

Additional Notes:

• Before paying under purpose code S1410 on an ECB, the bank also checks the loan registration number (LRN) and that the interest matches the reported ECB terms.
• The interest rate must be at arm's length (a rate unrelated parties would agree), as the parent is a related party under transfer pricing rules.
• Large interest paid to group lenders may face a cap on how much the Indian company can deduct in its own tax return.

• 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