Purpose Code S1504 - Notional sales on dishonoured or cancelled export bills

The S1504 purpose code is used when a bank reverses an export bill it had negotiated, bought or discounted because the bill was dishonoured, crystallised or cancelled. See what it means for exporters, how it differs from S1501, and what to expect on this outward entry.

The S1504 purpose code is used when a bank reverses an export bill that it had already negotiated, purchased or discounted. The RBI description is "Notional sales when export bills negotiated/ purchased/ discounted are dishonored/ crystallised/ cancelled and reversed from suspense account". Here is how it happens. Many exporters get paid early: the bank buys or discounts the export bill and credits rupees right away, reported as an inward receipt. If the foreign buyer later refuses to pay (dishonour), does not pay on time, or the deal is cancelled, the bank has to undo that early purchase of foreign currency. It does this as a "notional sale", a book entry where it sells the foreign currency back against your rupee liability. No money is sent abroad, but the entry is reported like an outward remittance under purpose code S1504. "Crystallised" means the bank turns your foreign currency debt on an unpaid bill into a fixed rupee debt. Under common banking rules, this happens about 30 days after the bill's due date if it stays unpaid.

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:

• Dishonoured export bills - The foreign buyer refuses to accept or pay a bill your bank had already discounted.
• Crystallised overdue bills - The bill stays unpaid past the due date and the bank converts it into a rupee debt.
• Cancelled export orders after negotiation - The deal is called off after the bank negotiated the documents.
• Bills sent back by the foreign bank - The buyer's bank returns the documents unpaid and the bank clears its suspense entry.

Do not use this code when:

• You refund or give a discount to a foreign buyer on an export already paid (use S1501 instead).
• You return money received by mistake that was not for an export (use S1502 instead).
• The export bill was only sent on collection, so no early payment was made and nothing needs reversing.
• The buyer later pays the overdue bill (that is an inward receipt, reported under the matching export code).

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 bank tags the reversal with "S1504 – Notional sales when export bills negotiated/purchased/discounted are dishonored/crystallised/cancelled" in its own reporting.
2. You share the buyer's notice of refusal, the returned documents or the cancellation letter.
3. The bank converts the foreign currency amount into rupees at its selling rate and debits your account or loan.
4. The export entry stays open in EDPMS (the RBI's export tracking system) until you recover the money or close it through the bank.

Additional Notes:

• The bank charges overdue interest from the due date, and any rate gap on crystallisation is borne by you.
• If the buyer pays later, the bank adjusts the rupee debt at its buying rate and settles the gap with you.
• If proceeds are never received, export incentives or a GST refund on the export may have to be paid back.

• 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