In recent weeks, Indian banks have begun tightening their scrutiny of outward fund transfers. Individuals and businesses sending money abroad can no longer rely on vague categories like “other services” or the generic S1099 code. Instead, remitters must now clearly declare the exact purpose of their transactions under the Reserve Bank of India’s (RBI) guidelines.
This move is part of India’s broader push to enhance compliance, improve transparency, and curb the misuse of overseas remittance channels.
What Has Changed?
For years, both individuals and companies often sent money overseas by choosing the catch-all category “other services not included elsewhere.” This vague classification was accepted by banks without much questioning.
Now, things are different:
- Banks are refusing remittances abroad unless the remitter provides the correct purpose code.
- Transfers under S1099 are no longer cleared freely due to fears of misuse for fraudulent or unauthorized activities.
- Remitters must state the purpose on the A2 form (a mandatory form for foreign remittances).
Why Are Banks Doing This?
The change stems from the growing need to monitor and regulate the flow of capital out of India. By blocking vague codes, banks aim to:
- Prevent money laundering and fraudulent transfers.
- Ensure compliance with FEMA (Foreign Exchange Management Act).
- Align India with global best practices in Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF).
In short, regulators want to know exactly why money is leaving the country.
Impact on Individuals and Businesses
This shift impacts anyone sending funds abroad—whether for education, medical expenses, investments, or business services.
- Greater Compliance Burden: Remitters now need to provide detailed documentation and ensure they select the correct RBI purpose code.
- Possible Delays: Transfers may be held up if codes are missing or unclear.
- More Transparency: While it requires extra effort, the process ensures that genuine remittances are tracked and protected.
What Are RBI Purpose Codes?
RBI provides a list of standardized purpose codes for different types of foreign remittances, such as:
- P0101 – Education expenses abroad
- P1201 – Travel for business
- P1302 – Medical treatment abroad
- P1401 – Investment in overseas companies
- S1301 – Remittance towards consultancy and professional services
These codes help banks categorize transactions correctly and ensure compliance.
What You Should Do as a Remitter
If you are planning to send money abroad, here are a few practical steps:
- Identify the right purpose code from RBI’s official list.
- Fill out the A2 form carefully with the correct details.
- Keep supporting documents ready (such as invoices, admission letters, or medical certificates).
- Consult your bank if unsure about which purpose code applies.
Right Code, Right Transfer
The tightening of rules around overseas remittances may seem inconvenient at first, but it is a necessary step to ensure accountability and transparency in India’s financial system. By requiring remitters to declare the exact purpose of their transfers, regulators are working to prevent misuse while safeguarding genuine cross-border transactions.
If you are remitting funds abroad, make sure to familiarize yourself with RBI’s purpose codes because without the right code, your transfer may not go through.