P0101 Purpose Code (with Examples)

According to the RBI, it is for transactions related to “Value of export bills negotiated/purchased/discounted, etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills, etc.)”

P0101 refers to the money that Indian exporters receive from foreign buyers when they sell goods or services overseas. This includes export payments where banks have helped exporters get money in advance by negotiating, purchasing, or discounting their export bills or invoices. These transactions are conducted through proper legal documents, such as GR (for goods exports), PP (postal parcel), SOFTEX (for software exports), or an EC copy of shipping bills. In simple terms, it is the value of exports for which the exporter has already received or is about to receive payment through the banking system.

For Example, an Indian textile exporter shipped a consignment of garments worth USD 50,000 to a buyer in the USA. To obtain immediate working capital, the exporter approached their bank and had the export bill purchased under the Guaranteed Receipt (GR) form. The bank credited the rupee equivalent to the exporter’s account after discounting the bill and later collected the payment from the foreign buyer. Since this transaction involved a shipping bill backed by proper export documentation and the value was realised through bill purchase, it was reported under RBI Purpose Code P0101.

Types of Transactions under P0101

These are primarily trade finance transactions where banks provide money to exporters either before or upon the realisation of export proceeds. The main types are:

• Negotiated Export Bills – This refers to export bills that are processed under a Letter of Credit (LC). After the exporter ships goods and submits the required documents, the bank checks the LC terms and makes payment to the exporter before receiving funds from the foreign bank. The bank takes on the risk of collecting the payment later, and this transaction is reported under P0101.

• Purchased Export Bills – In this case, the exporter does not wait for the buyer to pay. Instead, the bank purchases the export bill (usually under a clean or collection basis), providing immediate funds to the exporter after verifying that the shipment has occurred and proper documents like the GR, PP, or EC copy are in place. The bank collects the amount from the foreign buyer afterwards.

• Discounted Export Bills – When an exporter has a time-based bill, also known as a usance bill, meaning payment is due after a certain period, the bank may provide early payment by discounting the bill. The bank deducts interest for the period and gives the exporter the net amount in advance. The bank is repaid once the buyer remits the funds at maturity. These are also reported under P0101.

• Export of Software or Services (SOFTEX-Based Realisations) – When software or IT-enabled services are exported, there is no physical shipment. Instead, the exporter files a SOFTEX form, and once payment is received through the bank, the transaction is considered a service export realisation and reported under P0101.

• Postal and Courier Exports (PP Form / EC Copy Based) – Exports sent through post or courier services are declared via PP forms or EC copies of shipping bills. Once the payment for such exports is received through the bank, and the documentation is verified, these are also classified under P0101.

In summary, P0101 covers all types of export transactions where Indian banks facilitate payment, either in advance or after realisation, based on valid export documentation. These include goods and services exports, whether done physically or digitally, and whether payment is immediate or deferred.

Types of Entities Involved in Using Code P0101 for Transactions

The types of parties involved in transactions under P0101 typically include the following:

• Indian Exporter – Under the purpose code P0101, the Indian exporter refers to the business or individual in India who sells goods or services to buyers located outside the country. This could include manufacturers shipping physical goods abroad or service providers like IT companies, consultants, or designers offering services to foreign clients.

• Foreign Buyer (Importer) – The foreign buyer (or importer) is the person or company located outside India who purchases goods or services from an Indian exporter. This buyer is responsible for making payment in foreign currency for the goods or services received. The foreign buyer plays a key role in this process, as their payment triggers the reporting and compliance under this code.

• Authorised Dealer (AD) Bank – Under purpose code P0101, an Authorised Dealer (AD) Bank plays a key role in helping Indian exporters manage their foreign exchange transactions. When an exporter ships goods or services abroad, the AD bank helps process the required export documents, negotiates or discounts export bills (such as shipping bills, GR, PP, SOFTEX, etc.), and ensures the exporter receives payment from the foreign buyer.

• Shipping/Logistics Agents – They play a key role by helping exporters send goods abroad. They handle the transportation process and provide important documents like the Bill of Lading (for sea shipments) or Airway Bill (for air shipments). These documents are essential for proving that the goods have been shipped and are used for compliance and reporting purposes under the RBI’s export documentation rules, such as GR, PP, or EC copies. Without these shipping documents, the exporter cannot properly report or receive payment.

• Customs Authorities – Under purpose code P0101, Customs Authorities verify and approve export shipping bills like GR, PP, and EC copies to confirm that goods have been legally exported from India. These approved documents serve as proof of export, allowing banks to process and report export payments under P0101.

• Software Technology Parks of India (STPI)/SEZ Authorities – Companies that export software and IT services must get their exports certified by authorities like Software Technology Parks of India (STPI) or Special Economic Zone (SEZ) authorities. These bodies issue a document called the SOFTEX form, which confirms that the software or service was exported. This form is important for regulatory and reporting purposes and is used by the bank to ensure that the money received from abroad is genuinely linked to software exports.

• Export Credit Agencies / Financial Institutions – They provide services like export financing, credit insurance, or bill discounting, which help exporters manage their cash flow while waiting for payments from foreign buyers. When an Indian company exports goods and raises a bill, a financial institution might step in to purchase or discount the bill, giving the exporter immediate funds.

Rules for Transactions under P0101

Transactions under P0101 must follow several key rules and regulations to ensure compliance with Indian foreign exchange laws. Here are the main rules explained in simple terms:

• Investment Must Be Lawful – This means that the money must be sent while following the guidelines outlined under the Foreign Exchange Management Act (FEMA), as laid down by the RBI.

• Proper Export Documentation – To export goods, it is essential to have valid export documentation. This includes the GR form for goods, the PP form for postal exports, the SOFTEX form for software exports, or an EC copy of shipping bills, which serves as proof that the goods have been exported and cleared by Customs.

• Routing Through AD Banks – Money received from exports must come into India through an AD Bank, which ensures the transaction follows RBI rules. It can also provide money to the exporter in advance by negotiating, purchasing, or discounting export bills, based on shipping documents like the bill of lading, invoice, and export declaration. This helps exporters get funds quickly, even before the foreign buyer makes the actual payment.

• Time Limit for Realisation – Under purpose code P0101, the money from exports must usually be received in India within 9 months from the date the goods are shipped. This is called the realisation period. For businesses operating in Special Economic Zones (SEZs), the time limit is slightly longer, i.e., 15 months. In some cases, if there are valid reasons (like delays from the foreign buyer), this time can be extended with approval from the Authorised Dealer (bank) or the Reserve Bank of India.

• No Overdue or Unrealised Payments – It is important that payments from foreign buyers are received within the time allowed by the RBI (usually 9 months from the date of export). If the payment is delayed or not received (unrealised), the Indian bank handling the export must report this to the RBI and also follow up with the exporter to ensure the money is recovered or the delay is explained properly. This helps keep export records clean and ensures exporters follow foreign exchange rules.

• Declaration of True Value – Exporters are required to declare the true and full value of the goods or services they export. This means they must report the actual price agreed with the buyer and cannot underinvoice (show a lower amount) or overinvoice (inflate the amount) to manipulate payments or taxes. The declaration is made through forms like the Shipping Bill, SOFTEX, or GR Form, depending on the type of export.

• Reporting – The transaction is reported by the Indian bank (called an Authorised Dealer or AD Category-I bank) through which the exporter receives payment for exported goods or services. The bank is responsible for reporting the transaction to the Reserve Bank of India (RBI) using systems like EDPMS. The exporter does not report directly to the RBI but must provide all the necessary export documents to the bank so it can file the report correctly.

How to Report the Purpose of The Transaction to The RBI by Giving the Purpose Code:

Those involved in such transactions must file several forms before starting the process. Usually, the transactions are via bank transfers, and your bank will ask you to provide a purpose code by giving you a form to fill out. If you have any doubts or questions, feel free to reach out to us via email- support@bankerpanda.com, and we will try our best to help you out.

Tax or No Tax?

Taxation under P0101 relates to the income an Indian exporter earns from the sale of goods or services abroad. Here’s how it works in simple terms:

• Taxable as Business Income – Under the purpose code P0101, the money received by exporters from foreign buyers is treated as business income under the Indian Income Tax Act. This means that the amount received through export bills, such as payments for goods or services sold abroad, must be added to the exporter’s total income while filing their income tax return. The exporter is required to report this income accurately, and it is taxed as part of their regular business profits, just like income from domestic sales.

• Export Incentives & Deductions – Under purpose code P0101, exporters can get several tax benefits that reduce their overall tax burden. SEZ units can claim up to 100% tax exemption on export profits for the first 5 years under Section 10AA, followed by reduced benefits in later years. The exporters may receive rebates like Remission of Duties and Taxes on Exported Products (RoDTEP) (typically 0.3% to 4% of export value) and a duty drawback (around 1% to 5%).

• GST Implications – Under P0101, exports are considered zero-rated supplies under GST, meaning no GST is charged to the foreign buyer. Exporters can choose to either export without paying IGST by submitting a Letter of Undertaking (LUT) or pay IGST at the time of export and later claim a refund. Even though no tax is charged on the invoice, exporters must still file GST returns and keep proper records, like shipping bills, invoices, and proof of export, to stay compliant.

• No TDS on Export Receipts – Under the purpose code P0101, no TDS is usually applicable on export receipts because the income is earned by the Indian exporter from a foreign buyer, and it is considered income earned outside India. Since the foreign buyer is not earning any income in India, there is no obligation to deduct tax at source. The entire payment received for exported goods or services is credited to the Indian exporter’s account without any TDS deduction.

• Managing Double Taxation and Claiming Foreign Tax Credit (FTC) – If an Indian exporter pays tax in the foreign country where the goods or services are sold, especially in the case of services export, which is more common, the exporter can claim a Foreign Tax Credit (FTC) in India. This means the tax already paid abroad can be adjusted against their Indian tax liability, so they don’t get taxed twice on the same income. This benefit is available under the Double Taxation Avoidance Agreement (DTAA) between India and the importing country, and the exporter must provide proper documents like tax payment proof and a Tax Residency Certificate to claim the credit. India has DTAAs with 94 countries, including the US, UK, Canada, Japan, China, Germany, and Australia. Know more about the countries with which India has a DTAA here.

• Carry Forward and Loss Adjustment – If an exporter incurs a loss in a financial year, due to factors like high costs, operational expenses, or foreign exchange loss, that loss can be adjusted against other business income earned in the same year. If the loss cannot be fully adjusted, it can be carried forward for up to eight assessment years and set off against future business income. However, to avail this benefit, the loss must be declared in a return filed within the due date, and the business must continue to operate in future years. Capital loss provisions do not apply here, since P0101 deals with regular export business income, not the sale of capital assets.

P0101 Purpose Code Use Case Examples:

Here are some real-life examples where the RBI’s Purpose Code P0101 would be used to report transactions in India-

• Textile Exporter Gets Advance from Bank:-
  An Indian textile company ships a consignment of garments worth $50,000 to a buyer in Europe. Instead of waiting for the buyer to pay later, the company submits the export documents (shipping bill, invoice, and GR form) to its AD bank. The bank verifies the documents and purchases the export bill, giving the exporter immediate funds (minus a small discount). The bank then waits to collect the payment from the foreign buyer. This transaction is reported by the bank under P0101, as it involved the discounting of an export bill backed by proper documentation.

• Handicraft Export via Post:-
  An individual artisan in Rajasthan sends handcrafted jewellery worth $5,000 to a customer in the U.K. via registered post. She declares the export using a PP form and submits the postal receipt, invoice, and payment details to her AD bank. When the bank receives the payment from the foreign customer, it reports the transaction under P0101, since it is a postal export supported by the PP form.

• Export Through Courier or Electronic Shipping Bills (EC Copy):-
  An Indian manufacturing start-up exports customised 3D-printed automotive parts to a small workshop in Australia. The export is made through international courier and is cleared by customs with an EC copy of the shipping bill. The customer pays the invoice value of $2,000 through bank transfer. The exporter submits all documents to the bank, which then reports the transaction under P0101.

• SEZ or STPI Unit Exporting Services:-
  A freelance animator in Mumbai creates a short animated video series for a media company in Canada. After completing the project, the animator raises an invoice and files a SOFTEX form through the STPI portal. The payment of $4,000 is received in the freelancer’s account via a recognised AD bank. Since the service was exported and payment came through banking channels with proper documentation, the bank reports this under P0101.

• Export of Lab Samples by a Pharmaceutical Company:-
  A pharmaceutical company in Hyderabad sends free samples of a new drug to a research partner in Germany for clinical evaluation. The shipment is cleared under a PP form as it is sent by post. Later, the German partner agrees to pay a service fee for trial support. The Indian company receives the payment through its AD bank. Although the shipment involved samples, the payment is tied to the export process and is reported under P0101, backed by the PP form.

Rohan Nautiyal

A content writer, editor, and proofreader with over three years of experience in producing well-researched, user-friendly content that simplifies complex information for readers, helping brands to enhance their online presence.