P0103 Purpose Code (with Examples)

According to the RBI, it is for transactions related to “Advance receipts against export contracts (export of goods only).”

P0103 is used when an Indian exporter receives money in advance from a foreign buyer before sending the goods. This means the exporter gets part or full payment upfront, based on an export contract, but the actual shipment of goods will happen later. This code applies only to the export of physical goods, not services or software. The exporter must report this inward remittance as an advance under P0103, and later, once the goods are shipped, link this advance with the actual export bill.

For Example, A textile company in Mumbai signs a contract to export cotton shirts worth USD 50,000 to a buyer in Germany. The German buyer pays USD 20,000 in advance before the shipment. The Mumbai company receives this money and reports it under P0103 as “advance against export contract.” After manufacturing and shipping the shirts, the company raises the export bill and adjusts the earlier received USD 20,000 against the final invoice.

Types of Entities Involved in Using Code P0103 for Transactions

The following entities are typically involved in transactions reported under P0103:

• Exporting Companies and MSMEs – Businesses in sectors like textiles, machinery, chemicals, pharmaceuticals, and handicrafts that receive advance payments from overseas buyers before shipping goods. This includes both large exporters and small or medium-sized enterprises.

• Agricultural and Commodity Exporters – When Indian farmers, cooperatives, or trading companies export products like grains, spices, fruits, or tea and receive money in advance from foreign buyers. This typically occurs during harvesting seasons when exporters require funds to prepare shipments. The advance payment received for such exports is reported under the purpose code P0103 through the authorised bank.

• Manufacturers of Custom-Made Goods – When an Indian company makes products tailored to a foreign client’s specific requirements, like machinery parts, designer furniture, or custom clothing. These products are made only after the order is received, and often, the foreign buyer sends an advance payment before manufacturing begins. The Indian company receives this advance and reports it under the purpose code P0103 to the bank and the RBI as a part of export-related transactions.

• Export Houses and Merchant Exporters – Intermediaries like export houses or merchant exporters who do not manufacture goods themselves but buy products from local suppliers in India and sell them to buyers abroad can receive advance payments from those foreign buyers. These advanced remittances are reported under P0103 because they relate to the export of goods by entities acting as middlemen or aggregators in the export chain.

• Authorised Dealer (AD) Banks – Under P0103, when an exporter in India receives payment from abroad for goods or services, it is not the exporter but their Authorised Dealer (AD) Bank—such as SBI, HDFC, ICICI, etc.—that officially reports the transaction to the RBI. The bank does this by using forms like FETERS, based on the purpose code mentioned and the details shared by the exporter (like shipping bills or invoices). So, the exporter just declares the reason and provides supporting documents, while the bank classifies and files it.

• E-commerce Exporters (Goods Only) – If an Indian e-commerce seller receives a bulk advance payment from an overseas buyer, distributor, or platform for exporting physical goods (not services), the transaction can be reported under this code. For example, if an international online marketplace or distributor pays an Indian seller in advance to ship a large quantity of goods over time, this advance remittance is treated as an export-related receipt and reported as per RBI norms under P0103.

Rules for Transactions under P0103

Transactions under P0103 must follow several key rules and regulations to ensure compliance with Indian foreign exchange laws. Here are the main rules explained in simple terms:

• Must Be for Physical Goods Only – Under purpose code P0103, the advance payment received must be strictly for the export of physical goods from India, like textiles, machinery, or spices. This code cannot be used if the payment is for services, software, consultancy, or any intangible products. So, if an Indian exporter receives money in advance from a foreign buyer, it must be for actual, tangible goods being shipped out of the country in the future, not for digital or service-based work.

• Advance Must Be Linked to an Export Contract – Under purpose code P0103, when an Indian exporter receives advance payment from a foreign buyer, it must be linked to a valid export contract or purchase order. This means there should be a clear agreement in place that mentions the terms and amount of the advance being paid for the goods or services to be exported. The bank will ask for a copy of this contract or order to ensure that the money received is genuinely meant for an upcoming export and not for any unrelated purpose. This helps maintain transparency and ensures proper tracking of export-related funds.

• Shipment to Follow Within Prescribed Time – When an Indian exporter receives an advance payment from a foreign buyer, the goods must usually be shipped within 1 year from the date of receiving the money, as per RBI rules. This ensures that the advance is used for the actual export of goods and not held indefinitely. If the shipment is delayed without a valid reason, it may raise concerns during audits or inspections by the bank or RBI, and the exporter may be asked to refund the advance or provide an explanation.

• AD Bank to Report Under P0103 – Under P0103, when a business in India receives foreign money in advance for exporting goods or services, the Authorised Dealer (AD) bank, usually the bank handling the remittance, must report this transaction to the RBI. The bank uses purpose code P0103, based on the purpose mentioned by the Indian exporter when submitting the required documents or forms. This helps track export-related advance receipts correctly as per RBI guidelines.

• Exporter Must Provide Declaration – Under purpose code P0103, when an exporter in India receives an advance payment from a foreign buyer, they must provide certain documents to their bank (Authorised Dealer or AD Bank) to ensure the transaction is properly reported to the RBI. These documents usually include a copy of the export contract or purchase order, an invoice if it has already been issued, a FIRC request to confirm the foreign money received, and a declaration of the purpose code (P0103) to specify that the remittance is an advance against exports. This helps the bank report the transaction accurately and ensures regulatory compliance.

• Realisation and Adjustment Against Final Invoice – Once an Indian exporter has shipped the goods, the advance payment they received earlier must be adjusted against the final export invoice or bill. This means the exporter needs to match the advance amount with the value of the goods exported and make sure all records are updated correctly. The bank handling the export documents also checks that the advance and final invoice are properly linked. Accurate accounting and timely reconciliation are important to comply with RBI regulations and avoid any mismatch or reporting issues.

• RBI Compliance – Under P0103, if an Indian exporter receives advance payment from a foreign buyer but the shipment doesn’t take place within the time allowed by RBI, the situation needs to be carefully handled. In some cases, especially if the advance payment is large or if the exporter wants to refund the money to the buyer, prior approval from the Reserve Bank of India (RBI) may be required. This is to ensure that the foreign exchange transaction is legitimate and properly accounted for. The need for approval depends on the amount involved and the reason for the delay or refund.

• No Use for Third-Party Payments or Services – Under purpose code P0103, the money received must be strictly for the sale of goods, and not for services or payments from unrelated third parties. This means you cannot use P0103 if the payment is coming from someone not directly involved in the goods transaction, or if any part of the payment is for services (like freight, commission, or consultancy), even if it’s related to a goods sale. The code is meant only for payments directly linked to the export of goods, and using it incorrectly may lead to compliance issues with the bank or RBI.

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?

In essence, advance receipts under P0103 are not taxable at the time of receipt, but become taxable business income once the goods are exported. While GST is not applicable upfront due to zero-rating of exports, non-compliance with timelines can result in GST liability.

• Income Tax Treatment – Advance receipts under P0103 are not immediately treated as taxable income. As per Indian income tax rules, income from the export of goods is recognised when the sale is completed—that is, when the goods are shipped and the ownership is transferred. Until then, the advance is recorded as a liability (advance from customers) in the exporter’s books. Once the goods are exported, the advance is adjusted against the invoice and becomes part of taxable business income.

• GST Implications – Export of goods is considered a zero-rated supply under GST, meaning no GST is charged on the export invoice, and exporters can claim refund of Input Tax Credit (ITC). Receiving an advance for goods does not trigger GST liability immediately, unlike in the case of services. However, if the export is not completed within 1 year from the date of receipt of advance, the advance may be treated as a taxable supply under GST, and the exporter could be liable to pay GST with interest. Hence, timely export is crucial for tax compliance.

• Refunds and Non-Completion – If the export contract is cancelled or the shipment does not take place, and the advance is refunded to the foreign buyer, this must be properly reported to the AD bank and may also need to be updated in GST returns, depending on whether refund vouchers or reversals are required.

P0103 Purpose Code Use Case Examples:

Here are some real-life examples where the RBI’s Purpose Code P0103 would be used to report transactions in India-

• Garment Exporter in Tirupur:-
  A textile company in Tirupur receives USD 10,000 as advance from a buyer in the UK for manufacturing and exporting cotton T-shirts. The goods will be shipped after 60 days. The company reports this advance under P0103, as it is a payment received ahead of the physical export.

• Engineering Goods Manufacturer in Pune:-
  An engineering firm in Pune gets EUR 25,000 in advance from a German client to manufacture and export machine parts tailored to the client’s specifications. The shipment is expected after 90 days. Since this is a contract-based advance for future export of goods, it is reported under P0103.

• Agri Exporter in Maharashtra:-
  A fruit exporter in Maharashtra receives AED 5,000 in advance from a Dubai-based importer for an upcoming consignment of Alphonso mangoes, to be shipped at the beginning of the season. This advance is reported under P0103, as it is for future export of physical goods.

• Merchant Exporter in Delhi:-
  A merchant exporter based in Delhi receives SGD 15,000 as a partial advance for exporting leather bags to Singapore. The exporter is yet to procure the goods from local suppliers. Since the payment is received in advance against a goods export contract, it falls under P0103.

• Custom Machinery Export from Gujarat:-
  A machinery exporter in Gujarat signs a contract to export custom-designed packaging equipment to a U.S. company. The U.S. company pays 50% advance (USD 30,000) before manufacturing begins. This advance is reported under P0103, and the rest of the payment will come post-shipment.

• Spices Exporter in Kerala:-
  A spices company receives INR equivalent of USD 8,000 from a buyer in the Netherlands as an advance for a bulk order of black pepper. The shipment is scheduled for next month. Since the goods have not yet been shipped, the remittance is reported under P0103.

• Handicrafts Exporter from Rajasthan:-
  A handicrafts exporter in Jaipur receives an advance from an Australian wholesaler for a consignment of wooden home décor products. Since this is an advance against a confirmed export order, the payment is classified under P0103.

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.