Understanding Purpose Codes with Razorpay
What are purpose codes, list of purpose codes, selecting correct purpose codes and enabling international payments.
A purpose code is a unique identifier issued by a country's central bank that is necessary for the successful execution of international payments. These codes are assigned to each transaction involving foreign currency and specify the purpose for which the transaction is being made.
The purpose codes are issued by the Reserve Bank of India (RBI) to specify the nature of foreign currency transactions. For Indian businesses, receiving payments from foreign customers is an inward remittance, and sending payments abroad for goods or services is an outward remittance.
- Each payment must be tagged with an appropriate purpose code, with separate codes for import and export transactions.
- Export purpose codes begin with 'P', while import purpose codes start with 'S'.
Watch Out!
It is mandatory to add the purpose codes during international payment enablement. Failure to do so will result in compliance issues and delays in transactions..
You must select the correct purpose code to avoid issues related to regulation compliance.
For example, a software development startup in India exporting software to the United States should choose the appropriate purpose code, such as "P0802 - Software consultancy/implementation" when receiving payments. This ensures that the RBI and banks understand the exact nature of the transaction and aids in compliance with Indian regulations.
To select the correct purpose code, make sure to:
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Check RBI Purpose code list: Refer to RBI's comprehensive list of purpose codes and their corresponding descriptions to choose the correct purpose code. You can check with your bank for the purpose code list.
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Engage with Chartered Accountants (CAs): CAs can assist in identifying the correct purpose code for your specific business activities.
Watch Out!
Incorrect use of purpose codes can lead to non-compliance with Foreign Exchange Management Act (FEMA) regulations and reporting issues to regulatory agencies. For example, if the purpose of a transaction does not align with the assigned purpose code, it may result in errors when reporting to regulatory authorities.
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you can select during the onboarding process.Handy Tips
The purpose code selected will apply to all international business transactions.
To enable international payments and accept payments from international customers for new merchants:
- Log in to the .
- To enable International payments, you have to fill an activation form. To fill the activation form, navigate to Account & Settings → International payments (under Payment methods) and click Fill activation form.
- On the International payments activation page, under Business Details, enter all the details based on the business requirements and click Continue.
- On the Purpose code page, select the correct purpose code from the list and click Continue.
- On Supporting details page, enter all the supporting details and click Submit details.
Once the details are submitted, the Razorpay Activation/Operations team verifies them. After the verification process is complete, you can start accepting payments.
To update purpose codes if you are an existing user and have already enabled international payments:
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Click International Payment Codes under International payment settings.
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Update your purpose code under the International Payment Codes section.
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Select the appropriate Purpose Code.
Based on your business requirements, you also need to provide your HS Code or IEC Code.
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Click International Payment Codes under International payment settings.
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Update your HS Code under the International Payment Codes section.
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Select the appropriate Harmonised System Code, also known as HS Code.
Handy Tips
- For Software: HSCode is 85238020 and HSDescription is Other Information technology software.
- For Goods: Refer to the list from the .
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Review and click Confirm. The Razorpay Activation/Operations team verifies the selected Purpose Code.
As consumers or buyers, you get the option to make payments through the
. On selecting Razorpay, various payment methods will be displayed at the Razorpay checkout to complete the payment.Was this page helpful?