Understanding Purpose Codes with Razorpay
Understanding the significance of Purpose Codes in 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 a purpose code, with separate codes for import and export transactions. Export purpose codes begin with 'P', while import purpose codes start with 'S'. Selecting the appropriate purpose code that aligns with the business activities is crucial.
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. To ensure smooth transaction settlements, it is crucial to update purpose codes promptly.
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 noncompliance 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.
Download the complete
you can select during the onboarding process.This is the latest version of the list and was last updated on July 20, 2021.
Handy Tips
The purpose code selected will apply to all international business transactions.
Given below are steps to accept payments from international customers if you are:
Follow the steps given below to enable international payments and accept payments from international customers:
- 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.
If you are an existing user and have already enabled international payments, follow the steps given below to update the purpose code:
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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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To add an HS Code, follow these steps:
- Click International Payment Codes under International payment settings.
- Update your HS Code under the International Payment Codes section.
- 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 .
- Click International Payment Codes under International payment settings.
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To add an IEC Code, follow these steps:
- Click International Payment Codes under International payment settings.
- Update your IEC Code under the International Payment Codes section.
- Select the appropriate Purpose Code.
- Enter the 10-digit Importer Exporter Code (IEC) and click Next.
Watch Out!
The IEC code input screen appears for specific purpose codes, (P0103) being one of them.
- Click International Payment Codes under International payment settings.
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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?