Set off of export receivables against import payables, Bank process in India

Export payments and Import payments  - Set off process by Banker in India

According to Reserve Bank of India update as on 08th January 2021,  the directions on RBI rules as per FEMA regulations on seting off Import and Export payments is given below:

C.26 Set-off of export receivables against import payables

C.26.1. AD category –I banks may deal with the following requests received from their Exporter/Importer constituents for allowing set-off of outstanding export receivables against outstanding import payables:

  1. Set-off of outstanding export receivables against outstanding import payables from/to the same overseas buyer/supplier.
  2. Set-off of outstanding export receivables against outstanding import payables with their overseas group/associate companies either on net basis or gross basis, through an in-house or outsourced centralized settlement arrangement.

 The set-off shall be subject to the following conditions:

  1. The arrangement shall be operationalized/supervised through/by one AD Category – I bank only
  2. AD Category – I bank is satisfied with the bonafides of the transactions and ensures that there are no KYC/AML/CFT concerns;
  3. The invoices under the transaction are not under investigation by Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency;
  4. Import/export of goods/services has been undertaken as per the extant Foreign Trade policy
  5. The export / import transactions with ACU countries are kept outside the arrangement;
  6. Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa.
  7. AD Category – I bank shall ensure that import payables/export receivables are outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year.
  8. In case of bilateral settlement, the set-off shall be in respect of same overseas buyer/supplier subject to it being supported by verifiable agreement/mutual consent.
  9. In case of settlement within the group/associates companies, the arrangement shall be backed by a written, legally enforceable agreement/contract. AD Category – I bank shall ensure that the terms of agreement are strictly adhered to;
  10. Set-off shall not result in tax evasion/avoidance by any of the entities involved in such arrangement.
  11. Third party guidelines shall be adhered to by the concerned entities, wherever applicable;
  12. AD Category – I bank shall ensure compliance with all the regulatory requirement relating to the transactions;
  13. AD Category – I bank may seek Auditors/CA certificate wherever felt necessary.
  14. Each of the export and import transaction shall be reported separately (gross basis) in FETERS/EDPMS/IDPMS, as applicable.
  15. AD Category – I bank to settle the transaction in E/IDPMS by utilizing the ‘set-off indicator’ and mentioning the details of shipping bills/bill of entry/invoice details being settled in the remark column (including details of entities involved).

C.27 Netting-off of export receivables against import payments – Units in Special Economic Zones (SEZs)

AD Category - I banks may allow requests received from exporters for ‘netting off’ of export receivables against import payments for units located in Special Economic Zones subject to the following:

(i) The netting off of export receivables against import payments is in respect of the same Indian entity and the overseas buyer / supplier (bilateral netting) and the netting may be done as on the date of balance sheet of the unit in SEZ.

(ii) The details of export of goods are documented in EDF (O) forms / DTR as the case may be while details of import of goods / services are recorded through A1 / A2 form as the case may be. The relative EDF will be treated as complete by the designated AD Category – I banks only after the entire proceeds are adjusted / received.

(iii) Both the transactions of sale and purchase in R- Returns under FETERS are reported separately.

(iv) The export / import transactions with ACU countries are kept outside the arrangement.

(v) All the relevant documents are submitted to the concerned AD Category – I banks who should comply with all the regulatory requirements relating to the transactions.

Bank directions to be read by each Exporter in India

Banking regulations on Exports and Imports in India

Exporting  to India?  Click here to read Bank process in India

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MRINAL KUMAR RAY: Whether Set-off of export receivables against import payables to third party in different country and for amount of USD 9.00 lakh is permissible, if so RBI circular reference please

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