Choosing the Right Purpose Code for Inward Remittance

If you’ve ever sent money to India and wondered what that “purpose code” field means – you’re not alone.

I remember the first time I saw this while transferring money back home. The bank app asked me to select a purpose code, and I had no idea which one to pick. I just wanted to send money to my parents. Why did the RBI care about why I was sending it?

Turns out, they care a lot. And picking the wrong code can delay your transfer or even trigger compliance flags.

Let me walk you through everything you need to know about purpose codes for inward remittance – so your money reaches India smoothly every time.

What Exactly is a Purpose Code?

A purpose code is a five-character alphanumeric code that tells the Reserve Bank of India (RBI) why foreign currency is entering the country.

Think of it as a label for your money.

When you send funds to India, the receiving bank needs to report this transaction to the RBI. The purpose code helps them categorize it correctly.

This system exists because India tracks foreign exchange flows under the Foreign Exchange Management Act (FEMA). Every inward remittance must be classified.

The good news? Once you understand the common codes, selecting the right one becomes second nature.

Why Does the Purpose Code Matter?

Here’s why you should care about getting this right:

1. Faster processing – Banks process correctly coded transactions quickly. Wrong codes trigger manual reviews.
2. Tax compliance – The purpose code affects how the income is treated for tax purposes. A gift is taxed differently than salary or business income.
3. Avoiding RBI scrutiny – Consistently incorrect codes can flag your account for additional compliance checks.
4. Smooth bank experience – Your beneficiary won’t get calls from the bank asking for clarification documents.

In our community discussions, I’ve seen NRIs face delays of weeks because of purpose code mismatches. A little attention upfront saves a lot of hassle later.

Common Purpose Codes for NRI Remittances

Let me break down the codes you’ll most likely need.

Purpose Code	Description	When to Use
P0801	Family maintenance	Sending money to parents or family for daily expenses
P0802	Savings (repatriation)	Transferring your own savings to your NRE/NRO account
P0803	Gift	Sending a gift to someone in India
P1301	Salary/wages	Receiving salary from an Indian employer
P1302	Bonus/commission	Performance bonuses or sales commissions
P0101	Sale of goods	Business payments for product sales
P0106	Software services	IT services or software development payments
P1501	Property sale proceeds	Money from selling property in India (if remitting to yourself)

These cover about 80% of the remittances NRIs typically make.

Sending Money to Family? Here’s What to Know

The most common scenario for NRIs is sending money home for family maintenance.

If you’re sending money to your parents, spouse, or children for their regular expenses, use P0801 (Family Maintenance).

This code is straightforward. The money is meant to support your family’s living costs – rent, groceries, medical bills, household expenses.

A few things to keep in mind:

• There’s no upper limit on how much you can send under this code
• The recipient doesn’t need to pay tax on family maintenance received from abroad
• Keep a simple record of these transfers for your own reference

If you’re sending a one-time gift for a special occasion – like a wedding or festival – you might use P0803 (Gift) instead. The tax treatment is similar, but the categorization is more accurate.

Understanding purpose codes in detail helps you stay compliant without overthinking every transfer.

Transferring Your Own Savings

This is where many NRIs get confused.

If you’re moving your own money from your foreign bank account to your NRE or NRO account in India, use P0802.

This code indicates that the funds are your personal savings being repatriated. It’s not income. It’s not a gift. It’s simply your own money moving between your accounts.

Why does this distinction matter?

Because if you incorrectly mark your own savings as a “gift” to yourself, it creates a confusing paper trail. Banks may ask for gift deed documentation that doesn’t make sense for your situation.

Keep it clean. Your savings = P0802.

Receiving Business or Professional Payments

If you’re doing freelance work, consulting, or running a business that receives payments from abroad, the purpose codes change.

For IT and software services, use P0106.

For other professional services, you might use codes in the P01xx or P02xx series depending on the nature of work.

For salary from an Indian employer (common for remote workers), use P1301.

A quick note here – if you’re receiving significant business income, you’ll want to understand how NRIs file taxes in India. The purpose code you use will appear in banking records and should align with your tax filings.

What Happens If You Choose the Wrong Code?

Mistakes happen. Here’s what typically follows:

Minor mismatches – The bank may process the transaction but note the discrepancy. No immediate issue, but repeated errors get flagged.

Significant errors – The receiving bank might hold the funds and ask your beneficiary for clarification documents. This can delay the transfer by several days.

Pattern of incorrect codes – If your account shows consistent mismatches, the bank’s compliance team may request a detailed explanation. In rare cases, they might restrict certain transaction types.

The fix is usually simple – provide correct documentation and the funds get released. But it’s an avoidable headache.

If you’ve made a mistake, don’t panic. Just ensure you use the correct code going forward.

Quick Checklist Before You Send Money

Use this before your next transfer:

• [ ] Identify the true purpose of the transfer
• [ ] Match it to the appropriate purpose code from the list above
• [ ] If unsure, check with your bank’s customer service
• [ ] Keep the transaction receipt for your records
• [ ] Inform the recipient about the expected transfer

Simple steps, but they prevent most issues.

A Few Tips from Our Community

Over the years, I’ve gathered some practical insights from NRIs in our WhatsApp groups:

Be consistent – If you send monthly family maintenance, use the same purpose code each time. Consistency signals legitimate, routine transfers.

Don’t overthink gifts – Small gifts for birthdays or festivals are fine under P0803. You don’t need elaborate documentation for reasonable amounts.

Keep records – A simple spreadsheet tracking your remittances with dates, amounts, and purpose codes is incredibly helpful during tax season.

Ask when unsure – Both the sending and receiving banks can guide you. A quick call saves confusion later.

Use reliable transfer services – Services like Wise, Remitly, or bank transfers often guide you through purpose code selection. Use their prompts.

When to Seek Professional Help

For most regular remittances – family support, savings transfers, small gifts – you don’t need professional help.

But consider consulting a CA or tax advisor if:

• You’re receiving large business payments regularly
• You’re repatriating property sale proceeds
• You’re unsure about tax implications of a specific transfer
• Your transfer involves complex structures like trusts or investments

A one-time consultation can clarify things for years of transfers ahead.

Wrapping Up

Purpose codes might seem like bureaucratic fine print, but they serve an important function. They help the RBI track foreign exchange flows and help you maintain clean financial records.

The key takeaways:

• P0801 for family maintenance
• P0802 for your own savings
• P0803 for gifts
• Match business payments to the appropriate service category

Once you know these, sending money to India becomes much simpler.

If you’re planning your move back or regularly sending money home, join our WhatsApp community at backtoindia.com/groups – over 20,000 NRIs helping each other with real, lived experience. It’s free and volunteer-run.

Frequently Asked Questions

What if my bank’s app doesn’t show purpose code options?

Some international transfer services handle this automatically based on your selection (like “family support” or “own account transfer”). If you’re unsure, contact the service provider to confirm which code they’re using.

Can I change the purpose code after sending money?

No, once submitted, the code travels with the transaction. If there’s an error, you’ll need to work with the receiving bank to resolve any documentation requirements.

Is there a limit on how much I can send under family maintenance?

Under RBI guidelines, there’s no upper limit for legitimate family maintenance. However, very large transfers might require additional documentation to verify the purpose.

Do purpose codes apply to NRE account deposits?

Yes. When you transfer money to your own NRE account from abroad, you still need to specify a purpose code – typically P0802 for personal savings.

What’s the difference between P0801 and P0803?

P0801 is for regular family maintenance (ongoing support). P0803 is for one-time gifts. Both are valid for money sent to family – pick the one that best describes your intent.