Purpose Codes Decoded: NRI’s Guide for Money Transfers

If you’ve ever sent money to India or received it from abroad, you’ve probably seen a dropdown asking you to select a “Purpose Code.”

Most people just pick something that sounds right.

That’s a mistake.

Purpose codes aren’t just bureaucratic formalities. They determine how fast your money moves, how much tax you pay, and whether your transfer even goes through.

Let me break down everything you need to know.

What is a Purpose Code?

A Purpose Code is a unique alphanumeric code assigned by the Reserve Bank of India (RBI) to every international money transfer.

Think of it as a label that tells the bank and regulators why you’re sending or receiving money.

Every cross-border transaction – whether you’re remitting to India or sending money abroad from India – must have a purpose code.

This isn’t optional. It’s mandatory under the Foreign Exchange Management Act (FEMA), 1999.

💡 Tip: The RBI tracks all foreign exchange flows in and out of India. Purpose codes help them monitor these transactions and compile Balance of Payments statistics.

Why Purpose Codes Matter for NRIs

For NRIs, purpose codes show up in two scenarios:

1. Inward Remittance (Money coming INTO India)

When you send money from the US, UAE, UK, or any other country to your NRE or NRO account in India, the receiving bank assigns a purpose code.

This tells the RBI why the money is coming in – whether it’s family maintenance, salary, investment returns, or gifts.

2. Outward Remittance (Money going OUT of India)

If you’re in India and sending money abroad – say, for your child’s education, travel, or investments – you must declare a purpose code.

This falls under the Liberalised Remittance Scheme (LRS), and the code you choose directly impacts your TCS (Tax Collected at Source).

What Happens If You Use the Wrong Purpose Code?

This is where it gets serious.

Payment Delays

If the purpose code doesn’t match your transaction, the bank may hold your funds for clarification. This back-and-forth can take days.

Transaction Rejection

For high-value transfers or significant mismatches, banks might reject the transaction entirely and return the funds to the sender.

FEMA Violations

Intentionally misreporting a purpose code is a violation of FEMA regulations. This can trigger compliance checks, audits, and even penalties.

Higher Tax Liability

For outward remittances from India, the wrong code can mean paying 20% TCS instead of 0.5% or 5%. That’s a huge difference.

Incorrect Financial Records

Wrong codes create accounting problems. Your tax filings, export incentives, and GST refunds can all be affected.

Inward Remittance Purpose Codes (Money Coming to India)

These are the codes used when you receive money from abroad into your Indian account.

Here are the most common ones NRIs use:

Purpose Code	Description	When to Use
P1301	Family maintenance and savings	Sending money for family expenses, parents’ care
P1302	Personal gifts and donations	Gifts to relatives (note: over ₹10 lakh/year requires FC1 form)
P1303	Donations to religious/charitable institutions	Donations to registered charities
P1306	Receipts/Refund of taxes	Tax refunds from abroad
P1401	Compensation of employees	Salary received from foreign employer
P1406	Repatriation of profits to India	Profits from overseas business
P1407	Receipt of dividends	Dividend income from foreign investments

Most Common Codes for NRIs

P1301 – Family Maintenance and Savings

This is the go-to code for most NRIs sending money home.

Use it when you’re:

• Sending money for parents’ living expenses
• Transferring to your own NRE account for savings
• Supporting family members in India

No supporting documents required for this code (just ensure remitter is an individual).

P1302 – Personal Gifts and Donations

Use this when sending gifts to relatives.

Important: If the gift amount from any single person exceeds ₹10 lakh in a financial year, the recipient must submit Form FC1 to the Ministry of Home Affairs within 90 days.

P1401 – Compensation of Employees

If you receive salary from a foreign employer directly into your Indian account, this is the correct code.

Banks may ask for employment letter or payslip as supporting documentation.

Outward Remittance Purpose Codes (Money Going Out of India)

These codes apply when you’re in India and sending money abroad.

This is especially relevant for:

• NRIs who’ve returned and still have overseas expenses
• Parents sending money for child’s education abroad
• Investments under LRS

Purpose Code	Description	TCS Rate (from Apr 2025)
S0305	Education (fees, hostel, expenses)	0% (education loan) / 5% (self-funded)
S0304	Medical treatment abroad	5% above ₹10 lakh
S0301	Business travel	20% above ₹10 lakh
S0306	Personal travel	20% above ₹10 lakh
S1301	Family maintenance	20% above ₹10 lakh
S1302	Personal gifts and donations	20% above ₹10 lakh
S0001	Equity investment abroad	20% above ₹10 lakh
S0005	Purchase of immovable property	20% above ₹10 lakh

TCS Rates and Purpose Codes (From April 2025)

The Union Budget 2025 brought significant changes to TCS on outward remittances.

Here’s what you need to know:

Threshold Increased

TCS now applies only when total remittances exceed ₹10 lakh per financial year (previously ₹7 lakh).

Education Remittances

• If funded by education loan from specified institution: 0% TCS
• If self-funded: 5% TCS above ₹10 lakh

Medical Treatment

• 5% TCS above ₹10 lakh

All Other Purposes (Travel, Gifts, Investments)

• 20% TCS above ₹10 lakh

💡 Tip: TCS is not an additional tax – it’s an advance tax payment. You can claim it back when filing your Income Tax Return if your tax liability is lower.

Purpose Code Format Explained

Purpose codes follow a standard format:

Inward Remittance Codes: Start with “P” (e.g., P1301, P1302) Outward Remittance Codes: Start with “S” (e.g., S0305, S1301)

The numbers indicate categories:

• 01-09: Capital account transactions
• 10: Imports
• 03: Travel
• 13: Personal transfers
• 14: Income

Documents Required for Common Purpose Codes

Banks may ask for supporting documents depending on the purpose code.

Here’s a quick reference:

P1301 (Family Maintenance)

• No documents required
• Remitter must be an individual
• If same person as sender and receiver, declaration may be needed

P1302 (Gifts)

• No documents required
• Both remitter and beneficiary must be individuals
• For family trusts: Trust deed or declaration on trust letterhead

P1401 (Salary)

• Employment letter or payslip
• Employer details

S0305 (Education)

• University admission letter
• Fee invoice
• Proof of relationship (if sending for child)
• Education loan documents (if applicable)

S1301 (Family Maintenance – Outward)

• Relationship proof between remitter and beneficiary
• If above $25,000: Bank statements or ITR for last year

Common Mistakes to Avoid

1. Guessing the Purpose Code

Don’t just pick whatever sounds closest. If unsure, check with your bank or refer to the RBI’s official list.

2. Using P1302 for Business Payments

Personal gifts and business payments are completely different categories. Mixing them up can trigger compliance issues.

3. Ignoring the ₹10 Lakh FC1 Requirement

If you receive gifts exceeding ₹10 lakh from abroad in a year, you must file Form FC1 with the Ministry of Home Affairs. Many people miss this.

4. Not Keeping Records

Maintain copies of remittance receipts, purpose codes used, and supporting documents. You may need them for tax filing or if the Income Tax department raises questions.

5. Using Wrong Code to Avoid TCS

This is a FEMA violation. Don’t declare education expenses as something else to get a lower TCS rate. Authorities can audit your transaction history.

Purpose Codes for Specific NRI Scenarios

Scenario 1: Sending Money to Parents

Recommended Code: P1301 (Family maintenance and savings)

This is the most commonly used code for NRIs supporting family in India. No documents required.

Scenario 2: Receiving Rental Income

Recommended Code: P1401 (Compensation of employees) is NOT correct here.

For rental income from property in India, the payment stays within India (tenant pays to your NRO account). This doesn’t need a purpose code as it’s a domestic transaction.

Scenario 3: Sending Gift to Sibling

Recommended Code: P1302 (Personal gifts and donations)

Remember the ₹10 lakh threshold for FC1 reporting.

Scenario 4: Repatriating NRO Funds After Returning

When you return to India and want to send money abroad from your NRO account:

Recommended Code: Depends on purpose – S1301 for family maintenance, S0001 for investment, etc.

You’ll need Form 15CA/15CB for repatriation.

Scenario 5: Child’s Education Abroad

Recommended Code: S0305 (Travel for education including fees, hostel expenses)

TCS: 0% if funded by education loan, 5% if self-funded (above ₹10 lakh threshold)

Scenario 6: Receiving Freelance Income

If you’re doing freelance work for foreign clients while in India:

Recommended Code: Depends on service type

• P0802: Software services
• P1006: Business, professional, technical services
• P0101: Payment for export of goods

💡 Tip: For freelancers, getting the right purpose code is crucial for your FIRC (Foreign Inward Remittance Certificate), which you need for GST compliance and export benefits.

How to Find the Right Purpose Code

Step 1: Identify the Nature of Transaction

Is it personal or business? Is it for services, goods, investment, or family support?

Step 2: Check Official RBI List

The RBI maintains the complete list of purpose codes. Your bank should provide this, or you can find it on the RBI website.

Step 3: Match Supporting Documents

Ensure your invoice, contract, or declaration matches the purpose code you’re declaring.

Step 4: When in Doubt, Ask Your Bank

Banks deal with these daily. Their forex or international banking team can guide you.

FAQs

1. Can I change the purpose code after the transaction?

It’s difficult. Once the remittance is processed and reported to RBI, changes require formal justification. Contact your bank immediately if you realize there’s an error.

2. What if my bank selects the wrong code?

The responsibility ultimately lies with you. Review the transaction details before confirming. If you notice an error later, escalate with the bank’s compliance team.

3. Is purpose code same as UTR/TRN?

No. UTR (Unique Transaction Reference) is a tracking number for your transaction. Purpose code indicates why the transaction is happening.

4. Do NRI accounts need purpose codes for internal transfers?

Transfers within India (NRE to NRO, or within same bank) generally don’t need purpose codes as they’re domestic transactions.

5. What’s the penalty for wrong purpose code?

Penalties vary. Minor errors may just cause delays. Intentional misreporting can lead to FEMA violations, fines, and potential legal consequences.

6. Is P1301 or P1302 better for sending money to family?

P1301 (family maintenance) is for regular support. P1302 (gifts) is for one-time gifts. Use the one that accurately reflects your transfer.

Quick Reference: Most Used NRI Purpose Codes

Inward (Money to India):

• P1301: Family maintenance (most common)
• P1302: Personal gifts
• P1401: Salary

Outward (Money from India):

• S0305: Education
• S0304: Medical
• S1301: Family maintenance
• S0001: Investment abroad

Wrapping Up

Purpose codes might seem like just another banking formality.

But they have real consequences – on your transfer speed, tax liability, and compliance status.

Take a few extra seconds to select the right code. Keep your documents organized. And when in doubt, ask your bank before confirming.

It’s a small effort that saves you from big headaches later.

If you’re planning your move back to India or have questions about managing finances as an NRI, join our WhatsApp community at https://backtoindia.com/groups – over 20,000 NRIs helping each other with real, lived experience. It’s free and volunteer-run.

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Sources: Reserve Bank of India purpose code guidelines, FEMA regulations, and information compiled from leading Indian banks including HDFC, Axis Bank, SBI, and ICICI.