FEMA / RBI / Inward remittance for payment towards supply of goods in India

Hi Mohan,

This is a classic FEMA/RBI and export compliance challenge when the foreign buyer doesn’t take physical delivery abroad but payments flow in from outside India.

Key issue:

• Your foreign client in the Netherlands is paying for laptops but the goods never physically move out of India (they are delivered to a payroll company in Hyderabad).

• RBI and AD banks usually require export of goods/services to allow inward remittance from abroad.

• Since there is no export, inward remittance for supply of goods is restricted.

Possible approaches:

1. Re-characterize the transaction as “supply of services”:

   • Instead of sale of goods, treat this as a service contract (e.g., IT asset management or outsourcing service).

   • Invoice foreign client for service fees and receive payment under “export of services”.

   • The laptops can be treated as assets used to provide the service locally.

   • Ensure proper contract documentation to support this.

2. Use a Third-Party Exporter:

   • If physical export is mandatory, the laptops can be shipped to the Netherlands or a third country as per contract.

   • Then the foreign client can pay legitimately as export proceeds.

   • After export, arrange for re-import if laptops are to be used in India.

3. Advance Payment Model:

   • Foreign client can provide advance payments for future export orders.

   • This way remittance is linked to export, satisfying RBI norms.

   • But delivery remains within India, which may still be questioned.

4. Consult your AD Bank and FEMA consultant:

   • RBI regulations on inward remittance are strict.

   • Banks may require export documents like shipping bills, customs invoices, etc.

   • Get formal advice from AD bank and FEMA specialist.

Risks:

• Receiving inward remittance without export may violate FEMA guidelines.

• Banks may reject payment or RBI may raise queries.

• Possible penalty or transaction reversal.

Summary:

If the laptops do not physically leave India, the safest way is to treat this as an export of services rather than goods. Align contracts, invoices, and transactions accordingly.