Intimation to RBI about the forfeiture of Advance payments

The forfeiture of an advance payment received against an export order—where the shipment does not take place—is a matter of regulatory compliance under the Foreign Exchange Management Act (FEMA).

Because the intended export did not materialize, the "advance" is no longer linked to a legitimate export transaction, and you must address this through your Authorised Dealer (AD) bank.

Key Regulatory Considerations

• No Automatic Forfeiture: You cannot simply forfeit the amount and record it as income in your books without regulatory clearance. The inflow was originally classified as an export advance; if the export is cancelled, the legal obligation to ship the goods or refund the money remains.

• AD Bank Approval: Under current RBI guidelines (including the 2026 EXIM Guidelines), AD banks are authorized to close entries in the Export Data Processing and Monitoring System (EDPMS) relating to advance transactions where the export has not materialized, provided they are satisfied that:

  • The request is bona fide (genuine).

  • A refund is either not possible or not required due to contractual terms (such as a forfeiture clause).

  • The documentation is clear.

Recommended Steps

1. Notify Your AD Bank: Immediately inform your AD bank (the bank through which the foreign currency was received). They are responsible for monitoring the transaction in the EDPMS.

2. Provide Documentation: Submit the original export contract/agreement that contains the "forfeiture clause" or the terms allowing you to retain the advance upon cancellation. You will likely need to provide:

   • Proof of the cancellation of the export order.

   • A formal request to close the relevant EDPMS entry.

   • Any communication with the overseas buyer acknowledging the cancellation and the forfeiture.

3. Obtain Clearance: Once the AD bank reviews the documents and is satisfied with the transaction's bona fide nature, they can manually close the outstanding EDPMS entry.

4. Accounting Treatment: Only after your bank has officially closed the entry or permitted the retention of the funds should you finalize the accounting treatment to record the amount as "Other Income" in your books.

Important Note: Failure to resolve outstanding export advances in the EDPMS can result in a "caution-listed" status, which may prevent you from undertaking future exports or receiving further advances. Always coordinate directly with your bank before finalizing any such accounting entries.

Summary: You cannot unilaterally forfeit an export advance. You must inform your AD bank, provide proof of the cancelled order and the contractual right to forfeit the amount, and obtain their approval to close the outstanding entry in the EDPMS.