Offsetting of Receivables with payables

If for the same co. it would be fine

Will it not be violation of RBI FEMA rule saying that the indian company has not received the foreign currency for the exports made.
 

RBI Master circular dated July 1, 2010 has this to say:

"C.25 ‘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 GR (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 GR / SDF forms 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 FET-ERS
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."

This is available at https://www.rbi.org.in/scriptts/BS_ViewMasterCirculars.aspx?Id=5785&Mode=0

i agree with mr sanjay

Ya 4 sure benefit of netting can be taken.

Its a common practise nowadays.

One thing you have to be careful about when netting is with regards to Related Parties.  If they are related parties, then such practices can attract taxes particularly if the other party is a US corporation.

dear moorthysir,

as i understand above RBI circular is applicable for SEZ units only.   do you have any similar RBI circular for unit in DTA?

please advice.

Jay krishnan

I have some similar situation where we have made advance payment to foriegn vendor against Purchase Order but order has been cancelled. And we have imported trading goods for different Purchase order for  which payment is yet to be done. Can we offset with advance payment & payment yet to be made for foriegn vendor?  vendor is same but there are many P.O are like that .... please advise me....  

The circular by RBI does not state that the set off is applicable for the units in SEZ. It is available for all the units who are having category-1 AD. 

The following conditions are laid down by RBI as per notification RBI/2011-12/264

The import is as per the Foreign Trade Policy in force.

Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

Payment for the import is still outstanding in the books of the importer.

Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.

The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.

The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.

The export / import transactions with ACU countries should be  kept outside the arrangement.

All the relevant documents are submitted to the concerned AD  bank who should comply with all the regulatory requirements relating to the transactions.

Please correct me if i am wrong.

Requesting insights on the following query

If the payment to be made is for services(A2), can we avail the benefit of set off? The payment is tax deductible u/s 195. Is there any restrictions as per FEMA, RBI Guidelines, FTP and Income tax Act/ Rules.