Dropshipping Purpose Code: Which RBI Code Applies
A dropshipper's bank asks what the money is for, and the honest answer is that it depends on where the goods went. This guide names the RBI purpose codes that can apply, in RBI's own words, and sets out what decides between them.
Why there is no dropshipping code
A purpose code classifies the transaction a payment settles, not the business model behind it. The list your bank works from is RBI's receipt purpose list under FETERS, the Foreign Exchange Transactions Electronic Reporting System, issued as Annex I to A.P. (DIR Series) Circular No. 84 of 29 February 2012. It is organised by what was sold and how: group 01 for exports of goods, group 02 for transport, group 10 for other business services, and so on. Dropshipping is a way of arranging a sale, and depending on how it is arranged the same word describes three different transactions. Each lands in a different part of the list.
The two questions that decide it are simple to ask and worth answering in writing before the first payment arrives: did the goods physically leave India, and who invoiced whom.
Shape one: the goods leave India under a shipping bill
You hold the stock in India, or your supplier in India ships it for you, and it goes to the foreign buyer against a shipping bill in your name. That is an ordinary export of goods, whatever the storefront looked like, and the receipt takes a group 01 code. RBI's descriptors for the three most relevant ones, verbatim:
- P0102: Realisation of export bills (in respect of goods) sent on collection (full invoice value), Other than Nepal and Bhutan
- P0101: Value of export bills negotiated / purchased/discounted etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills etc.), Other than Nepal and Bhutan
- P0103: Advance receipts against export contracts, which will be covered later by GR/PP/SOFTEX/SDF, other than Nepal and Bhutan
Which of the three applies is a fact about the bill and the timing: a bill sent on collection reads as P0102, a bill the bank negotiated or discounted reads as P0101, and money that arrived before the goods shipped reads as P0103. In this shape there is a shipping bill, so there is a document for the remittance to be mapped to, and that mapping is what an eBRC records. Which codes the DGFT portal will and will not certify against is in what purpose and currency codes mean on an eBRC.
Shape two: the goods never enter India
You buy from a supplier abroad, sell to a buyer abroad, and the goods go directly from one to the other. RBI has a name for this and it is not dropshipping. Under A.P. (DIR Series) Circular No. 20 of 23 January 2020, the revised guidelines on merchanting trade transactions, a trade is classified as merchanting where the goods acquired do not enter the Domestic Tariff Area, and the circular states that reporting under FETERS is done on a gross basis against P0108 for the export leg and S0108 for the import leg. RBI's descriptor, verbatim:
- P0108: Goods sold under merchanting / Receipt against export leg of merchanting trade
The same circular sets the conditions the trade has to meet, and a dropshipper in this shape is bound by them: the goods must be ones permitted for export and import under the Foreign Trade Policy; all the rules that apply to exports and imports are to be complied with, the Export Declaration Form on the export leg and the Bill of Entry on the import leg excepted; the entire transaction is to be completed within nine months, with no outlay of foreign exchange beyond four months; the whole trade is routed through one AD bank; and the merchanting trader is to be a genuine trader of goods rather than a financial intermediary. The P0108 entry in the directory carries the descriptor and its group.
On the certificate question this shape is the one to be careful with. There is no shipping bill from India, because the goods never touched India, and the guidelines DGFT publishes for self-certification, walked through in the purpose code guide, list P0108 among the codes that cannot generate an eBRC. If your bank reports a receipt under P0108, do not plan on certifying it; plan on keeping the merchanting file the circular describes, with the invoices, transport and insurance documents for both legs, and the bank as the record.
Shape three: you never own the goods
The supplier abroad, or the marketplace, sells to the buyer and pays you a commission or a margin for bringing the order. You did not buy the goods and did not sell them, so nothing was exported by you. The receipt is for a service, and it belongs outside group 01 altogether. RBI's list carries trade related commissions in group 10, Other Business Services, which the purpose code directory carries as a range because the source it is built from documents it as one; the bank picks the specific code from RBI's list. A services receipt is certified against the invoice rather than a shipping bill, which is the route service exporters use.
The edge case: goods that pass through India
If goods bought abroad come into India and go out again to the buyer without a shipping bill of the ordinary kind, RBI's list has a code for that too, and its wording is worth reading before assuming it fits:
- P0104: Receipts against export of goods not covered by the GR /PP /SOFTEX /EC copy of shipping bill etc. (under Intermediary/transit trade, i.e., third country export passing through India
Whether a particular transit arrangement is that, or is an ordinary export once the goods are cleared into India and re-exported, is a customs question before it is a purpose code question, and it is one to settle with the broker and the bank together.
How to choose, in order
- Did the goods physically leave India under a shipping bill in your name? If yes, it is an export of goods: P0102, P0101 or P0103 depending on the bill and the timing. Stop here.
- Did you take title to the goods abroad and sell them abroad, with the goods never entering India? If yes, it is merchanting trade under RBI's 2020 guidelines, reported under P0108, with the conditions above attached.
- Did you only earn a commission or a margin, without ever owning the goods? If yes, it is a service receipt in group 10, and there is no goods export to certify.
- Did the goods pass through India on the way? Read P0104's wording, then ask the broker whether the movement was cleared as a transit or as an import and re-export.
Two things are true in every shape. The purpose code is applied by the AD bank when it reports the inward remittance to RBI, not by you and not by DGFT, so the place to settle it is a conversation with the bank at onboarding, with the answers to the questions above written down. And the code the bank applied is visible to you afterwards: it sits on the inward remittance record, the IRM, and in the eBRC exporter app it shows on each remittance exactly as the bank reported it, which is the moment to catch a code that does not match the shape of your trade.
Frequently asked questions
Which RBI purpose code is used for dropshipping?
There is no dropshipping purpose code. If the goods shipped out of India under a shipping bill, the receipt is an export of goods and takes a group 01 code such as P0102, P0101 or P0103. If the goods went straight from a supplier abroad to a buyer abroad without entering India, RBI treats it as merchanting trade, reported under P0108. If the dropshipper only earned a commission and never owned the goods, the receipt is for a service and takes a group 10 code. The AD bank applies the code.
Is dropshipping merchanting trade under RBI rules?
It is when the goods acquired do not enter the Domestic Tariff Area, which is the test RBI's A.P. (DIR Series) Circular No. 20 of 23 January 2020 sets for a merchanting trade transaction. In that case the receipt is reported under purpose code P0108, the whole trade is routed through one AD bank, it is to be completed within nine months with no foreign exchange outlay beyond four months, and the trader is to be a genuine trader of goods. Dropshipping where the goods leave India under a shipping bill is an ordinary export, not merchanting.
Does a dropshipper need an eBRC?
It depends on the shape of the trade. Where the goods left India under a shipping bill, the export is an ordinary one and the remittance can be mapped to that bill and certified as an eBRC. Where the goods never entered India and the receipt is under P0108, the DGFT self-certification guidelines list P0108 among the codes that cannot generate an eBRC, and the merchanting file kept with the AD bank is the record instead. Where the receipt is a commission for a service, any certificate is against the invoice rather than a shipping bill.
Who decides the purpose code on a dropshipping payment?
The AD bank that receives the money. When a foreign payment reaches the account, the bank reports it to RBI with a purpose code from the FETERS receipt purpose list, and that report is the inward remittance message. The exporter's job is to tell the bank the shape of the trade, whether the goods left India and who invoiced whom, before the first payment, and to check the code on each remittance when it arrives.