An Indian subsidiary may invoice\u00a0its overseas parent for support services and, at the same time, owe its parent or another group company for software, technology, goods, or common charges. Logically, there is no point in sending multiple payments in opposite directions when a single payment is all that is needed in the end.\u00a0<\/p>\n\n\n\n
Netting can reduce bank\u00a0charges, the hidden cost of\u00a0multiple foreign exchange conversions, and paperwork. Netting could also help in managing working capital. \u00a0However, there are specific regulations under FEMA that need to be complied with; blanket, unrestricted netting is not permitted.<\/p>\n\n\n\n
The present framework allows set-off, even through a centralized group settlement mechanism, but only subject to specific conditions. The export and import transactions must generally fall within the same calendar year, goods receivables cannot be set off against service payables or vice versa, and each underlying transaction must continue to be reported separately on a gross basis.<\/p>\n\n\n\n
The RBI\u2019s Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 will be operational from 1st October, 2026.\u00a0 The rules explicitly permit an\u00a0authorized dealer\u00a0bank to approve set-off of export receivables against import payables where the foreign buyer\/supplier or their foreign affiliates or associates are involved.<\/p>\n\n\n\n
This new provision is much more concise compared to the existing conditions. The rule does not explicitly mention the same-year requirement or the non-set-off rule for goods receivables against service payables. It could provide banks with greater flexibility in assessing genuine group settlements.<\/p>\n\n\n\n
Businesses should not, though, assume that all forms of netting are necessarily acceptable. It is up to the authorized dealer bank to be satisfied as to the genuineness of the transactions. The bank\u2019s policy and procedure regarding the running of the facility will play an important part in its operational practice.<\/p>\n\n\n\n
The new framework will also bring service exports and imports into the RBI\u2019s formal reporting and monitoring systems. The exporter of service should usually file the \u201cExport Declaration\u201d form within 30 days after the end of the month in which the invoice is issued. The banks will record services exported and imported in the export and import control system and will close or update the records when the transaction is settled.<\/p>\n\n\n\n
The problem with this, however, is that it will make any issues with inconsistent record keeping even more apparent.<\/p>\n\n\n\n
Reconciliation of invoices is the key factor when dealing with foreign receivables and payables. It is vital to know the group entity involved, the type of supply, the payment terms, the invoice date, the due date, and the bank. All past transactions, disputes, and payments that have not been reflected\u00a0in the bank\u2019s records\u00a0should be settled independently.<\/p>\n\n\n\n
It is at this stage that the group decides how the agreement will work, in particular, the number of parties to be involved, the frequency of netting, the currency to use, the settlement calculations, and the handling of any disputed invoices. A written agreement and statement at the level of individual invoices shall remain extremely valuable even after the introduction of the new legislation.<\/p>\n\n\n\n
The underlying export and import transactions should continue to be recorded and reported separately on a gross basis. Netting does not resolve the problem of transfer pricing, GST obligations, or withholding taxes, nor does it make a trading account a loan.<\/p>\n\n\n\n
Sharing the plan with the authorized dealer bank is very important as well. As per the regulations of 2026, the banks need to maintain the record of their export\/import policy that includes documentation, deadline, approval, and charges. Participating early will allow for the determination of the bank\u2019s requirements prior to the payment deadline.<\/p>\n\n\n\n
The new system offers an opportunity to streamline cross-border group settlements. Those businesses that prepare themselves properly and organize the process before 1 October 2026 will be well be able to migrate to the new statutory regime smoothly.<\/p>\n\n\n
<\/p>\n\n\n\n
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