Bank-permitted set-off is a settlement route, not a unilateral write-off
Under regulation 7 of the effective 2026 FEMA export-import framework, an authorised dealer may allow export receivables to be set off against import payables involving the stated same overseas buyer or supplier, or their overseas group or associate companies. The set-off must fall within the applicable export-realisation period or an extension allowed by the dealer. An internal accounting netting entry does not itself establish permission or close regulatory records.
This guide was checked on 22 October 2026 against the regulations amended through 22 September 2026 and RBI Circular 20 dated 16 January 2026, effective 1 October 2026. The circular supersedes the listed earlier directions from that date; the regulations preserve earlier acts or omissions. Determine the framework for the transaction rather than copying every historical same-party or calendar-year condition into a current case.
Reconcile two genuine obligations before finding the net amount
Obtain the export invoice or shipping documentation and the import invoice or entry, with the legal parties, values, currencies, dates and settlement status. Identify the person entitled to each receivable and responsible for each payable. A group treasury spreadsheet is not evidence that every affiliate can legally settle every other affiliate’s obligation. For a group/associate set-off, retain the relationship evidence and agreed settlement authority for the dealer’s assessment.
Separate previously settled amounts, credit adjustments, disputed amounts and the balance proposed for offset. A credit note or commercial concession is not the same as settlement by a valid opposite payable. Keep each invoice’s history visible so a proposed offset does not consume an amount already collected, paid or allocated elsewhere. Do not offset customer deposits, unrelated loans or other balances merely because they have opposite ledger signs; establish the regulatory route for the actual obligations.
Prepare an invoice-allocation schedule the bank can follow
Use separate columns for original document value, previous settlements, open balance, proposed offset, dealer-accepted offset and residual. For multiple invoices, show how the approved amount is apportioned to each document, not merely a net group balance. The residual receivable remains to be realised, while a residual import payable remains to be settled according to its applicable terms. A zero net cash payment does not mean the original exports or imports disappear.
Reconcile the dealer’s confirmation and corresponding EDPMS/IDPMS treatment with the commercial books. Regulation 4 addresses the dealer’s transaction checks and record updates, while regulation 7 supplies the set-off permission. Do not present a journal voucher as proof that both monitoring entries have been updated. Preserve the bank’s accepted references and any item left pending, with an owner and follow-up date.
Resolve timing, disputes and currencies explicitly
The proposed settlement date must be checked against the applicable export-realisation period and any valid extension, not just the date on which finance prepared the spreadsheet. Regulation 5 distinguishes the relevant export populations and gives a separate INR rule. This article’s amount illustrations assume the timing condition is satisfied or a required extension is obtained; they do not create a new blanket deadline or dispense with an overdue-case review.
For a mixed-currency proposal, keep both original currency obligations and document the conversion basis accepted for the settlement. A rate typed into the accounting system is not an RBI-prescribed universal set-off rate. Translate accounting balances and analyse resulting exchange differences separately under the applicable reporting framework. The final example uses an expressly assumed bank-accepted conversion solely to demonstrate allocation; it does not assert a live exchange rate.
For disputed or reduced amounts, separate what the dealer has allowed to be settled from any commercial reduction requiring its own treatment. If the opposite payable covers only part of an export, the remaining export is not automatically written off. Unrelated third-party receipts or payments are addressed separately in regulation 8 and should not be relabelled as a qualifying group set-off without evidence.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: same party with an export residual
Assume eligible open export receivable USD 100,000 and import payable USD 70,000 with the same overseas counterparty, all supported and approved by the dealer for set-off within time. Offset USD 70,000. Export receivable remaining is USD 30,000 and import payable remaining is zero. Retain the gross USD 100,000 export history rather than replacing it with a USD 30,000 sales invoice.
Illustrative example 2: same party with an import residual
Assume eligible export receivable USD 45,000 and import payable USD 80,000, with dealer permission for USD 45,000 set-off. Export outstanding becomes zero and import payable remaining is USD 35,000. The USD 35,000 is a remaining outward settlement obligation, not export under-realisation.
Illustrative example 3: several documents need a supported allocation
Assume exports of USD 20,000, USD 30,000 and USD 50,000 and imports of USD 60,000 and USD 25,000 are all eligible in one dealer-permitted arrangement. Gross exports total USD 100,000 and imports USD 85,000. Approved offsets total USD 85,000, leaving USD 15,000 export outstanding. One possible agreed allocation clears the first two exports for USD 50,000, then offsets USD 35,000 of the third; preserve corresponding allocations to the two import documents.
Illustrative example 4: group relationship needs more than similar names
Assume USD 120,000 is receivable from overseas Buyer A and USD 90,000 payable to its verified overseas associate B. On an appropriately evidenced arrangement accepted by the authorised dealer under regulation 7, set off USD 90,000 and retain USD 30,000 export residual. If the relationship or permission is not established, arithmetic alone does not permit clearing either invoice.
Illustrative example 5: only the approved portion is cleared
Assume export receivable USD 100,000 and import payable USD 70,000, but dispute and documentation issues mean the dealer approves only USD 60,000 for current offset. Export residual is USD 40,000 and import residual USD 10,000. Do not clear the additional USD 10,000 on both sides merely because the ledger could be netted further. Resolve the pending portion independently.
Illustrative example 6: mixed currencies retain their original units
Assume export receivable USD 100,000 and import payable EUR 80,000 are eligible, and the documented settlement conversion accepted for the arrangement is USD 1.10 per EUR. The payable is equivalent to USD 88,000 for this offset. Clearing EUR 80,000 against USD 88,000 leaves USD 12,000 export receivable. Do not subtract the number 80,000 directly from 100,000 without recognising the different currencies; accounting exchange differences are outside this example.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify the applicable effective framework. | Transaction dates and transition assessment. |
| 2 | Verify genuine export and import obligations. | Underlying contracts and document sets. |
| 3 | Confirm the legal counterparties and relationship. | Same-party or overseas group/associate evidence. |
| 4 | Reconcile prior collections, payments and adjustments. | Open-item statement with settlement history. |
| 5 | Check export timing and any required extension. | Due-date analysis and dealer decision. |
| 6 | Document the proposed currency conversion basis. | Original currencies and accepted rate evidence. |
| 7 | Allocate the proposed set-off invoice by invoice. | Two-sided matching schedule. |
| 8 | Obtain and retain the dealer’s accepted arrangement. | Permission, references and conditions. |
| 9 | Verify monitoring-record treatment and residuals. | EDPMS/IDPMS confirmation and pending-item list. |
| 10 | Post and reconcile accounting entries separately. | Ledger, residual cash settlement and exchange analysis. |
Sixteen practitioner FAQs
1. Is a ledger contra entry sufficient for regulation 7?
No. Retain the authorised dealer’s permission and accepted settlement basis.
2. Is the new framework effective from January 2026?
The regulations and directions state an effective date of 1 October 2026.
3. Can the same overseas counterparty be involved on both sides?
Yes, subject to the dealer’s assessment and the applicable conditions.
4. Can the opposite obligation involve an overseas group or associate company?
Regulation 7 permits the stated relationship route; substantiate that relationship and the arrangement.
5. Do similar trade names prove an associate relationship?
No. Retain reliable legal and relationship evidence.
6. Can any unrelated third-party balance be treated as group set-off?
No. Establish the actual route; regulation 8 addresses third-party receipts and payments separately.
7. Must the timing of export realisation still be checked?
Yes. Regulation 7 links set-off to the stipulated or dealer-extended period.
8. Does this article create a fresh universal settlement deadline?
No. Apply regulation 5 to the relevant export population and facts.
9. Can an already collected export amount be allocated again?
No. Reconcile prior settlements before proposing an offset.
10. Does a valid set-off reduce gross sales retrospectively?
It settles receivables; do not rewrite the original commercial supply merely to show the cash residual.
11. Is a residual export automatically written off?
No. It remains to be resolved through the appropriate realisation or other permitted route.
12. Can a pending import balance be ignored after the export clears?
No. Retain and settle the remaining import obligation appropriately.
13. Does a zero net payment prove monitoring records are closed?
No. Obtain confirmation of the relevant record treatment.
14. Can mixed-currency amounts be subtracted directly?
No. Preserve original units and document the conversion basis accepted for the arrangement.
15. Does the example’s conversion rate represent a current market quote?
No. It is an express fictional settlement assumption.
16. What is the final control?
Reconcile each original open item to accepted offset, other settlement and the exact remaining balance on both sides.
Working-paper organisation
Keep the source documents, calculation and final conclusion together for the same entity and period. If using assurePractice or other assureOffice tools, use only confirmed available functions and retain this evidence with the output.
Conclusion
Preserve gross invoices and settle them through an evidenced, dealer-permitted allocation. The net cash amount is only the end result; it cannot replace proof of eligibility, timing, currency conversion and monitoring-record updates.