A buyer’s advance can start the timing issue too
Regulation 16(1)(a) of the FEMA Export and Import of Goods and Services Regulations, 2026 requires the period between outward remittance and inward remittance, or vice versa, not to exceed six months. The wording is bilateral: checking only how long foreign exchange remains paid out is incomplete. The authorised dealer (AD) may extend time on a reasoned request where satisfied with the reasons.
Use the framework effective from 1 October 2026
The consolidated regulations are amended through 22 September 2026 and came into force on 1 October 2026. RBI Circular 20 dated 16 January 2026 makes the related directions effective from the same date and identifies superseded earlier directions, including the former merchanting-trade guidelines and the October 2025 outlay circular. This article concerns new ordinary transactions under the effective framework, checked on 22 October 2026. Pre-commencement transactions and acts or omissions need their transition/saving analysis.
Do not mechanically continue the former nine-month overall-cycle and outlay-only template for a new transaction. The current regulation states the interval between the two remittance directions and permits the specified AD extension. Other Foreign Trade Policy, genuineness, documentation, banking, sanctions and substantive FEMA requirements continue to matter; a successful timing calculation is only one part of compliance.
Identify the buyer, seller and the two commercial legs
Regulation 16(1)(b) normally directs the outward remittance to the overseas seller and the inward remittance from the overseas buyer. A third-party receipt or payment requires the specified reasoned customer request and AD satisfaction; it is not justified solely by a group relationship or a matching amount. Paragraph (c) requires documents establishing the transaction’s genuineness. Match purchase and sale contracts, invoices, shipment evidence and the actual bank references.
Record each transaction separately, including currency, contractual amount, remittance dates, partial payments, adjustments and the responsible AD. A positive net customer balance across several trades does not identify which seller obligation or buyer invoice has been settled. A difference between sale and purchase values can be a commercial spread before other costs; it is not automatically an outstanding receivable, foreign-exchange gain or proof of a permissible transaction.
Calculate calendar months and document partial-payment treatment
Use an actual month-based calendar working rather than substituting 180 days for six months. Retain the starting remittance event, the corresponding six-month date, the opposite-direction settlement dates and any written extension. The date cases below avoid month-end ambiguity and assume ordinary calendar-month addition, without a notified special extension.
For part receipts, staged supplier payments or multiple invoices, disclose every date and amount. Do not restart a clock with a token partial payment or invent a general first-to-last allocation rule that the regulation does not state. Present the mapping to the AD and document the accepted treatment for the actual structure. Where possible, flag the earliest relevant date and the remaining uncompleted leg early enough to seek an extension if needed.
Close both monitoring entries, not only the bank ledger
Regulation 16(2) requires the AD to satisfy itself of genuineness, update or close the relevant EDPMS/IDPMS entry when crediting or debiting the customer, and monitor completion of both legs. Regulation 18(1)(l) addresses the MTT entries after making receipt and payment for both legs. A ledger balance of zero or receipt of one net remittance is not evidence that both monitoring records were correctly updated.
Reconcile bank charges and exchange differences separately. If the buyer’s invoice exceeds the actual inward receipt, identify whether the difference is a substantiated bank deduction, an approved adjustment, a commercial reduction or an unpaid balance. Do not describe every short receipt as bank charges without advice or supporting documents. Currency translation must not alter the foreign-currency units that remain to be collected or paid.
Worked illustrations
The following cases use fictional figures and stated assumptions. Amounts are Indian rupees unless a different unit is expressly shown. They illustrate preparation controls and do not represent real client results.
Illustrative example 1: the trader pays the seller first
Assume an outward remittance on 1 November 2026 and the corresponding inward remittance on 30 April 2027. Six calendar months from the starting date is 1 May 2027. On this uncomplicated two-remittance example, the inward receipt is one day before that date and within the stated six-month timing condition. Other transaction conditions remain separately applicable.
Illustrative example 2: the buyer pays first and the opposite leg is late
Assume inward receipt on 20 October 2026 and outward remittance on 21 April 2027, with no extension. The six-month date is 20 April 2027, so payment is one calendar day beyond it. A worksheet that starts only at the outward payment would miss the issue because the current rule also says or vice versa.
Illustrative example 3: six months is not always 180 days
Assume inward receipt on 1 November 2026 and corresponding outward remittance on 1 May 2027. The interval is exactly six calendar months and 181 elapsed days. Replacing the month test with a hard-coded 180-day formula would flag a one-day excess that the stated calendar-month calculation does not show. The example assumes no other timing or contractual complication.
Illustrative example 4: partial payments need a complete mapping
For one supported transaction, outward payments total USD 60,000 plus USD 40,000 = USD 100,000. The mapped inward receipt is USD 110,000, giving USD 10,000 commercial difference before bank charges, financing and other costs. Keep both outward dates and the inward date in the timing working; the dollar reconciliation alone does not establish the six-month test or permit a chosen clock reset.
Illustrative example 5: an actual extension changes the reviewed date
Assume the ordinary six-month date is 15 April 2027. The AD has actually granted a reasoned extension to 30 June 2027 for the particular transaction. Opposite-leg settlement on 20 May 2027 is 35 days after the ordinary date but 41 days before the extended date. Record the actual extension and its scope; merely requesting it would not support the same conclusion.
Illustrative example 6: bank deductions must remain visible
Assume a buyer invoice USD 110,000 and actual inward credit USD 109,700. The USD 300 difference is supported by bank-charge advice and its treatment is documented with the AD. The reconciliation is USD 109,700 cash + USD 300 evidenced deduction = USD 110,000. Without that evidence or another supported treatment, the USD 300 cannot simply be declared fully realised. This example does not itself grant a write-off or accounting treatment.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm new-framework or legacy applicability. | Transaction dates and transition note. |
| 2 | Identify the MTT and its Foreign Trade Policy compliance. | Trade structure and permitted-goods review. |
| 3 | Map overseas buyer and seller identities. | Contracts, invoices and counterparties. |
| 4 | Trace each inward and outward remittance. | Bank references and currency amounts. |
| 5 | Calculate the six-month interval in both directions. | Calendar-month timing schedule. |
| 6 | Present staged-payment structures to the AD. | Complete date/amount map and accepted treatment. |
| 7 | Seek and retain an actual extension where needed. | Reasoned request and AD decision. |
| 8 | Support third-party flows or commercial adjustments. | Specific request, evidence and AD action. |
| 9 | Reconcile charges and currency differences separately. | Gross-to-net and currency-unit bridge. |
| 10 | Confirm both monitoring entries are updated or closed. | EDPMS/IDPMS and bank reconciliation evidence. |
Sixteen practitioner FAQs
1. Does the rule apply only when the seller is paid first?
No. Regulation 16 expressly covers the interval between outward and inward remittance or vice versa.
2. Can a buyer’s advance therefore matter for timing?
Yes. It can be the earlier remittance in the inward-first situation.
3. Should six months always be coded as 180 days?
No. Use the applicable calendar-month computation and actual dates.
4. Is the old nine-month overall template the new regulation’s test?
Do not mechanically apply it to a new-framework transaction. Read the effective regulation and superseded directions.
5. When did this framework commence?
The regulations and related directions commenced on 1 October 2026.
6. Does this article decide every pre-October transaction?
No. Legacy transactions and earlier acts or omissions need their transition and saving analysis.
7. Can an AD extend the interval?
Yes, on a reasoned request where the AD is satisfied, under regulation 16(1)(a).
8. Does requesting an extension equal receiving it?
No. Retain the actual decision, scope and revised date.
9. Can payment normally go to someone other than the overseas seller?
The ordinary rule names the seller; the specified third-party permission process must be satisfied for a different recipient.
10. Is a group-company payer automatically acceptable?
No. The third-party request and AD satisfaction requirements still need to be addressed.
11. Does one part payment restart the period automatically?
No general reset is established here. Disclose the full structure and document the applicable treatment with the AD.
12. Can several unrelated trades be netted in one spreadsheet row?
That can hide timing and settlement gaps. Maintain transaction-level evidence and any separately permitted adjustment basis.
13. Does the sale-purchase difference prove profit for accounting?
No. Consider other costs, financing, currency effects and the applicable accounting policy separately.
14. Does a zero ledger balance prove monitoring closure?
No. Confirm the relevant EDPMS and IDPMS entries and both trade legs.
15. Are all short receipts bank charges?
No. Require bank evidence or another supported explanation and treatment.
16. What does a complete file show?
The genuine trade, counterparties, both remittance legs, timing, any permission or extension, and matching monitoring status.
Organising the supporting working
Keep the underlying records, calculation and conclusion linked to the same entity and period. When organising work with assurePractice and the assureOffice tools, retain these supporting schedules alongside the final output and use only the features confirmed for the version available to you.
Conclusion
For new merchanting trades, monitor the remittance interval whichever direction happens first. Keep the calendar calculation, staged-payment mapping, AD decisions and both monitoring entries connected to the same genuine transaction.