As a part of enhancing the ease of doing business and for providing greater flexibility to exporters and importers, the Reserve Bank of India ('RBI') proposes to rationalise the export and import regulations. The proposed changes are intended to promote ease of doing business and impart operational flexibility to authorized dealer banks ('AD Bank') in line with the changing dynamics of cross border transactions. This update will give you a key insight into the existing trade framework and the proposed changes.
In pursuance to the public feedback on the draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations 2024 ('Draft Trade Regulations 2024') and the draft Directions on Export of Goods and Services ('Draft Trade Directions 2024') (collectively, the '2024 Update'), the RBI has released the Draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations 2025 ('Draft Trade Regulations 2025') and Draft Directions on Export and Import of Goods and Services(collectively, the '2025 Update'). The2025 Update, consistent with the2024 Update, aims to enhance ease of doing business by consolidating all instructions into a single document. These revised regulations and directions streamline and simplify the processes for AD Banks in handling export and import transactions, incorporating previously separate instructions issued as 'Directions to Authorized Dealers'.
The Draft Trade Regulations 2025, once finalized by the RBI, shall supersede the current Foreign Exchange Management (Export of Goods and Services) Regulations 2015 ('Export Regulations'). Additionally, the Draft Trade Directions 2025 shall supersede the Master Directions on Import of Goods and Services ('MD-Import') and the Master Directions on Export of Goods and Services ('MD-Export').
Action point for the stakeholders:
- Review of the current transactions and specific permissions obtained from the RBI.
- Alignment with proposed changes and making suitable representations.
- Transition management for export and import payments, MTT transactions and trade advances.
- Review of the open entries in the EDPMS and IDPMS.
- Stakeholders to provide feedback on the 2025 Update by 30 April 2025.
Relevant changes proposed to be implemented vide the 2025 Update are summarised below:
1. Declaration of exports and handling of documents
|
Existing provisions |
2025 Update |
|
|
Export of goods |
Export Declaration Form ('EDF') filed in cases of exports that are taking place through non-EDI customs port Shipping Bill considered as EDF for EDI Ports |
All exporters are required to file the EDF. However, separate submission of EDF would not be required wherever a declaration has been submitted as part of the shipping bill. |
|
Export of services |
No reporting requirement |
EDF is required to be filed for reporting services |
|
Export of software |
Form SOFTEX |
EDF is required to be filed instead of SOFTEX |
Notable changes vide the 2025 Update:
- Service exporters providing similar services to multiple recipients in a month may file a single EDF for all such exports, provided each invoice is up to ₹1 lakh (or its equivalent in foreign currency), with invoice and recipient details annexed.
- Delayed acceptance of export documents beyond a period of twenty-one days from the date of shipment in the case of goods and from the date of invoice in the case of services.
- The requirement of EDF waiver from the RBI for free of cost export was omitted in the 2024 Update. In the Draft Regulations 2025, the EDF (provided in Annex- I) states that export value may be indicated as 'nil' in case the goods are sent without any consideration and without requiring any permission from the RBI.
- The prohibition on credit of export proceeds to exporter's bank account before filing of EDF has been done away with.
- Separate submission of EDF is not required wherever declaration has been submitted as part of the shipping bill.
LKS Comments: The process of declaration of exports proposed in the 2025 Update is much more procedural for the exporters now. In the era of digitalisation, this is an additional paperwork compliance requirement for the traders. The concern for reporting for exporters who export goods with no consideration shall now be recognised in EDF.
2. Timeline of payment for export and import of goods and services
|
Existing provisions |
2025 Update |
|
|
Import |
Within 6 months from shipment date. |
Based on contractual terms between importer and the overseas
seller. |
|
Export |
Within * 9 months from export date * 15 months from the shipment date to an overseas warehouse |
Within * 9 months from shipment date (goods) or invoice date (services) * 9 months from the date of sale for goods exported to a warehouse outside India * contractual period for project exports Extension of timeline in accordance with AD Banks's Internal Policy |
LKS Comments: It is interesting to note that there is a possibility wherein the Indian traders can keep their goods in the warehouses situated outside India for a period more than 15 months from the date of shipment without the requirement of realizing any export proceeds. Since the timeline of realization is now linked to the 'date of sale' of the goods rather than the shipment of goods from India. AD Banks have also been bestowed upon with powers to extend the timelines for export and import of goods and services. The timeline for payments of imports is proposed to be on contractual terms. Ideally, the same change should have been proposed for exports to bring parity in trade.
3. Liberalisation of Advance Receipts: Exports
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Existing provisions |
2025 Update |
|
|
Advance payment for export |
Goods to be exportedwithin a period of 1 year from the date of receipt of advance. AD Banks can also allow exporters having a minimum of three years' satisfactory track record to receive long-term export advance up to a maximum tenor of 10 years to be utilized for execution of long-term supply contracts for export of goods. |
AD Banks's internal policy will govern such payment terms. |
|
Refund of export proceedson failure ofexporter to comply with export obligations |
Refund of the unutilized portion of theadvance payment (with or without interest) beyond 1 year requires prior RBI approval |
* No refund provision stated can be governed by the AD Bank's internal policy * If the export proceeds remain unrealised for over two years and cumulatively exceeds ₹25 crore, further exports can be made against full advance payment or an irrevocable Letter of Credit. |
|
Rate of interest of advance payment |
Not to exceed 100 basis points above LIBOR |
Not to exceed all-in-cost ceiling of trade credit as per the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. |
LKS Comments:The specific timeline relaxation is aimed at aiding the exporters who have bona fide reasons for any delay in exporting the goods after receiving the advance payment. However, more clarity is required in the process of refunding the unutilized portion of the advance payment. Further, AD Banks should provide with a broad framework for consistency on different types of contracts including the long-term supply contracts.
4. Liberalization of Advance Receipts: Import
|
Existing provisions |
2025 Update |
|
|
Bank guarantee/ Irrevocable letter of credit (LC) |
Required for advance payment more than the following limits: * Goods: USD 5 M * Services: USD 0.5 M * Aviation Sector: USD 50 M |
An AD Bank may permit advance remittance for imports if the requirement is genuine. For such advance remittances above certain thresholds, a standby Letter of Credit or a guarantee may be required. |
|
Refund of advance paymentfor importin the event ofnon-import |
Unspent/ utilized foreign exchange to be surrendered to the AD Bank |
* If an importer cannot import within the contract period, any advance payment must be repatriated. * If not repatriated and the cumulative outstanding import advance exceeds ₹25 crores, future advance payments will require an unconditional, irrevocable standby Letter of Credit or a guarantee from a reputable international bank situated outside India or a guarantee from AD Bank in India issues against a counter-guarantee from a reputable international bank situated outside India. |
LKS Comments: The 2025 Update for advance receipts for imports is more liberalised by emphasising more importance on the contractual terms and the proposed powers of the AD Bank.
5. Set-off of export receivables with import payables
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Existing provisions |
2025 Update |
|
|
Set-off |
Stringent conditions for set-off: * The same counterparties must be involved (excluding overseas group companies) * Both transaction legs must occur within the same calendar year. * There must be an agreement or written consent for the set-off. * Transactions with ACU countries are excluded. |
* An AD Bank may permit the set-off of export receivables against import payables with the same overseas buyer or supplier, or their overseas group or associate companies. * This process will be governed by the internal policies of the AD Bank. |
|
Set-off of export receivables for goods against import payables for services and vice versa is proposed to be allowed by the 2025 Update. |
LKS Comments:Set-off of goods against services was prohibited till the 2024 Update. However, the 2025 Update proposes the setting off process to be against any payables (goods or services). This provision shall be governed by the internal policy of the AD Bank. However, considering the legislative intent, AD Banks tend to permit such set-offs in a liberalised manner.
6. Reduction in realisable export value vs. write off
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Existing provisions |
2025 Update |
|
|
Reduction in |
Reduction can be allowed by the AD Bank: - Cash discount (subject to interest rates in cases of pre-payment of issuance bills) Others: - Up to 25% of invoice value - Beyond 25% (in certain cases) - No floor price stipulation on export of goods |
* An AD Bank that has managed the export documents may, upon the exporter's request and satisfactory explanation for not receiving the full export value, permit a reduction in the realisable export value. * To be governed by AD Bank's internal policy |
|
Write-off of |
* Self-write-off: 5% (or 10% for status holders) * AD Bank write-off: 10% * In specific cases, RBI permission is required. |
|
|
Surrender of Export Incentives |
Exporter isadvised to surrender proportionate exportincentives (Drawback, RoDTEP, etc.) |
No refund provision stated, can be governed by the AD Bank's internal policy |
LKS Comments: In contrast to the various conditions and limitations on the write-off for unrealized amounts, the 2025 Update shall allow hundred percent write off, subject to AD Bank's policies. It will be interesting to witness whether specific approval from the RBI would still be required for write-offs even after AD Banks's approval.
7. Third Party Payments
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Existing provisions |
2025 Update |
|
|
Third party payment in case of imports and exports |
Allowed for Goods and Software subject to following conditions: * Tripartite agreement/ third party details in invoice * BoE/SB/EDF to contain third party details No express provision for services |
* An AD Bank can permit the realization of export proceeds from a third party, as declared by the exporter in the EDF. * The AD Bank can make payments to a third party for imports if the third party's name is mentioned in the Invoice or Bill of Entry. * In both cases, the AD Bank has additional powers for receiving or making payments to any other party, apart from the one declared earlier. |
LKS Comments:With great relief to the traders, the 2025 Update empowers the AD Banks to allow payment and receipt from any other party, which is not a declared third party, upon being satisfied by the bona fide of the transactions.
8. Merchanting Trade Transactions (MTT)
|
Existing Provisions |
2025 Update |
|
|
Governed by |
Governed by the Merchanting Trade Guidelines, 2020 |
Merchanting Trade Guidelines, 2020 shall be superseded once the Draft Trade Directions are implemented in full force |
|
Conditions |
The transaction must be profitable |
Obligation omitted |
|
Timeline |
Entire transaction shall be routed through the same AD Bank and completed within 9 months |
Obligation omitted |
|
Payment |
The outlay period between the outward and inward remittance shall not exceed 4 months |
Outlay period between the outward and inwardremittance of the MTT has been extended to 6 months |
|
Commission |
Agency commissions are prohibited in MTT except in exceptional circumstances as permitted by AD Banks |
Prohibition omitted |
|
Write-off |
Specific conditions prescribed in MTT Guidelines |
No separate provisions for MTT Will be governed by general write off provisions |
Notable changes vide the 2025 update:
- The 2025 Update permits extension of the outlay period between the outward and inward remittance.
- The provision relating to mandatorily holding the inward remittances in the merchanting trader's Exchange Earners Foreign Currency (EEFC) account if received before outward remittance has been omitted in the 2025 Update.
- The Draft Trade Regulations 2025 also states that the documents evidencing MTT must be provided to the AD Bank to establish the genuineness of the transactions. Once satisfied, the AD Bank shall credit or debit the customer's account for any cross-border transaction related to MTT and simultaneously update the respective entry in EDPMS and IDPMS.
LKS Comments: With the MTT conditions and compliances being relaxed, it shall be interesting to observe the AD Bank's policies on write-off provisions specifically pertaining to MTT, as it is not addressed in the 2025 Update.
9. Caution listing
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Existing Provisions |
2025 Update |
||
|
Caution listing |
* The RBI caution lists an exporter based on recommendations from the AD Bank depending upon the exporters track record with the AD Bank and investigative agencies * Export Allowed only against receipt of full advance payment or against an irrecoverable letter of credit |
Provisions related to caution listing has been omitted. However, if an exporter's proceeds remain unrealised for over two years from the due date (including any extensions by an Authorised Dealer) and cumulatively exceed ₹25 crore, the exporter must conduct further exports only with full advance payment or an irrevocable Letter of Credit (as stated above in point 3). |
|
|
De-caution listing |
The RBI de-caution lists an exporter based on recommendations from the AD Bank |
Other notable changes in the 2025 Update:
1. Project Export
- While Trade Regulations 2024 emphasised the need for AD banks to monitor project progress through regular reports, Trade Regulations 2025 focuses more on facilitating payments for project exports by the AD Bank as per the contract.
- Trade Regulations 2025 introduces a new provision allowing project exporters to invest temporary cash surpluses in short-term instruments outside India. (Subject to monitoring by an AD Bank, a project exporter may deploy temporary cash surpluses, generated outside India, from such exports, for investments in short-term instruments (with original or residual maturity of one year or less) including in treasury bills and in deposits with banks outside India.)
2. AD Banks's Internal Policy
- The Trade Regulations 2025 grant AD Banks increased power and responsibility, requiring them to develop and publicly display comprehensive internal policies within six months. These policies must cover the handling and reporting of export and import transactions.
- AD Banks must clearly delegate transaction approval responsibilities, establish an escalation process for customer grievances, and provide an appeal mechanism for higher-level review.
- Charges for handling transactions must be reasonable and proportional, and no penalties should be levied on constituents for regulatory delays or violations.
- Inform any doubtful transaction to the Directorate of Enforcement (DoE).
LKS Comments
In an effort to modernize and simplify the regulatory landscape governing import and export transactions, amidst evolving cross-border dynamics, the RBI through the 2025 Update, aims to foster a more business-friendly environment and facilitate smoother cross-border trade, aligning with the broader objective of enhancing the ease of doing business in and with India.
While the RBI's move towards deregulation of trade-related decisions empowers AD Banks to tailor internal policies for trade transactions, it also opens the door to potential inconsistencies. In the absence of a standardized framework, different AD Banks may interpret and implement these guidelines in varied ways. Such divergence can create uncertainty for exporters and importers, who may face conflicting requirements or documentation standards depending on the bank they engage with.
Moreover, several critical issues remain unaddressed in the current draft of the 2025 Update which interaliaincludes:
- Treatment of exports under operating lease arrangements;
- Clarifications on long-term supply contracts;
- Determination of when an advance payment constitutes borrowing;
- Permissibility of agency commissions in merchanting trade transactions;
- Imports on a free-of-cost basis;
- Trade with Asian Clearing Union (ACU) countries and jurisdictions under OFAC sanctions;
- Transfer of trade documents between AD Banks;
Provisions relating to ongoing or legacy trade transactions; and
- Transitional Guidelines - The RBI should clarify if the traders can avail the benefits of the liberalised 2025 Update in relation to the closure of their existing IDPMS and EDPMS entries.
The RBI has invited public feedback on the 2025 Update via email by April 30, 2025. It is eminent that the industry participants and trade associations share relevant representations, highlighting unresolved issues and seeking necessary clarifications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
