October 13, 2026 | Corporate & CommercialIndia’s updated export and import regulations, effective 1 October 2026, introduce important compliance considerations for businesses engaged in cross-border trade. From delayed payments and advance payment risks to disputed invoices, third-party payments and set-offs, understanding the legal and banking requirements is essential to managing risks, protecting commercial interests and ensuring regulatory compliance.
An overseas supplier receives an advance payment for goods which he never delivers. A foreign buyer disputes an invoice and refuses to pay it. Payment is received by a company from an entity other than the buyer named in the contract. The commercial issue has to be dealt with by the business as well as the banking / foreign exchange aspect of the transaction.
The Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, along with corresponding RBI directions, came into force on 1 October 2026 and deal with the foreign exchange aspects of exports and imports of goods and services, including software.
These are issues that need to be addressed when contracting for a transaction rather than only when making a payment or responding to a query from a bank.
The Foreign Exchange Management Act, 1999 (FEMA), the relevant regulations and RBI directions must be complied with by businesses dealing with export and import transactions. Businesses must also comply with the Foreign Trade Policy and other legal requirements applicable to the goods or services being exported or imported.
These transactions are handled through authorised dealer banks. Under the framework, these banks must maintain internal policies and procedures for specified export-import matters. Businesses should therefore distinguish between a regulatory requirement and a condition imposed by their bank under its internal policy.
An exporter must receive and repatriate export proceeds within the applicable period. The contract may provide a shorter payment period, but a buyer’s failure to pay also needs to be considered from a regulatory perspective. The amended framework prescribes periods for realisation and repatriation and provides for extensions and the treatment of outstanding transactions, subject to the applicable conditions.
Where payment is delayed, the exporter should identify the reason and maintain the supporting records. These may include the contract, invoices, shipment documents, evidence of completion of services and correspondence with the buyer.
The consolidated framework replaces the earlier general six-month period for import payments with the period specified in the underlying contract, with extensions subject to the authorised dealer bank’s consideration. Businesses should therefore ensure that the contract clearly states when payment becomes due.
An import contract should address:
The amount and timing of payment.
Documents to be provided before payment.
Delivery dates and inspection rights.
The consequences of defective or incomplete supplies.
Refund, replacement and termination rights.
For instance, a contract may require payment upon shipment of the goods, although the importer will have a chance to inspect them only after they arrive. The importer should understand this risk before agreeing to the payment terms.
Clearly stated terms and correspondence with the supplier can also help the bank understand the importer’s reasons for withholding payment because of the supplier’s non-performance.
An import contract may require an advance payment before production or shipment of goods. The major risk is the supplier’s failure to deliver and the importer’s difficulty in recovering the advance.
The contract should clearly state:
The purpose of the advance.
The delivery date.
Whether payment is linked to stages of performance.
When the advance must be refunded.
Whether a bank guarantee or other security is required.
The procedure for resolving a dispute.
If the supplier fails to deliver, the importer may need to pursue recovery and address the outstanding advance with its bank. The framework contains requirements concerning the repatriation of advances where imports are not completed and the consequences of unresolved advances for subsequent advance import payments.
Legal action against the supplier and banking regularisation are separate matters. Both may need attention, and the documents submitted in each process should be consistent.
An overseas buyer may ask for a reduction in the invoice value because of a quality complaint, short supply or disagreement over the services provided. The exporter should first examine whether the claim is justified under the contract.
The framework allows authorised dealer banks to consider reductions in the realisation of export value on a request from the exporter stating the reasons, subject to the applicable conditions and the bank’s satisfaction. A commercial agreement to reduce the price should therefore be properly documented.
A settlement should identify:
The invoices covered.
The reason for the reduction.
The amount to be paid.
The payment deadline.
Whether the settlement closes the entire dispute.
The consequences of failure to pay.
An exporter should avoid accepting an unexplained short payment. Without clear documentation, there may be uncertainty about whether the balance remains recoverable and how the difference should be treated in the banking records.
Payment may sometimes be made by the buyer’s parent company, an affiliate or another entity. Similarly, an importer may be asked to pay an entity other than the supplier named in the contract.
The framework permits authorised dealer banks to allow third-party receipts and payments where they are satisfied with the bona fides of the transaction. Banks must also address these arrangements in their internal policies. The arrangement should be checked against the applicable requirements and the bank’s procedure.
The documents should explain who is paying, why that entity is involved and which invoice or obligation the payment satisfies.
A business may have both amounts receivable from and amounts payable to an overseas counterparty. The parties may wish to adjust these amounts and transfer only the balance.
The framework permits authorised dealer banks to allow set-off of export receivables against import payables involving the same overseas buyer or supplier, or their overseas group or associate companies, within the applicable export-realisation period or an extension allowed by the bank. It also allows set-off between export receivables for goods and import payables for services, and vice versa, subject to the applicable requirements.
Before making the adjustment, the business should identify the invoices involved, confirm that the amounts are due and record the parties’ agreement. Where different group companies are involved, the legal basis for the adjustment also needs to be examined.
An accounting entry alone may not adequately explain the arrangement. The records should show how each underlying liability has been settled and how the adjustment is to be reflected in the banking records.
Merchanting trade generally involves an Indian business purchasing goods from one foreign country and selling them to another without the goods entering India’s Domestic Tariff Area. These transactions are separately addressed under the framework and must be undertaken in accordance with the Foreign Trade Policy.
The Indian business should review the purchase and sale contracts together. A supplier may demand payment before shipment, while the overseas buyer may pay only after delivery. If the buyer delays payment or rejects the goods, the Indian business may still remain liable to the supplier.
The contracts should be checked for consistency in:
Description and quality of goods.
Delivery dates.
Payment terms.
Inspection and rejection rights.
Dispute-resolution
The business should also confirm the bank’s requirements before finalising the transaction.
A transaction may require further action even after the goods have been received or payment has been made. Missing documents, unreconciled payments or outstanding advances may leave the transaction unresolved in the relevant banking records.
The Export Data Processing and Monitoring System (EDPMS) and Import Data Processing and Monitoring System (IDPMS) are used to monitor the relevant transactions. Businesses should check the status of outstanding entries and provide the documents or declarations required for their treatment or closure, as applicable.
The records should connect the contract, invoice, delivery documents and payment. Any settlement, credit note, extension or adjustment should also be retained.
Older outstanding transactions should be reviewed separately to identify the applicable requirements, missing documents and action needed for their treatment or closure.
Our team can assist businesses in reviewing export and import contracts and addressing legal issues. The assistance also include drafting payment and security clauses, reviewing third-party payment and set-off arrangements, preparing settlement documents and taking appropriate recovery steps.
Where a matter also requires consideration by the bank, the firm can assist in reviewing and organising the contractual and supporting documents. The purpose is to address the underlying legal issue and maintain a consistent record for the bank’s consideration. Any extension, adjustment or other banking treatment remains subject to the applicable requirements and the bank’s decision.
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