P1404 Purpose Code: Inward remittance of interest on debt securities

Purpose code P1404 is used when interest on debentures, bonds or floating rate notes is received in India from abroad.

What is the P1404 purpose code?

Purpose code P1404 covers interest received in India on debt securities held abroad, with debentures, bonds and floating rate notes named as examples. It sits in the primary income group because the money is a return on an asset rather than payment for goods or services. What separates it from the other interest codes in the group is the instrument: interest on a loan extended to a non-resident has its own code, as does interest earned by authorised dealers on their own investments. Here the interest arises from a security rather than from a lending relationship. Under RBI FEMA guidelines, this inward payment is classified under Primary Income and reported accordingly.

When to use P1404 purpose code?

Use P1404 where interest on debt securities held abroad is received in India, whether the holding is a corporate bond, a government security, a debenture or a floating rate note. The instrument is what settles the code rather than the issuer. Group 14 has been restructured in more recent versions of the code list, and interest on portfolio investment abroad now has its own code, so confirm with your bank which applies to your holdings rather than relying on an older list.

When to use a different code:

• Use P1403 when the interest arises on a loan extended to a non-resident rather than on a security
• Use P1405 when the recipient is an authorised dealer earning interest on its own investments
• Use the matching S-code when money is being sent abroad rather than received

Who typically uses P1404 purpose code

Indian investors and institutions holding debt securities issued outside India, receiving periodic interest on those holdings. It concerns investment income rather than business receipts, so the recipient is a holder of securities rather than a supplier of goods or services.

Examples of transactions covered under P1404 purpose code

• Coupon payments received on a foreign corporate bond held by an Indian investor
• Interest on overseas government securities remitted to India
• Periodic interest on a floating rate note held abroad
• Interest received on debentures issued by a foreign entity

When NOT to use P1404 purpose code

• The interest arises on a loan extended to a non-resident rather than on a security (use P1403)
• The recipient is an authorised dealer earning interest on its own investments (use P1405)
• The money is repayment of the principal rather than interest, which is a capital account receipt
• Money is being sent abroad rather than received (use the matching S-code)

Documents required for P1404 purpose code

To receive a payment under P1404, keep the following documents ready so your bank can verify the transaction and report it correctly under FEMA.

How is a P1404 Purpose Code declared?

Declaring the code is pretty straightforward. Here's how the payment gets tagged and reported.

1. Confirm the code applies: Establish with your bank which of the group 14 interest codes covers your holdings, since the group has been restructured.
2. Receive the interest: The issuer or custodian remits the coupon or interest payment to your Indian account.
3. Declare the purpose: State the purpose of the inward remittance on your bank's form.
4. Submit supporting documents: Provide evidence of the holding and the interest advice so the bank can verify the receipt.
5. Get your FIRA: Once processed, your FIRA is issued as proof and the payment is reported under FEMA.

Common mistakes to avoid while using P1404 purpose code

A few common slips can cause reporting problems.

1. Working from an outdated code list: Settling on P1404 from an older list, when group 14 has been restructured and interest on portfolio investment abroad now has its own code. Confirm which applies before standardising.
2. Confusing interest with principal: Coding repayment of the amount invested as interest, when the return of principal is a capital account receipt rather than income.
3. Confusing a security with a loan: Applying P1404 where the money arises from lending to a non-resident rather than from holding a security, which has its own code.
4. Code and document mismatch: The code not matching what the interest advice describes, which flags the payment.
5. Incomplete documents: Missing evidence of the holding, so the bank cannot establish what the interest arises on and holds the payment until provided.
6. Using an inward code for an outward payment: Applying a receipt code to money being sent out instead of the matching outward code.

How Skydo helps you receive international business payments

P1404 covers interest on debt securities, which is investment income rather than business earnings and is not something Skydo processes. If you run an Indian business invoicing foreign clients for goods or services, here is how Skydo helps you get paid.

1. Complete onboarding: Share PAN, Aadhaar, and Indian bank details. Setup is fully online.
2. Get virtual account details: Receive account details in USD, GBP, EUR and other currencies your clients pay in.
3. Your client pays like a local: They send a domestic transfer in their own country, no SWIFT and no wire fee on their end.
4. FIRA is generated automatically: Free e-FIRA on every payment, stored in your dashboard for GST and audits.
5. INR settles within 24 hours: Mid-market rate with a flat, visible fee, no FX markup.