P1405 Purpose Code: Inward remittance towards interest receipts of ADs on their own account

Purpose code P1405 is used when an authorised dealer bank in India receives interest earned on its own overseas investments.

What is the P1405 purpose code?

Purpose code P1405 covers interest an authorised dealer bank earns on investments it holds abroad using its own funds. The phrase "on their own account" is what defines it: an AD handles a great deal of foreign exchange that belongs to customers, and none of that reports here. This code covers the bank's proprietary position only, meaning interest on its own overseas investments for its own book. Interest the same bank earns on a loan it has extended to a non-resident is lending income under a separate code, so how the money was deployed separates the two. Under RBI FEMA guidelines, this inward payment is classified under Primary Income and reported accordingly.

When to use P1405 purpose code?

This code applies where an authorised dealer bank receives interest on investments held abroad on its own account. It is available only to ADs, so a business or individual receiving interest from abroad will never use it. The test is twofold: the recipient is an authorised dealer, and the interest arises on the bank's own investments rather than on anything held or transacted for a customer.

When to use a different code:

• Use P1403 when the interest arises on a loan the bank has extended to a non-resident rather than on its own investments
• Use P1404 when interest on debt securities is received by a party other than an AD on its own account
• Use the matching S-code when money is being sent abroad rather than received

Who typically uses P1405 purpose code

Authorised dealer banks in India, and no one else. The code is defined by the recipient's status as an AD dealing on its own account, so it is unavailable to businesses and individuals by construction.

Examples of transactions covered under P1405 purpose code

• Interest received by an Indian bank on overseas bonds held in its own portfolio
• Interest on inter-bank deposits placed abroad by an authorised dealer
• Returns on foreign treasury instruments held by an AD on its own book
• Interest on an AD's proprietary overseas investment position

When NOT to use P1405 purpose code

• The recipient is not an authorised dealer, in which case another income code applies depending on the source of the interest
• The interest arises on a loan extended to a non-resident rather than on the bank's own investments (use P1403)
• The money is flowing through the bank on a customer's behalf, which is coded by whatever the customer's transaction is
• Money is being sent abroad rather than received (use the matching S-code)

Documents required for P1405 purpose code

Authorised dealers report on their own account under arrangements set by their treasury and reporting functions. In general terms the following establish the receipt.

How is a P1405 Purpose Code declared?

The process sits within the bank's own treasury and reporting arrangements.

1. Confirm the position is proprietary: Establish that the investment is held on the bank's own account rather than for a customer.
2. Receive the interest: The issuer or counterparty remits the interest to the bank.
3. Apply the code: P1405 is recorded when the receipt is classified.
4. Reconcile against internal records: The receipt is matched to the investment it arises on.
5. Reporting is completed: The payment is documented and reported under FEMA.

Common mistakes to avoid while using P1405 purpose code

A few common slips can cause reporting problems.

1. Mixing proprietary and customer flows: Applying P1405 to interest connected with customer positions, when this code covers only the bank's own account and customer money is coded by the customer's transaction.
2. Confusing lending income with investment income: Using P1405 for interest on a loan the bank extended to a non-resident, which reports under P1403. Whether the money was lent or invested separates them.
3. Use by a non-AD recipient: Applying this code where the recipient is not an authorised dealer, when the code is defined by that status.
4. Code and record mismatch: The code not matching what the investment records describe, which flags the receipt.
5. Incomplete records: Missing evidence of the holding, so the classification of the receipt cannot be supported.
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

P1405 is available only to authorised dealer banks receiving interest on their own investments, which is not a flow 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.