My US client is paying a 50% advance before work starts: what applies?
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Short answer
An advance from a foreign client is allowed, but it changes the paperwork: under FEMA the advance and the final payment must go through the same Authorised Dealer bank unless you inform both banks, and a registered supplier must issue a receipt voucher for the advance under section 31(3)(d) of the CGST Act.12 If you export under a Letter of Undertaking, no IGST is payable on the advance because the supply is zero-rated.34 Your bank may report the advance under purpose code P0103 or the service code, so agree it in advance.5
A Bengaluru design agency agrees a $20,000 brand identity project with a New York startup: 50% upfront, 50% on delivery. The first $10,000 lands before any work is done, which raises GST, RBI and accounting questions that a normal invoice does not.1
What does the RBI require for an export advance?
Regulation 10(1) of the FEMA (Export and Import of Goods and Services) Regulations, 2026 says an exporter receiving an advance must route the advance and the later export proceeds through the same Authorised Dealer (AD) bank, unless it informs both banks of a change.1 Any interest payable on an advance must stay within the all-in-cost ceiling for trade credit under regulation 10(4).1 The 2026 Regulations set no fixed deadline for performing the service after the advance. See advance payment against exports.
Once you raise the invoice, the usual steps follow: file the Export Declaration Form (EDF) within 30 days from the end of the invoice month, and realise the balance within nine months of the invoice date.16
Which purpose code applies to the advance?
RBI's code P0103 is described as "Advance receipts against export contracts, which will be covered later by GR/PP/SOFTEX/SDF".5 That wording was written for goods and software forms, so some banks use the service code instead for a non-software advance. Ask your bank which it wants before the client sends the money. See purpose code for advance payment.
What GST steps apply to the advance?
A registered person must issue a receipt voucher on receiving an advance, under section 31(3)(d) of the CGST Act.2 If you export under a Letter of Undertaking, the supply is zero-rated under section 16 of the IGST Act and no IGST is payable on the advance.34 If you export on payment of IGST instead, tax on the advance becomes due in the period you receive it. Details are in GST on advance received from a foreign client.
What should go in the contract?
Write down what happens to the advance if the project is cancelled or scaled down, which milestones trigger the balance, and the currency. Clear terms make your bank's questions easier to answer and support any refund. See milestone payments in export contracts.
How did we verify this?
We checked this page against the sources below on 28 October 2026. Read our methodology or report an error.
- [1]RBI: Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, Notification No. FEMA 23(R)/2026-RB, amended up to 22 September 2026 (regulations 3, 5 and 10)
- [2]CBIC: CGST Act, 2017 (as amended up to 31 August 2021), section 31(3)(d) and (e)
- [3]IGST Act, 2017 (as amended), section 16, Maharashtra GST Department copy
- [4]CGST Rules, 2017 (consolidated), rules 46 and 96A, CBIC
- [5]HDFC Bank: Inward Remittance Purpose Codes (bank reproduction of the RBI list, checked 28 October 2026)
- [6]RBI: Notification No. FEMA 23(R)/(1)/2026-RB dated 22 September 2026 (amendment to regulation 5)
Frequently asked questions
Can I take the advance into one bank and the balance into another?+
Only if you tell both banks. Regulation 10(1) of the 2026 Regulations requires the advance to go through the same AD bank as the later proceeds unless both are informed.1
Is the advance taxable income when I receive it?+
It depends on your accounting method and when the work is done. A chartered accountant can confirm the year in which it is recognised.
What if the client cancels and I have to refund the advance?+
Refunds of export advances go through your bank, which will want the contract and cancellation evidence. See the guide on refunding an export advance, and you may issue a refund voucher if you issued a receipt voucher.2
This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.
Keep reading
What are the RBI rules for receiving advance payment against exports?
Rules for Indian service exporters who take advance payment from foreign clients from 1 October 2026: same-bank routing, interest limits and EDPMS, under regulation 10.
GSTHow does GST apply to an advance received from a foreign client?
An advance from a foreign client fixes the time of supply. What that means under an LUT and the IGST route, receipt and refund vouchers, refunds, and FEMA rules.
Purpose codesWhich purpose code applies to an advance payment from a foreign client?
When an advance from a foreign client is coded P0103 or the service code, how DGFT links P0103 advances to e-BRCs, and what the 2026 FEMA rules say about advances.
InvoicingHow do milestone payments work in export of services contracts?
How milestone billing works for Indian exporters with foreign clients: when to invoice under GST, how each milestone's realisation clock runs, and handling scope changes.
RBI and FEMAHow do you refund an advance received for an export?
How an Indian service exporter refunds an advance from a foreign client when the work is cancelled, and how the bank closes the EDPMS entry, under the 2026 FEMA rules.