RBI and FEMA

What happens if export proceeds are not realised on time?

Author:: Editorial team, serviceexportguide.com
Verified by:: Editorial team
Published: 28 October 2026
Last modified: 30 October 2026
Reading time: 7 min read

Short answer

Service export proceeds are due within nine months of the invoice date, or twelve for rupee exports.¹² Your bank can allow an extension, reduction or set-off under regulations 5 to 7.¹ After one year past the due date, further exports need full advance or an irrevocable letter of credit.¹ An unregularised shortfall can be compounded with the RBI.³

Applies to	Governed by	Deadline	Penalty	Last verified
Every exporter of services	FEMA (Export and Import of Goods and Services) Regulations, 2026, regulation 5¹²	Nine months from the invoice date, or twelve months for rupee exports¹²	Up to three times the sum involved under FEMA section 13, if a contravention³	28 October 2026
Exporters with proceeds unrealised beyond one year past the due date	2026 Regulations, regulation 13¹	One year after the due or extended date¹	Further exports only against full advance or an irrevocable letter of credit¹	28 October 2026
Exporters supplying under a Letter of Undertaking (LUT)	CGST Rules, rule 96A(1)(b)⁴	One year from the invoice date, or the FEMA period with any extension if later⁴	IGST with interest within 15 days⁴	28 October 2026

Every Indian service exporter, from a solo copywriter to an IT company, has to bring the full value of each export into India within a fixed period.¹ When a client pays late or not at all, the Foreign Exchange Management Act, 1999 (FEMA) gives you tools to regularise the position with your bank. Using them on time keeps a client's default from turning into your own compliance problem.

For the basic deadline, see export realisation period.

What does it mean when export proceeds are not realised?

Export proceeds are not realised when the full export value, or a reduced value your bank has accepted, has not been received in India by the due date.¹ Under regulation 5 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (the 2026 Regulations), that date is nine months from the invoice date for services, or twelve months if the export is invoiced or settled in Indian rupees.¹²

Due date: nine months from the invoice date, or twelve months for rupee exports.¹²
Set-off counts: realisation includes set-off under regulation 7.¹
Reduced value: a reduction your bank has accepted becomes the value to realise.¹

For example, an invoice dated 10 November 2026 in US dollars is due for realisation nine months later, in August 2027.²

Who does the rule on unrealised export proceeds apply to?

The rule on unrealised export proceeds applies to every exporter of services, whatever the size, and the GST effect applies to those who export under a Letter of Undertaking (LUT).¹⁴

Entity type	Applicable	Why	Best for
Freelancer invoicing in foreign currency	Yes	Regulation 5 sets nine months from the invoice date¹²	Asking for an extension early
Agency or company invoicing in rupees	Yes	Rupee exports get twelve months¹²	Tracking the longer window
Exporter supplying under an LUT	Yes	Rule 96A makes IGST payable if payment is late⁴	Regularising within one year
Exporter who also buys from the client's group	Yes	Regulation 7 allows set-off of receivables against payables¹	Settling by set-off

How do you regularise unrealised export proceeds?

You regularise unrealised export proceeds by asking your bank, before the deadline where possible, for one of four tools under the 2026 Regulations, all decided by the bank.¹

Situation	Tool	Regulation	Best for
Client will pay, but late	Extension of the realisation period	Regulation 5, second proviso	Clients with a confirmed payment date
Client paid less, or will never pay	Reduction in export value, including non-realisation	Regulation 6	Disputes and defaults
You owe the client or its group money for imports	Set-off of receivables against payables	Regulation 7	Two-way trade with one group
Invoice up to ₹10 lakh	Declaration to the bank to reduce value or close the EDPMS entry	Regulations 4 and 6	Small invoices

The table summarises regulations 4 to 7 of the 2026 Regulations.¹ The steps in order:

At six months, list every unpaid export invoice with its nine-month due date and chase the client in writing.¹
Before nine months, if payment is coming, ask your bank for an extension and give reasons.¹
If the client will pay less, ask for a reduction under regulation 6; under ₹10 lakh, a declaration is enough.¹
If the client will never pay, ask for the value to be reduced to what was received (the write-off route).¹
If you buy from the same client or group, ask whether a set-off under regulation 7 fits.¹
If deadlines have already passed, regularise with the bank now, and take advice on whether compounding is needed.³

Each tool has its own guide: extension of export realisation period, reduction in export invoice value, short realisation, write-off of export bills and set-off of export receivables.

What deadlines apply to unrealised export proceeds?

Four deadlines apply to unrealised export proceeds: the nine-month and twelve-month realisation periods, the one-year mark under regulation 13 and the rule 96A limit under GST.¹²⁴

Deadline	Rule	What follows	Best for
Nine months from invoice date	Regulation 5¹²	Bank follows up	Foreign-currency invoices
Twelve months from invoice date	Regulation 5, first proviso²	Bank follows up	Rupee invoices
One year after the due or extended date	Regulation 13¹	Further exports only against full advance or an irrevocable letter of credit	Exporters with old unpaid invoices
One year from invoice date, or the FEMA period with any extension if later	Rule 96A(1)(b)⁴	IGST with interest within 15 days	LUT exporters

Mark each of these dates against every open invoice.

What happens if export proceeds stay unrealised?

If export proceeds stay unrealised, your bank follows up, further exports can be restricted after one year past the due date, and the shortfall can become a FEMA contravention.¹³

Bank follow-up: regulation 5(2) requires every Authorised Dealer (AD) bank to have systems to monitor and follow up with exporters, and regulation 18(1)(f) requires it to monitor all entries in the Export Data Processing and Monitoring System (EDPMS) until they are closed.¹ See EDPMS for service exporters.
Bank charges: regulation 19(3) says the bank cannot levy any charge or penalty on you for a regulatory delay or violation on your part.¹ Circular No. 20 directs banks to report doubtful transactions to the Directorate of Enforcement.⁵
Regulation 13: if proceeds stay unrealised for more than one year from the due or extended date, you can undertake further exports only against full advance or an irrevocable letter of credit.¹ For a freelancer or agency, that means asking every new client to pay upfront.
Caution list: exporters who were on the Reserve Bank of India (RBI) caution list on 30 September 2026 remain governed by those orders until removed.¹² See RBI exporter caution list.
FEMA penalty: section 13 of FEMA, as summarised in the RBI Master Direction on compounding, makes a person who contravenes FEMA liable, on adjudication, to a penalty of up to three times the sum involved where it is quantifiable, or up to ₹2 lakh where it is not, plus up to ₹5,000 a day for a continuing contravention.³
Compounding: contraventions can usually be compounded with the RBI, but only after "administrative action", which the Master Direction says includes "repatriating the receivables due".³ See FEMA compounding for exporters.
GST under an LUT: rule 96A of the CGST Rules requires tax with interest within 15 days after one year from the invoice date, or the FEMA period with any RBI-permitted extension if later, or a further period the Commissioner allows.⁴ See GST on export of services and GST refund on export of services.
Proof of income: without a receipt there is no FIRA or e-BRC for that invoice. See FIRC vs FIRA vs e-BRC.

Using an extension or reduction on time is far simpler than compounding afterwards.

Which RBI rule says what happens to unrealised export proceeds?

The FEMA (Export and Import of Goods and Services) Regulations, 2026 set the rules on unrealised export proceeds, with the realisation period as amended on 22 September 2026.¹²

Rule	Clause	Date	Plain meaning
2026 Regulations, FEMA 23(R)/2026-RB	Regulation 5	In force from 1 October 2026¹	Realise within the period; bank can extend
FEMA 23(R)/(1)/2026-RB	Amends regulation 5	22 September 2026²	Nine months, or twelve for rupee exports
2026 Regulations	Regulations 6 and 7	From 1 October 2026¹	Reduction and set-off by the bank
2026 Regulations	Regulation 13	From 1 October 2026¹	Advance or letter of credit after one year past due
2026 Regulations	Regulation 20	From 1 October 2026¹	Banks handle pre-1 October 2026 transactions that needed RBI approval
A.P. (DIR Series) Circular No. 20	Directions, paragraphs 3 and 4	16 January 2026⁵	Banks report doubtful transactions to the Directorate of Enforcement

What are the common mistakes with unrealised export proceeds?

The common mistakes with unrealised export proceeds are waiting until after the deadline and assuming the client's default is only the client's problem.¹³

Asking too late: ask for an extension before the nine-month period ends.¹
Skipping small-invoice declarations: for an invoice up to ₹10 lakh, a declaration to the bank is enough to reduce the value.¹
Ignoring the LUT: an unpaid LUT export can make IGST with interest payable under rule 96A.⁴
Assuming old rules: for invoices raised before 1 October 2026, ask your bank which period and rules it applies; regulation 20 says banks handle older transactions that previously required RBI approval.¹²

Some practical tips on chasing payment are in foreign client not paying. How these rules apply depends on the facts, so if an invoice is near or past its deadline, speak to your bank and a chartered accountant.

How did we verify this?

We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.

Frequently asked questions

What is the first thing to do if a foreign client has not paid an export invoice?+

Write to your bank before the nine-month realisation period ends and ask for an extension under regulation 5 of the 2026 Regulations, giving the reasons for the delay.¹ Chase the client in writing at the same time, and keep the emails, because the bank will want to see why payment is late.

Will an Indian exporter be caution-listed if a client does not pay?+

The 2026 Regulations replace new caution listing with regulation 13: after one year beyond the due or extended date, further exports need full advance or an irrevocable letter of credit. Exporters already caution-listed on 30 September 2026 stay so until removed.¹² Regularising unpaid invoices early avoids both outcomes.

Can an exporter close an unpaid export invoice of under ₹10 lakh without the bank?+

No, the bank still records the closure. For an invoice up to ₹10 lakh, the bank can allow the reduction, including non-realisation, on your declaration alone under regulation 6 of the 2026 Regulations.¹ Larger invoices need the bank to assess the request, so give it the client correspondence and reasons.

Is non-realisation of export proceeds a FEMA offence?+

Failing to comply with the Regulations can be a contravention under section 13 of FEMA, with penalties up to three times the sum involved where it is quantifiable.³ Contraventions can be compounded with the RBI after corrective action such as repatriating receivables.³ An extension or reduction obtained on time avoids that route.

Does non-payment of an export invoice affect GST?+

Non-payment affects GST if you exported under an LUT. Rule 96A of the CGST Rules requires tax with interest if payment is not received within one year of the invoice date, or the period allowed under FEMA including any RBI-permitted extension if that is later, or a further period the Commissioner allows.⁴

Can an Indian bank charge a penalty for late realisation of export proceeds?+

No. Regulation 19(3) of the 2026 Regulations says the bank cannot levy any charge or penalty on you for a regulatory delay or violation on your part.¹ Circular No. 20 of 16 January 2026 does direct banks to report doubtful transactions to the Directorate of Enforcement.⁵ Penalties for contraventions come under FEMA itself.

Which rules apply to export invoices raised before 1 October 2026 that are still unpaid?+

Ask your bank which period and rules it applies to export invoices raised before 1 October 2026. Regulation 20 of the 2026 Regulations says banks handle transactions undertaken before that date that previously required RBI approval.¹² The bank's written answer is the safest guide for those older invoices.

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.

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