What is purpose code P1401?

Purpose code P1401 is the first code in RBI's group P14, Primary Income. Its description is three words: "Compensation of employees".⁴⁵

The P1401 code describes pay for employment.⁴ Whether a remote worker in India is paid as an employee or paid fees for services decides whether P1401 or a service code fits.

What does the P1401 purpose code cover?

The P1401 purpose code covers "Compensation of employees", in RBI's receipt purpose code list.⁴⁵ P1401 sits in group P14, "Primary Income".⁴

• Source of the list: A.P. (DIR Series) Circular No. 84 dated 29 February 2012 told banks to report all foreign exchange transactions under a revised purpose code list from April 2012.¹
• Source of the wording: RBI's annex PDF showed a captcha page when this page was checked, so the wording is quoted from the HDFC Bank and DBS Bank India reproductions, which match each other word for word.⁴⁵
• Definition: the RBI list does not define "employee", so whether an arrangement is employment depends on the contract and the facts.⁴

P1401 describes salary and other pay received as an employee.⁴

When should you use the P1401 purpose code?

Use the P1401 purpose code when you are on a foreign employer's payroll and the bank asks for the purpose of the payment, because "Compensation of employees" is the description that matches.⁴

• Payroll: you are paid as an employee of a foreign employer.⁴
• Contract: your contract describes employment.
• Unclear contract: if a contract calls you an independent contractor, ask your bank and a chartered accountant which description fits.

Who uses the P1401 purpose code?

Residents in India who receive compensation as employees from abroad use the P1401 purpose code.⁴

• Remote employees: people employed by a foreign company while living in India.
• Employees paid from abroad: staff whose employer pays their salary from outside India.

Freelancers, independent contractors and agencies invoicing a foreign client are paid for a service, which fits codes in groups P08, P09, P10 or P11.⁴

What transactions are covered under P1401?

Transactions covered under P1401 are payments of compensation to employees.⁴

• For example, a monthly salary paid by a US company to an engineer it employs who lives in Bengaluru.
• For example, a salary paid by a UK firm to a customer support employee working from Jaipur.
• For example, a bonus paid by a German employer to an employee based in Pune.
• For example, pay sent by a Singapore employer to a marketing employee working from Kochi.

In each case the money is pay for employment, which is what the P1401 description names.⁴

When should you not use the P1401 purpose code?

Do not use the P1401 purpose code for fees under a service contract, because RBI's list has service codes that describe that work.⁴

The descriptions are from RBI's receipt list.⁴⁵

What documents are required for P1401?

The documents a bank asks for with a salary credit from abroad are set by that bank, so ask it before the first payment. Records that show the employment help.

• Employment contract: the contract or offer letter that names you as an employee.
• Payslip: the payslip for the pay period.
• Remittance reference: the reference on the transfer, so the bank can trace it.

How do you declare the P1401 purpose code?

You declare the P1401 purpose code by telling the bank that credits the money that the payment is compensation as an employee, before the credit.³⁴

1. Check the contract: confirm whether you are paid as an employee or as an independent contractor.
2. Compare the descriptions: compare the payment with P1401 and with the service codes.⁴
3. Tell the bank before the credit: ask the bank to report the employee compensation code.
4. Check the credit advice: confirm the code shown matches what you agreed.
5. Ask for an amendment if wrong: DGFT's eBRC FAQs say purpose code changes are requested through the bank, and banks can amend the inward remittance message (IRM) they report to DGFT.³

How does P1401 affect FIRA, GST and income tax?

P1401 links to no GST service code, because DGFT's purpose code to SAC mapping (Version 1.0, 10 November 2023) has no entry for P1401.²

• e-BRC and SAC: DGFT links purpose codes to Services Accounting Codes (SAC) so that exporters can generate an electronic Bank Realisation Certificate (e-BRC), and says the exporter must choose the SAC that corresponds to the purpose code.³ With no mapping entry, the mapping suggests no SAC for P1401.²
• Service exporters: a freelancer whose fees are credited under P1401 has an employment code on service income, which does not match a service invoice.²⁴
• Income tax: how salary from a foreign employer is taxed depends on residence and the facts, so confirm with a chartered accountant.

What are the common mistakes with the P1401 purpose code?

The common mistakes with the P1401 purpose code mix up employment and contract work.⁴

• Contract fees under P1401: a developer on a fixed-fee project uses P0802 or P0807, a bookkeeper P1005, and a video editor P1101.⁴
• Job title over contract: the contract decides the code, whatever label a platform profile uses.
• No purpose given: a payment credited without a stated purpose can end up under the wrong code.
• Late correction: ask the bank that credited the payment to correct it. DGFT says exporters contact the bank to request a purpose code change.³ See how to correct a purpose code after payment.

Which purpose codes are related to P1401?

The purpose codes related to P1401 are the other income codes in group P14 and the codes people confuse with P1401.⁴⁵

To compare P1401 with every other receipt code, see the RBI purpose codes list for exporters, or shortlist codes with the purpose code finder. Where a payment could fit more than one description, confirm the code with your bank or a chartered accountant before the money is credited.⁴