Can you set off export receivables against import payables?

Many service exporters also buy from the same foreign parties they sell to. An Indian software subsidiary bills its US parent for development work and pays the parent for licences. A design studio invoices a Dubai agency and also pays that agency's sister company for stock assets. Set-off lets the two flows be settled net, if your bank agrees.

What is set-off of export receivables against import payables?

Set-off of export receivables against import payables is your Authorised Dealer (AD) bank's permission to settle what a foreign party owes you for an export against what you owe it, or its group, for an import.¹ Regulation 7 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (the 2026 Regulations) says an AD bank may allow set-off of export receivables against import payables from or to the same overseas buyer or supplier, or with their overseas group or associate companies, within the stipulated realisation period or any extended period the bank has allowed.¹

• Start date: the 2026 Regulations apply from 1 October 2026.¹
• Realisation: regulation 5 treats a set-off as realisation: the full export value must be "realised (including by way of set off in terms of Regulation 7)" and repatriated within nine months from the invoice date for services (twelve months for rupee exports).¹²
• Rupee exports: for an export invoiced or settled in Indian rupees, the period is twelve months from the invoice date, so a set-off must fall within twelve months or any extension.¹²

Who can a service exporter set off against?

A service exporter can set off against two kinds of counterparty under regulation 7: the same overseas buyer or supplier, or an overseas group or associate company of that party.¹

The examples follow regulation 7.¹ Set-off is most useful for subsidiaries of foreign groups and agencies with two-way trade. For a freelancer with one-way billing it rarely applies.

How do you ask your AD bank for a set-off?

You ask your AD bank for a set-off by listing the matched invoices, showing any group relationship, and confirming the timing, because the 2026 Regulations prescribe no form.¹

1. List the invoices: the export invoices (receivables) and import invoices (payables) to be matched, with dates and amounts.
2. Show the relationship: if a group company is involved, an ownership chart and the netting or intercompany agreement.
3. Check the timing: confirm the set-off falls within the realisation period of each export invoice, or ask for an extension under regulation 5 at the same time.¹
4. Agree the recording: ask the bank how it will record the set-off against the open export entries.
5. Get confirmation: get written confirmation that the export entries have been closed by set-off.

Regulation 4 requires the bank to close or update the entry in the Export Data Processing and Monitoring System (EDPMS) when an export is realised, and regulation 18 requires all export entries to be monitored until closed.¹ See EDPMS for service exporters.

What documents and deadlines apply to a set-off?

The documents for a set-off are the matched export and import invoices, any group agreement and the bank's confirmation, and the deadline is the realisation period of each export invoice.¹²

A netted invoice will not produce an inward remittance for the set-off portion, so keep the bank's set-off confirmation with your records. See FIRC vs FIRA vs e-BRC.

What happens if a bank refuses a set-off?

If a bank refuses a set-off, you can use the escalation and appeal process each bank must have under regulation 19(2).¹ Regulation 7 says the bank "may" allow set-off, so it is not automatic.¹

• Genuine payables: banks commonly look for evidence that the import payable is genuine and properly documented.
• Arm's length prices: banks look for prices between group companies at arm's length.
• Tax avoidance: the old paragraph C.26 required that set-off "shall not result in tax evasion/avoidance".⁴

Banks can still impose conditions like the old ones through their internal policies, so expect questions about agreements and reporting.

Which RBI rule allows set-off of export receivables?

Regulation 7 of the 2026 Regulations, in force from 1 October 2026, is the RBI rule that allows set-off of export receivables, and it contains only three requirements: the bank's permission, the permitted counterparties, and timing within the realisation period or extension.¹ Circular No. 20 superseded the Master Direction, and the 2011 set-off circular, from 1 October 2026.³

Until 30 September 2026, paragraph C.26 of the Master Direction on Export of Goods and Services allowed set-off subject to a list of conditions, including these.⁴

• One bank: the arrangement run through one AD bank only.⁴
• Clean KYC: no Know Your Customer (KYC), anti-money-laundering or terror-financing concerns.⁴
• No investigations: invoices not under investigation by the Directorate of Enforcement or other agencies.⁴
• ACU countries excluded: transactions with Asian Clearing Union countries kept outside the arrangement.⁴
• No cross-category netting: no set-off of goods receivables against services payables, or vice versa.⁴
• Same calendar year: receivables and payables outstanding at the time, with both legs in the same calendar year.⁴
• Written agreement: group arrangements backed by a written, legally enforceable agreement.⁴
• Gross reporting: each leg reported separately (gross) in the bank's reporting systems.⁴

What are the common mistakes with set-off of export receivables?

The common mistakes with set-off of export receivables are netting without the bank's approval, netting with an unrelated party, and missing the realisation period.¹

• No bank approval: regulation 7 needs the AD bank's permission.¹
• Unrelated counterparty: only the same buyer or supplier, or its group or associate companies, qualify.¹
• Late set-off: the set-off must fall within the realisation period or an extension.¹
• Ignoring tax and GST: a set-off does not change how each invoice is taxed, and group arrangements may need transfer pricing documentation. Export of services needs payment in convertible foreign exchange or rupees where RBI permits, and how a set-off is treated for GST is not addressed by the FEMA rules; see GST on export of services.

Where set-off applies, agree the structure with your bank and a chartered accountant before the first netting cycle.