What changed
The RBI circular dated September 8, 2008, raises the limit for advance remittances for import of services without a bank guarantee from USD 100,000 to USD 500,000. For amounts exceeding USD 500,000, the existing requirement of a guarantee from an overseas bank or an AD Category-I bank (against a counter-guarantee) continues to apply.
What it means for you
Banks can now process higher advance remittances for service imports without demanding a bank guarantee, simplifying trade for importers. This liberalization reduces compliance costs and speeds up transactions for amounts up to USD 500,000. Banks must frame their own board-approved policies to handle such cases, ensuring due diligence and follow-up for repatriation if obligations are not met.
What you must do
- Update internal guidelines to allow advance remittances up to USD 500,000 without bank guarantee, as per board-approved policy.
- Ensure robust follow-up mechanisms to track that the overseas beneficiary fulfills the contract; repatriate funds if not.
- Communicate the revised limit to your constituents and customers handling service imports.
- Maintain documentation for all advance remittances, especially those exceeding USD 500,000 requiring guarantees.
Who it affects
AD Category-I banks, Importers of services into India, Overseas beneficiaries receiving advance payments
What is the new limit for advance remittances without a bank guarantee?
The limit has been raised from USD 100,000 to USD 500,000 or its equivalent for all admissible current account transactions related to import of services.
What happens if the advance remittance exceeds USD 500,000?
For amounts above USD 500,000, banks must obtain a guarantee from a bank of international repute outside India, or from an AD Category-I bank in India if backed by a counter-guarantee from such an overseas bank.
Do banks need board approval for the new policy?
Yes, AD Category-I banks must frame their own guidelines for handling these cases as per a policy approved by their Board of Directors.