What changed
RBI clarified that the increased advance remittance limit of USD 500,000 for service imports without bank guarantee, introduced in September 2008, is not available to public sector companies or government departments/undertakings. For these entities, the old USD 100,000 threshold remains, and any amount above that requires prior approval from the Ministry of Finance.
What it means for you
Banks must now apply two different limits for advance remittances for service imports: a higher USD 500,000 limit for private entities and a stricter USD 100,000 limit for PSUs and government bodies. This ensures that public sector entities face tighter scrutiny on upfront payments, reducing risk of fund misuse. Lenders need to update their compliance checks to distinguish between entity types when processing such remittances.
What you must do
- Update internal systems to flag PSUs and government entities for the lower USD 100,000 advance remittance limit without bank guarantee.
- Require Finance Ministry approval for any advance remittance above USD 100,000 for public sector companies or government departments.
- Train staff to verify the entity type (private vs. public sector) before processing advance remittances for service imports.
- Communicate this circular to all relevant customers and constituents handling service import payments.
Who it affects
Authorised Dealer Category-I Banks, Public Sector Companies, Government of India/State Government Departments and Undertakings, Importers of services making advance remittances
Does the USD 500,000 limit apply to all entities for advance remittance for service imports?
No, it applies only to private entities. Public sector companies and government departments/undertakings are still restricted to USD 100,000 without bank guarantee, and any amount above that needs Finance Ministry approval.
What should a bank do if a PSU requests an advance remittance of USD 200,000 for service imports?
The bank must not process it under the USD 500,000 limit. It should require the PSU to provide a bank guarantee or obtain prior approval from the Ministry of Finance, Government of India.
Are there any other conditions from the September 2008 circular that remain unchanged?
Yes, all other terms and conditions from A.P. (DIR Series) Circular No. 15 dated September 8, 2008, remain unchanged for all entities.