In its consistent effort to promote cross border trade and ease of doing business, the Reserve Bank of India (‘RBI’) initially floated the draft export and import regulations and directions on 2 July 2024, and 4 April 2025, inviting comments from the stakeholders.

Following the two rounds of stakeholder consultations and the receipt of multiple industry representations, the RBI notified the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (‘New Regulations’) on 13 January 2026, followed by the issuance of the Directions on Export and Import of Goods and Services (‘New Directions’) on 16 January 2026 (collectively the ‘2026 Update’).

The New Regulations introduces much-needed rationalisation and simplification of the legislative framework governing trade, i.e., export and import transactions in India. The changes are aimed at enhancing ease of doing business while affording greater operational flexibility to authorised dealer banks (‘AD Bank’), in recognition of the evolving dynamics of cross-border transactions.

This article examines the key insights into the current trade framework and highlights the substantive reforms introduced under the 2026 Update.

Implementation timeline

The 2026 Update shall come into force from 1 October 2026.

Upon its implementation, the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015 , Master Direction – Export of Goods and Services, Master Direction – Import of Goods and Services and the list of 167 circulars specified in the annexure to the New Directions (collectively the ‘Existing Provisions’) shall stand superseded.

Action point for stakeholders

Review of the current transactions, payment cycles, banking arrangements and specific permissions obtained from the RBI.
Aligning the business with the proposed changes
Transition management for export and import payments, MTT transactions and trade advances.
Drafting and review of contracts with global trade counterparts.
Review of the open entries in the Export Data Processing and Monitoring System (‘EDPMS’) and Import Data Processing and Monitoring System (‘IDPMS’) for regularisation of trade.

Relevant changes proposed to be implemented vide the New Regulations are summarised below:

1. Declaration of exports and handling of documents

	Existing Provisions	New Regulations
Export of goods	Export Declaration Form (‘EDF’) is filed in cases of exports that are taking place through non-EDI customs port Shipping Bill considered as EDF for EDI Ports	All exporters will be required to file the EDF at the time of export of goods EDF will be deemed to be submitted as part of shipping bill for goods exported through EDI Ports
Export of services	No reporting requirement	The exporter will be required to file EDF for reporting export of services within 30 days from the end of the month in which invoice for such export has been raised
Export of software	Form SOFTEX	The exporter will be required to file EDF for reporting export of software within 30 days from the end of the month in which invoice for such export has been raised

Notable changes vide the New Regulations:

An exporter may file a single EDF to report all service and software exports made to multiple recipients during a month.
Exporters of services other than software, may submit the EDF on or before the date they receive payment for the export.
The New Regulations introduces a new reporting obligation for exporters of services.
The AD Bank may grant an extension for submitting the EDF if it is satisfied that the exporter’s reason for the delay is valid.
The New Regulations and the EDF (as provided in the Annex of the New Regulations) shall permit the export value to be reported as ‘nil’ in instances where goods are exported without consideration, and no prior approval from the RBI will be required in such cases.

LKS COMMENTS

The New Regulations introduces a unified, streamlined and time-bound reporting for exports of goods, services, and software. Although this expands the reporting obligations but at the same time it also simplifies the procedural complexity and enhances consistency for exporters and AD Banks.

It appears that the requirement of obtaining EDF waiver shall be discontinued. Export of goods without any consideration shall be required to be reported with ‘nil’ value in EDF.

2. Timeline of payment for export and import of goods, services and software

Existing Provisions

New Regulations

Import payment

Payment pertaining to import is required to be made within 6 months from the date of shipment

(AD Banks can grant extension upto 6 months at a time upto a maximum period of 3 years)

The New Regulations propose that the payment timeline pertaining to import shall be based on the underlying contract between the importer and the overseas seller

[The AD Bank may grant extension basis their Internal Policy and Standard Operating Procedure (‘SOP’)]

Export payment

Payment pertaining to export is required to be realised within

15 months from the date of export

15 months from the shipment date to an overseas warehouse

(AD Banks can grant extension upto 6 months at a time)

The New Regulations stipulate that payments relating to export transactions must be realised within:

15 months from the date of shipment in case of goods and from the date of invoice in case of services and software

Warehouse Export –
15 months from the date of sale of goods from the warehouse in case of goods exported to an overseas warehouse

Project Export -
as per payment terms of the contract, in case of project exports

Settlement in INR -
18 months from the date of shipment in case of goods, from the date of invoice in case of services, and from the date of sale of goods in case of goods exported to an overseas warehouse where the export of goods and services is invoiced or/and settled in Indian Rupees

The AD Bank may grant extension basis their Internal Policy and SOP

Notable changes vide the New Regulations:

The AD Bank may credit or debit an exporter’s or importer’s account for export receipts or import payments only after verifying the bona fide of the transaction and updating or closing the related entry in the EDPMS or IDPMS.
For trades where the bill of entry or shipping bill (for goods) or invoice (for services or software) is up to ₹10 lakh (or its foreign currency equivalent), the RBI shall permit reconciliation and closure of EDPMS/IDPMS entries based on a trader’s declaration confirming realisation of export proceeds or completion of import payment. Traders may submit this declaration to the AD Bank on a quarterly, consolidated basis for bulk reconciliation and closure of entries.

LKS COMMENTS

The New Regulations propose a notable change wherein Indian traders may be permitted to store their goods in the overseas warehouse for more than 15 months from the shipment date without being required to realise the export proceeds, as the realisation timeline pertaining to export shall be linked to the ‘date of sale’ of the goods instead of shipment of the goods from India. Additionally, AD Banks have been authorised to grant extensions for both export and import timelines for goods and services.

The RBI vide its Notification No. FEMA 23(R)/(7)/2025-RB, dated November 13, 2025, extended the export realisation timeline from 9 months to 15 months. The same time period has been retained in the New Regulations. The timeline pertaining to import transactions shall be based on the underlying contract. The revision in timeline will offer greater flexibility to traders in managing their funds and operations. Interestingly, an additional time-period of three months is being provided for export realisation where export of goods and services are invoiced or/and settled in Indian Rupees.

Additionally, the New Regulations has introduced more clarity in terms of realisation of export proceeds by including set-off between parties as a valid realisation method. This is in line with the jurisprudence under Income Tax and Indirect Taxes where set-off between two parties was considered as valid realisation of foreign exchange.

3. Set-off of export receivables with import payables

Existing Provisions

New Regulations

Set – off

Restrictive conditions for set-off:

The same counterparties must be involved

(set-offs with overseas group/associate companies may be processed on a net or gross basis via in-house or outsourced centralized settlement arrangements)

The export and import legs of the transaction should occur within the same calendar year

Set-off must be backed by an agreement or written consent

Export and import transactions involving ACU countries are excluded from the arrangement

AD Bank may permit the set-off of export receivables against import payables with the same overseas buyer or supplier, or their overseas group or associate companies within the stipulated period for realisation of export proceeds or extended period, if any, granted by the AD Bank

The provisions requiring completion of the transaction within the same calendar year and mandating an agreement or written consent for set‑off have been removed

The New Regulations shall permit export receivables for goods to be offset against import payables for services, and vice versa

Transactions involving ACU countries have not been addressed in the New Regulations

LKS COMMENTS

Set-off of payment pertaining to goods against services is prohibited under the Existing Provisions. The New Regulations substantially liberalises this position by permitting set-off against any payables, whether relating to goods or services between the eligible parties. This change significantly enhances transactional flexibility and cash flow efficiency by enabling businesses to net their cross-border obligations more effectively, irrespective of the nature of the underlying transaction. Importantly, the amendment aligns the regulatory framework with commercial realities, recognising the increasingly integrated and blended nature of goods and services in cross-border trade and specifically with the increase in warehouse exports with add-on fulfilment services from overseas counterparts.

4. Third party receipts and payment

Existing Provisions

New Regulations

Third party payment and receipts in case of import and export transactions

The Existing Provisions permit third party payment subject to the following conditions:

A tripartite agreement must be in place or third party details must be specified in the invoice

BoE/SB/EDF must include the details of the third party

There are no express provisions for services

AD Banks may permit third party receipts and payments in pertaining to export and import transactions, subject to their satisfaction as to the bona fides of such transactions

In the case of exports, the exporter will be required to declare the name, address, and relationship of the third party with the exporter in the EDF

LKS COMMENTS

The draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2025 introduced a relaxation permitting AD Banks to process payments to or receipts from parties other than the declared third party, subject to verification of the bona fide nature of the underlying transactions. This provision has been removed in the New Regulations. Notwithstanding this omission, the revised framework significantly streamlines the overall process governing third party payments when compared with the existing regulatory requirements. The requirement for a tripartite agreement although not addressed in the New Regulations might stem from the AD Bank’s internal policy or SOP.

5. Reduction in the export realization

Existing Provisions

New Regulations

Reduction in invoice value of exports

Under the Existing Provisions, reduction in invoices is permitted by the AD Bank in the following cases:

Cash discount (subject to interest rates in cases of pre-payment of issuance bills)

Others:

The reduction should not be more than 25% of the invoice value

Permitted beyond 25% (in certain cases)

It does not apply to exports of commodities subject to floor price stipulations

Under the New Regulations, upon receiving a request from the exporter, and post being satisfied with the justification, the AD Banks may permit a reduction in the invoices pertaining to the export, including cases of under or non‑realisation

For export values up to INR 10 lakh (or equivalent in foreign currency) per shipping bill (goods) or invoice (services), the AD may allow such reduction (including full non‑realisation) based solely on a declaration from the exporter

Write-off

of outstanding receivable

Self write-off: 5% (for status holders: 10% )

AD Bank write-off: 10% permitted only in specified scenarios such as non‑traceability of the buyer or disproportionately legal costs

Certain transactions might require prior permission from the RBI

Surrender of Export Incentives

A proportionate surrender of export incentives is required to be made by the exporter (incentives under FTP, GST, etc.)

There are no provisions in the New Regulations pertaining to refund of export incentives.

Notable changes vide the New Regulations:

The AD Bank have been bestowed with immense power to close the pending EDPMS entries which are linked to any under-realisation or non-realisation of invoices.
The option of self write-off of export receivables has been omitted.

LKS COMMENTS

Under the Existing Provisions, reductions in export invoice value are permitted by AD Banks only for specific reasons, such as cash discounts etc, and are subject to limits. Additionally, RBI permission is also required in specific cases for write-off of receivables. The New Regulations introduces a significantly flexible approach wherein shipping bill or invoices upto INR 10 lakhs can be reduced solely on the basis of exporter’s declaration. This reduces administrative burden on the AD Banks for small transactions and provides operational flexibility for exporters, particularly SMEs or smaller-value transactions.

In contrast to the Existing Provisions, the New Regulations do not specifically address the requirement of surrendering the export incentives under the FTP, GST or any other government's export promotion schemes. It appears that the refund of export incentives will be governed by the respective statutes and policies providing incentives to exporters.

It will be interesting to note AD Bank’s stance on clearing out multiple invoices for its clientele since self-write-off of export invoices will be discontinued. Different policies adopted by different AD Banks might also result in ‘bank-shopping’.

6. Advance for exports and imports

Existing Provisions

New Regulations

Advance for export and import

For export:

Goods must be exported within 3 years from the date of receipt of advance

AD Banks may also permit exporters with a minimum of three years of satisfactory track record to receive long‑term export advances with a tenure of up to ten years, to be used for fulfilling long‑term export supply contracts

Any refund of the unutilized portion of the export advance (with or without interest) beyond 3 years requires prior RBI approval

For import:

A bank guarantee or an irrevocable letter of credit is required where advance payments exceed the following thresholds:

Goods: USD 5 million

Services: USD 0.5 million

Aviation sector: USD 50 million

In cases where the import does not materialize, any unspent or unused foreign exchange from the advance payment must be returned to the AD Bank

For export:

Advance payment terms shall be governed by AD Banks’s internal policy and SOP

Exporters and importers will be required to route advance payments and all related subsequent transactions through the same AD Bank, unless they notify both the existing and the new AD Banks of the change

For import:

AD Banks may allow advance remittances for imports after verifying that the requirement is genuine and may impose thresholds requiring a standby Letter of Credit or guarantee

If the importer is unable to import within the contract period, or the extended period, the importer shall repatriate the advance payment made, if any

If the IDPMS entry is not cleared, any future advance payments for imports must be secured by a standby Letter of Credit or a bank guarantee from a reputable international bank or an AD Bank in India, backed by a counter-guarantee from a reputable international bank

Rate of interest of advance payment

Interest on such advance payments may be levied only up to a maximum rate of 100 basis points above LIBOR

The exporter or importer, as the case maybe, will be required to ensure that any interest payable on advance export receipts or delayed import payments does not exceed the all-in-cost ceiling of trade credit as specified under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018

LKS COMMENTS

The New Regulations governing advance receipts for imports reflect a more flexible framework, placing greater importance on the underlying contract and the discretionary powers of the AD Bank. The specific timeline relaxation is intended to support exporters who face genuine delays in shipping goods after receipt of the advance payment. However, the mechanism for refunding unutilized advance amounts requires further clarification.

7. Caution listing

Existing Provisions

New Regulations

Caution listing

Exporters may be caution‑listed by the RBI based on the AD Bank’s recommendation, derived from the exporter’s track record with the AD Bank and investigative agencies

A caution‑listed exporter may undertake exports only when backed by full advance payment or an irrevocable letter of credit

Provisions pertaining to caution listing has been omitted

If export receivables remain unpaid for more than a year past the due date, including permitted extensions, if any, granted by the AD Bank, the exporter will be allowed to conduct further exports only against complete advance remittance or a confirmed irrevocable Letter of Credit

De-caution listing

An exporter is removed from the RBI caution list upon the AD Bank’s recommendation

LKS COMMENTS

Caution listing led to reputational risk for exporters and often led to operational restrictions for future trade transactions. Reducing the formal caution listing process shall reduce the regulatory burden and will boost more cross border transactions.

8. Merchanting Trade Transaction (MTT)

	Existing Provisions	New Regulations
Governed by	Presently, MTT transactions are governed by the Merchanting Trade Guidelines, 2020	The Merchanting Trade Guidelines, 2020 will stand superseded once the 2026 Update comes into effect on October 1, 2026
Conditions	The transaction must be profitable	The profitability requirement is omitted in the New Regulations
Timeline	The entire transaction should be completed within 9 months	The outer timeline requirement is omitted in the New Regulations
Payment	The outlay period between the outward and inward remittance shall not exceed 6 months	The New Regulations propose that the period between the outward remittance and inward remittance or vice versa should not exceed six months However, the AD Bank may extend such timeline upon being satisfied that the reasons for the delay are justified
Commission	Except in exception circumstances permitted by the AD Banks, agency commissions are not permitted in MTT	The prohibition relating to agency commission is omitted in the New Regulations
Write-off	Specific criteria prescribed under the MTT Guidelines	No separate provisions for MTT
Third party payments	Not allowed	Outward remittances shall be made solely to the overseas seller, and inward remittances shall be received only from the overseas buyer However, the AD Bank, upon receiving a request supported by valid reasons, permit remittances to or receipts from a third party

Notable changes vide the New Regulations:

The New Regulations allow for an extension of the timeline between the outward remittance and the corresponding inward remittance.
The present requirement to compulsorily hold the inward remittances in the merchanting trader's Exchange Earners Foreign Currency (EEFC) account if received before outward remittance has been omitted in the New Regulations.
The New Regulations further mandate that documents evidencing MTT must be submitted to the AD Bank to verify the authenticity of the transaction. Once satisfied, the AD Bank will credit or debit the customer’s account for any MTT‑related cross‑border transaction and simultaneously update the relevant entries in the EDPMS and IDPMS.

LKS COMMENTS

The relaxation of MTT conditions and compliance requirements is expected to ease operational processes. However, it remains to be seen how AD Banks will frame their policies on write‑off provisions specifically for MTT, as the New Regulations do not explicitly address the same.

The removal of mandatory profits and 9 months’ timeline for completing MTT is a welcome move. The permissibility of third-party payments for MTT transactions represents a significant operational flexibility, thereby helping overcome logistical or geographical constraints. Businesses can now route payments through intermediaries or group entities, which is particularly useful in complex cross-border supply chains.

Other notable highlights in the 2026 Update:

Import of gold and silver – AD Banks shall not permit any advance remittance for the import of gold and silver unless specifically permitted under the Foreign Exchange Management Act, 1999 or the rules, regulations and directions framed thereunder.
Project Export – AD Banks may allow receipts and payments related to project exports based on the terms of the project contract, after confirming the bona fide of the project. Project exporters are also permitted to use temporary cash surpluses earned abroad for short‑term investments (maturity of one year or less), such as treasury bills or bank deposits outside India, under the monitoring of their AD Bank. The Memorandum of Instructions on Project and Service Exports (PEM), 2014 will be repealed w.e.f. October 1, 2026.
Miscellaneous – Under the current legislative framework, grievance redressal has largely been undertaken in accordance with the RBI directions. However, unlike the existing provisions, the New Regulations grant AD Banks greater operational autonomy to approve payment timelines or extensions for receipt of payments, as well as to permit set-offs and reduction in export realisation, based on the bona fide nature of the underlying transactions.
AD Banks’s Internal Policy
The New Regulations grants AD Banks increased authority and responsibility, requiring them to formulate detailed internal policies and SOPs for transaction handling and reporting, and to make these publicly available on their websites.
AD Banks must clearly delegate transaction approval responsibilities, establish a structured escalation mechanism for customer grievances, and set up an appeal mechanism for review at higher levels.
AD Banks are required to ensure that transaction‑related charges remain reasonable and proportionate.
The AD Banks are not permitted to impose any penalties for regulatory delays or compliance breaches.
The AD Bank must route all reference to the RBI through the PRAVAAH portal and report any suspicious transaction to the Directorate of Enforcement (DoE).

LKS COMMENTS

Cross-border trade plays a vital role in boosting a country’s economic growth. With accelerated globalisation, India is emerging as one of the major players in the global supply chain.

Through the 2026 Update, the RBI aims to create a more business‑friendly environment and promote ease of doing business by allowing greater contractual flexibility and aligning the regulatory framework with evolving cross‑border trade dynamics. By omitting certain regulatory hurdles which deter potential overseas trade collaboration and granting wider discretion to AD Banks in trade‑related matters, the RBI enables AD Banks to tailor internal policies and SOPs to suit operational requirements.

The new regulatory framework is intended to boost more cross border trade and position India as a bigger market player in the global supply chain.

However, this increased flexibility may also result in inconsistencies in interpretation and implementation of the 2026 Update across different AD Banks. Furthermore, several critical issues remain unaddressed in the 2026 Update which inter-alia includes:

Treatment of exports carried out under operating lease arrangements;
Clarifications related to long-term supply contracts;
Permissibility of agency commissions in merchanting trade transactions;
Imports on FOC (free-of-cost) basis;
Trade with Asian Clearing Union (ACU) countries and jurisdictions under OFAC sanctions; and
Provisions relating to ongoing or legacy trade transactions.

The 2026 Update is a welcome change to encourage cross border trade and position India as a global business hub. However, the true extent of such liberalisation shall depend on how AD Banks formulate and implement their internal policies.

The RBI has also published its responses to various stakeholder representations made in the past 2 years. The same can be accessed here.

[The authors are Executive Partner, Principal Associate and Senior Associate, respectively, in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys]

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