FEMA 2026: What Indian service exporters must do now
The Reserve Bank of India just rewrote the rulebook for every Indian business that earns in foreign currency. On January 13, 2026, the RBI published the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 under Notification FEMA 23(R)/2026-RB. These new RBI export regulations 2026 replace the entire 2015 framework, two Master Directions, and 167 existing circulars with one consolidated rulebook. The rules take effect on October 1, 2026, and the transition window is open right now.
India's service exports crossed $340 billion in FY2025, and millions of professionals now earn across borders. If you run an IT company, operate a SaaS business, or freelance for overseas clients, this regulatory shift affects you directly. The changes touch everything from how you file declarations to how long you can hold foreign currency. Here is what changed, what it means, and exactly what you must do before the deadline hits.
What the RBI actually changed in the new regulations
The overhaul did not happen overnight. A series of amendments throughout 2025 set the stage for the January 2026 consolidation. Understanding these changes matters because several took immediate effect and already apply to your business.
In January 2025, Notification FEMA 10(R)(5)/2025-RB opened a major door. All Indian exporters can now open and maintain Foreign Currency Accounts with overseas banks. Previously, only construction companies enjoyed this privilege. This lets service exporters hold earnings abroad for legitimate business expenses without routing everything through India first.
The most impactful change arrived on November 13, 2025. The RBI extended the timeline for repatriating export proceeds from 9 months to 15 months from the invoice date. For exports invoiced or settled in Indian Rupees, the window stretches to 18 months. The advance payment shipment period jumped from 1 year to 3 years. Both changes took immediate effect.
Then came the January 2026 overhaul itself. The RBI introduced a unified Export Declaration Form that replaces the SOFTEX form entirely. This SOFTEX form replacement EDF is a single monthly filing that consolidates all service exports to multiple clients during a calendar month. SaaS companies that process hundreds of subscription invoices each month stand to save dozens of compliance hours.
Software exports now fall under the same category as consulting, design, and other service exports. The separate compliance track that created confusion for IT exporters no longer exists. Self-declaration closure now applies for exports up to ₹10 lakh per invoice, and quarterly bulk reconciliation is permitted.
The regulations also allow set-off of export receivables against import payables with the same overseas party or their group companies. This constitutes a valid realisation of export proceeds under the new framework.
Why IT companies, SaaS businesses, and freelancers face different risks
The impact of these regulations varies sharply based on your business size and structure.
Large IT companies with dedicated compliance teams can manage the transition. They must update internal standard operating procedures, retrain staff on the new EDF process, and coordinate with their Authorised Dealer banks on revised policies. The consolidated monthly EDF actually reduces their filing volume.
Small IT companies and startups carry the highest risk. Many assume that money arriving in their bank account equals compliance. This is wrong. FEMA requires active filing, reconciliation, and documentation for every foreign payment received. Years of unreconciled EDPMS entries sit in bank systems across India, creating what compliance experts call a ticking regulatory bomb. The October 2026 transition creates both urgency and opportunity to clean these up.
FEMA compliance for freelancers in India follows the same rules as corporate compliance. The RBI treats freelance work for overseas clients as the export of services with no exceptions. Every freelancer receiving payment via PayPal, Wise, Payoneer, or direct wire transfer must ensure the correct purpose code is used for each transaction. Common codes include P0802 for software consultancy, P0806 for information services, and P0807 for consulting. You must obtain an e-FIRA or FIRC for every payment, file the appropriate export declaration, and maintain documentation for at least 6 years.
Platform-specific friction adds real costs. PayPal charges conversion fees that often eat ₹5,000 to ₹7,000 per $10,000 received. Wise offers mid-market rates at lower fees but sometimes places compliance holds on India business receipts. Payoneer works well for marketplace earnings from platforms like Upwork, but incurs a 2-3% foreign exchange spread.
A growing number of Indian freelancers and digital entrepreneurs now form US LLCs to simplify payment collection. Experts warn that this creates additional FEMA and Overseas Direct Investment compliance obligations that most people overlook.
The new compliance framework you must follow from October
Under the 2026 regulations, the compliance framework rests on three pillars that every service exporter must understand.
The first pillar is filing. Service exporters must submit an EDF within 30 days of the end of the month in which they raised invoices. One EDF covers all service exports in that entire month. For service exporters other than software providers, the EDF may be submitted on or before the date payment is received. AD banks can grant extensions for delayed filing where justified.
The second pillar concerns the timeline for repatriating export proceeds. All proceeds must reach India within 15 months from the invoice date. For INR-denominated exports, the period extends to 18 months. Once received, funds must be sold to an authorised conversion to rupees, retained in an EEFC account within permitted limits, or used to pay foreign currency liabilities. AD banks now have the authority to grant extensions beyond these periods, subject to their internal policies.
If your export proceeds remain unrealised for more than 1 year past the due date, the RBI restricts your future shipments to advance payments or irrevocable letters of credit only. This restriction can cripple a growing business.
The third pillar covers reporting. All transactions flow through the EDPMS, FETERS, and IDPMS portals maintained by the RBI. Banks enter inward remittance details tagged with purpose codes, and any unreconciled entry creates a compliance red flag that regulators can trace directly to your business.
Learn more about how EDPMS compliance for exporters works and how it connects your filings to RBI's monitoring system.
Your AD bank plays a much larger role under the new framework. Banks gain operational autonomy to set internal SOPs for extensions, write-offs, and reconciliation. They can now, in most cases, approve extension requests for delayed repatriation without seeking RBI permission. This means your relationship with your bank matters more than ever before. Choose an AD bank that understands service exports and digital businesses rather than one that primarily handles goods trade.
What happens if you ignore these rules
The FEMA penalty for non-compliance with the structure remains severe under Section 13 of the Act. For quantifiable violations, the penalty reaches up to three times the amount involved. Unreported export proceeds of $100,000 could trigger a penalty of $300,000. Non-quantifiable violations carry a fixed penalty of up to ₹2 lakh. Continuing violations add ₹5,000 for every day the breach persists.
In April 2025, the RBI introduced a ₹2 lakh cap on penalties for technical and procedural violations, such as delayed reporting or minor inconsistencies. This provides some relief for honest mistakes. Serious violations, such as concealing foreign assets exceeding ₹1 crore, still attract the full penalty structure, and criminal prosecution with up to 5 years of imprisonment remains possible.
Compounding allows voluntary admission and settlement, but you must apply within 180 days of the violation. After that window closes, enforcement proceedings proceed much more slowly. The Directorate of Enforcement handles serious cases, and proceedings can drag on for years, with mounting legal costs.
The practical reality is that most small exporters face penalties not for deliberate evasion but for ignorance of filing obligations. A freelancer who receives $50,000 over a year without filing a single export declaration faces potential penalties of $150,000 under the three-times rule. The new compounding framework provides a safer path to regularise lapses, but only if you act within the prescribed window.
Practical solutions to stay compliant before October
Several tools and strategies help service exporters navigate the new framework without being overwhelmed by paperwork.
EEFC accounts allow exporters to credit 100 per cent of foreign exchange earnings without immediate INR conversion. These accounts sit with an AD Category-I bank and work well if you regularly pay overseas suppliers. The catch is that unused funds must convert to rupees by the end of the following calendar month. No interest accrues on the balance.
India-focused fintech platforms now solve many FEMA compliance pain points directly. Platforms like Winvesta, Karbon Business, XFlow, and BRISKPE offer multi-currency accounts with automatic e-FIRA generation, built-in purpose code mapping, and FEMA-compliant settlement flows. These eliminate the manual chase for documentation that frustrates most exporters.
For immediate preparation ahead of October 2026, begin by auditing all pending EDPMS entries. Many companies have unresolved records dating back years that need to be closed before the new regime begins. Transition your SOFTEX processes to the new consolidated EDF workflow now rather than waiting until September. Verify purpose codes on every incoming payment from the past 12 months. Coordinate with your AD bank on their new SOPs, as banks gain significantly more operational autonomy under the 2026 rules.
If you have not registered yet, start by obtaining your bank AD code, which is required for all FEMA-regulated foreign exchange transactions.
Most importantly, engage a FEMA-specialist chartered accountant rather than a generalist. The intersection of foreign exchange regulations, export compliance, and tax reporting requires deep expertise that general practitioners rarely possess. A specialist can identify gaps in your past filings, help you compound historical violations before they escalate, and build a compliant workflow that runs smoothly under the new October 2026 regime.
The eight months between now and October 2026 represent the last window to fix legacy issues without facing scrutiny under the stricter new framework. Exporters who use this time wisely will enter October in a stronger position rather than scrambling to catch up.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial or legal advice. Winvesta makes no representations or warranties about the accuracy or suitability of the content and recommends consulting a professional before making any financial decisions.
Get paid globally. Keep more of it.
No FX markups. No GST. Funds in 1 day.
The Reserve Bank of India just rewrote the rulebook for every Indian business that earns in foreign currency. On January 13, 2026, the RBI published the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 under Notification FEMA 23(R)/2026-RB. These new RBI export regulations 2026 replace the entire 2015 framework, two Master Directions, and 167 existing circulars with one consolidated rulebook. The rules take effect on October 1, 2026, and the transition window is open right now.
India's service exports crossed $340 billion in FY2025, and millions of professionals now earn across borders. If you run an IT company, operate a SaaS business, or freelance for overseas clients, this regulatory shift affects you directly. The changes touch everything from how you file declarations to how long you can hold foreign currency. Here is what changed, what it means, and exactly what you must do before the deadline hits.
What the RBI actually changed in the new regulations
The overhaul did not happen overnight. A series of amendments throughout 2025 set the stage for the January 2026 consolidation. Understanding these changes matters because several took immediate effect and already apply to your business.
In January 2025, Notification FEMA 10(R)(5)/2025-RB opened a major door. All Indian exporters can now open and maintain Foreign Currency Accounts with overseas banks. Previously, only construction companies enjoyed this privilege. This lets service exporters hold earnings abroad for legitimate business expenses without routing everything through India first.
The most impactful change arrived on November 13, 2025. The RBI extended the timeline for repatriating export proceeds from 9 months to 15 months from the invoice date. For exports invoiced or settled in Indian Rupees, the window stretches to 18 months. The advance payment shipment period jumped from 1 year to 3 years. Both changes took immediate effect.
Then came the January 2026 overhaul itself. The RBI introduced a unified Export Declaration Form that replaces the SOFTEX form entirely. This SOFTEX form replacement EDF is a single monthly filing that consolidates all service exports to multiple clients during a calendar month. SaaS companies that process hundreds of subscription invoices each month stand to save dozens of compliance hours.
Software exports now fall under the same category as consulting, design, and other service exports. The separate compliance track that created confusion for IT exporters no longer exists. Self-declaration closure now applies for exports up to ₹10 lakh per invoice, and quarterly bulk reconciliation is permitted.
The regulations also allow set-off of export receivables against import payables with the same overseas party or their group companies. This constitutes a valid realisation of export proceeds under the new framework.
Why IT companies, SaaS businesses, and freelancers face different risks
The impact of these regulations varies sharply based on your business size and structure.
Large IT companies with dedicated compliance teams can manage the transition. They must update internal standard operating procedures, retrain staff on the new EDF process, and coordinate with their Authorised Dealer banks on revised policies. The consolidated monthly EDF actually reduces their filing volume.
Small IT companies and startups carry the highest risk. Many assume that money arriving in their bank account equals compliance. This is wrong. FEMA requires active filing, reconciliation, and documentation for every foreign payment received. Years of unreconciled EDPMS entries sit in bank systems across India, creating what compliance experts call a ticking regulatory bomb. The October 2026 transition creates both urgency and opportunity to clean these up.
FEMA compliance for freelancers in India follows the same rules as corporate compliance. The RBI treats freelance work for overseas clients as the export of services with no exceptions. Every freelancer receiving payment via PayPal, Wise, Payoneer, or direct wire transfer must ensure the correct purpose code is used for each transaction. Common codes include P0802 for software consultancy, P0806 for information services, and P0807 for consulting. You must obtain an e-FIRA or FIRC for every payment, file the appropriate export declaration, and maintain documentation for at least 6 years.
Platform-specific friction adds real costs. PayPal charges conversion fees that often eat ₹5,000 to ₹7,000 per $10,000 received. Wise offers mid-market rates at lower fees but sometimes places compliance holds on India business receipts. Payoneer works well for marketplace earnings from platforms like Upwork, but incurs a 2-3% foreign exchange spread.
A growing number of Indian freelancers and digital entrepreneurs now form US LLCs to simplify payment collection. Experts warn that this creates additional FEMA and Overseas Direct Investment compliance obligations that most people overlook.
The new compliance framework you must follow from October
Under the 2026 regulations, the compliance framework rests on three pillars that every service exporter must understand.
The first pillar is filing. Service exporters must submit an EDF within 30 days of the end of the month in which they raised invoices. One EDF covers all service exports in that entire month. For service exporters other than software providers, the EDF may be submitted on or before the date payment is received. AD banks can grant extensions for delayed filing where justified.
The second pillar concerns the timeline for repatriating export proceeds. All proceeds must reach India within 15 months from the invoice date. For INR-denominated exports, the period extends to 18 months. Once received, funds must be sold to an authorised conversion to rupees, retained in an EEFC account within permitted limits, or used to pay foreign currency liabilities. AD banks now have the authority to grant extensions beyond these periods, subject to their internal policies.
If your export proceeds remain unrealised for more than 1 year past the due date, the RBI restricts your future shipments to advance payments or irrevocable letters of credit only. This restriction can cripple a growing business.
The third pillar covers reporting. All transactions flow through the EDPMS, FETERS, and IDPMS portals maintained by the RBI. Banks enter inward remittance details tagged with purpose codes, and any unreconciled entry creates a compliance red flag that regulators can trace directly to your business.
Learn more about how EDPMS compliance for exporters works and how it connects your filings to RBI's monitoring system.
Your AD bank plays a much larger role under the new framework. Banks gain operational autonomy to set internal SOPs for extensions, write-offs, and reconciliation. They can now, in most cases, approve extension requests for delayed repatriation without seeking RBI permission. This means your relationship with your bank matters more than ever before. Choose an AD bank that understands service exports and digital businesses rather than one that primarily handles goods trade.
What happens if you ignore these rules
The FEMA penalty for non-compliance with the structure remains severe under Section 13 of the Act. For quantifiable violations, the penalty reaches up to three times the amount involved. Unreported export proceeds of $100,000 could trigger a penalty of $300,000. Non-quantifiable violations carry a fixed penalty of up to ₹2 lakh. Continuing violations add ₹5,000 for every day the breach persists.
In April 2025, the RBI introduced a ₹2 lakh cap on penalties for technical and procedural violations, such as delayed reporting or minor inconsistencies. This provides some relief for honest mistakes. Serious violations, such as concealing foreign assets exceeding ₹1 crore, still attract the full penalty structure, and criminal prosecution with up to 5 years of imprisonment remains possible.
Compounding allows voluntary admission and settlement, but you must apply within 180 days of the violation. After that window closes, enforcement proceedings proceed much more slowly. The Directorate of Enforcement handles serious cases, and proceedings can drag on for years, with mounting legal costs.
The practical reality is that most small exporters face penalties not for deliberate evasion but for ignorance of filing obligations. A freelancer who receives $50,000 over a year without filing a single export declaration faces potential penalties of $150,000 under the three-times rule. The new compounding framework provides a safer path to regularise lapses, but only if you act within the prescribed window.
Practical solutions to stay compliant before October
Several tools and strategies help service exporters navigate the new framework without being overwhelmed by paperwork.
EEFC accounts allow exporters to credit 100 per cent of foreign exchange earnings without immediate INR conversion. These accounts sit with an AD Category-I bank and work well if you regularly pay overseas suppliers. The catch is that unused funds must convert to rupees by the end of the following calendar month. No interest accrues on the balance.
India-focused fintech platforms now solve many FEMA compliance pain points directly. Platforms like Winvesta, Karbon Business, XFlow, and BRISKPE offer multi-currency accounts with automatic e-FIRA generation, built-in purpose code mapping, and FEMA-compliant settlement flows. These eliminate the manual chase for documentation that frustrates most exporters.
For immediate preparation ahead of October 2026, begin by auditing all pending EDPMS entries. Many companies have unresolved records dating back years that need to be closed before the new regime begins. Transition your SOFTEX processes to the new consolidated EDF workflow now rather than waiting until September. Verify purpose codes on every incoming payment from the past 12 months. Coordinate with your AD bank on their new SOPs, as banks gain significantly more operational autonomy under the 2026 rules.
If you have not registered yet, start by obtaining your bank AD code, which is required for all FEMA-regulated foreign exchange transactions.
Most importantly, engage a FEMA-specialist chartered accountant rather than a generalist. The intersection of foreign exchange regulations, export compliance, and tax reporting requires deep expertise that general practitioners rarely possess. A specialist can identify gaps in your past filings, help you compound historical violations before they escalate, and build a compliant workflow that runs smoothly under the new October 2026 regime.
The eight months between now and October 2026 represent the last window to fix legacy issues without facing scrutiny under the stricter new framework. Exporters who use this time wisely will enter October in a stronger position rather than scrambling to catch up.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial or legal advice. Winvesta makes no representations or warranties about the accuracy or suitability of the content and recommends consulting a professional before making any financial decisions.
Get paid globally. Keep more of it.
No FX markups. No GST. Funds in 1 day.
