Merchanting trade under FEMA 2026: the six-month rule
You buy 40 tonnes of speciality chemicals from a supplier in Vietnam and sell them to a buyer in Germany. The container goes straight from Ho Chi Minh City to Hamburg. It never touches an Indian port, you never file a shipping bill, and yet your bank in Mumbai wants to know exactly when the money is coming back.
That is a merchanting trade transaction, and from 1 October 2026 it is governed by a regulation that did not exist when most of the guidance you can find online was written. The first page of search results on this topic is largely built on a circular from 2020. One widely-read guide states the new timing rule almost backwards. So here is what the regulation actually says, quoted, and what it means for the clock you are running against.
What a merchanting trade transaction is
In a merchanting trade, an Indian entity buys goods from a supplier in one foreign country and sells them to a buyer in another, without the goods entering India. You are the intermediary. Your profit is the spread between what you pay on the import leg and what you receive on the export leg. Both legs of money move through your Authorised Dealer bank, which is why the bank cares so much about the timing.
One clarification first, because it saves a lot of wasted reading: merchanting trade is a goods framework. If you are a design studio, a software consultancy or an agency invoicing a client abroad, this is not your regulation, and the six-month rule below does not apply to you.
The rule that changes on 1 October 2026
Merchanting trade now sits in Regulation 16 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, notified as FEMA 23(R)/2026-RB on 13 January 2026. Regulation 1(2) sets commencement at 1 October 2026, and on that date the 2026 Regulations supersede the 2015 Export Regulations. If you want the wider picture of what else changes that day, we have covered the FEMA 2026 changes for exporters separately.
Regulation 16(1)(a) reads: "the period between the outward remittance and inward remittance or vice versa does not exceed six months: Provided that the Authorised Dealer may, on request citing reasons for delay, allow extension of time, if the Authorised Dealer is satisfied of the reasons cited."
Read that slowly, because three details in it get lost in most summaries. The period is six months. It is measured between the two remittance legs, not from the date of shipment. And it runs in either direction, which matters if your buyer pays you before you pay your supplier.
What the top-ranking guidance gets wrong
One of the guides currently ranking on the first page for this topic tells readers that the 2026 regulations removed the old fixed nine-month completion deadline, leaving AD banks free to grant extensions for commercially justified reasons. That is half right in a way that could cost you. The fixed period was not removed. It was replaced with six months between the remittance legs, which is tighter than the nine months it succeeded, and the extension is a discretionary power your bank may exercise on a reasoned request, not something that happens by default. Plan to the six months and treat any extension as a favour you have to ask for.
Third-party payments: a blanket ban becomes a discretion
Under the older framework the position was flat: no third-party payments in either the import or the export leg. Several pages still state it that way. Regulation 16(1)(b) keeps the default rule, requiring that outward remittances go only to the overseas seller and inward remittances come only from the overseas buyer, but it adds a proviso: the Authorised Dealer may, on a request from the customer citing reasons, allow receipt from or payment to a third party where the bank is satisfied of those reasons.
In practice that is a discretion, not a right. If your structure genuinely needs a payment to or from someone other than the named counterparty, put the reasons to your bank in writing and get the answer before the money moves, not after it has been held.
What your bank has to do, and why it will chase you
Regulation 16(1)(c) requires you to give the bank the documents evidencing the transaction so it can establish that the trade is genuine. Regulation 16(2) then puts two duties on the bank: it may credit or debit your account for an MTT only after satisfying itself the transaction is genuine, and it must simultaneously close or update the corresponding entry in EDPMS or IDPMS. It must also monitor and follow up with you to make sure both legs complete within the period the regulations specify.
That last duty is the reason your relationship manager will call you in month five. The bank is not being difficult; it is being monitored on your file. Entries that sit open in EDPMS are also how exporters end up caution-listed, which restricts how you can transact on future shipments, so an open leg is worth more attention than it usually gets.
It has to be genuine trade, not financing dressed as trade
Regulation 16 opens by requiring that the person undertaking merchanting trade acts in accordance with the Foreign Trade Policy, which in practice means the goods must be ones India permits for export and import. The point commentators keep making, and it is a fair one, is that a merchanting trade has to have commercial substance. If the goods and the counterparties are real but the arrangement exists to move money rather than to trade, you are in a different and much less comfortable conversation with your bank. Keep the contract, the commercial invoices and the transport documents together as a set.
The six-month clock, worked through
Say you pay your Vietnamese supplier on 15 November 2026. Your German buyer's payment needs to reach you by 15 May 2027. Reverse the order and the rule reads the same: if the buyer pays you an advance on 1 December 2026, your payment to the supplier should go out by 1 June 2027. What you cannot do is treat the clock as starting from shipment, or assume the trade simply has to be finished inside some longer window.
If you can see the second leg slipping, go to your bank before the six months are up rather than after. From the same commencement date, Regulation 19 requires every Authorised Dealer to have a written policy covering the documents, timelines and charges for approvals of this kind, including extensions, and to publish its main features. That gives you something concrete to ask for. It also means your bank cannot penalise you for its own process in the way some have.
Can you just net the two legs against each other?
It is the obvious question when both legs sit with the same bank, and the answer lives in a different regulation. Regulation 7 lets an Authorised Dealer allow set-off of export receivables against import payables where the counterparty is the same overseas buyer or supplier, or an overseas group or associate company, within the realisation period. In a classic merchanting trade your supplier and your buyer are unrelated parties, so set-off usually will not reach it. Where they are part of the same group, it is worth putting to your bank.
What to do before 1 October 2026
Four things are worth doing in the next few weeks. List every merchanting trade you have open or planned, with the date of each remittance leg, and check which ones straddle 1 October. Ask your bank for its policy and the main features of its standard operating procedure under Regulation 19, since it is required to publish them. If your structure involves any third-party receipt or payment, get that pre-cleared in writing rather than discovering the default rule at settlement. And confirm that the EDPMS or IDPMS entry for every completed leg has actually been closed, because your bank closing it and you assuming it closed are not the same thing.
Where a collections account fits here, and where it does not
We should be straight about this, because merchanting trade is one of the places our own product is the wrong tool. A Winvesta Global Collections Account gives you local receiving details in USD, GBP, EUR and other currencies, and a FIRA for every payment that arrives, which is genuinely useful if you export services or goods and are being paid by clients abroad. It does not send outward remittances to an overseas supplier, and a merchanting trade needs that leg. More to the point, Regulation 16(2) requires the bank handling your MTT to monitor both legs together and to close the EDPMS or IDPMS entries itself, which is an argument for keeping the whole transaction with your AD bank rather than splitting it. If you are running merchanting trade in goods, your AD bank runs it. If you are a service exporter who landed here by accident, that is the case where we can help.
The quotations above are from the text of FEMA 23(R)/2026-RB as notified. How your bank applies them will depend on the policy and standard operating procedure it publishes under Regulation 19, which many banks had not released at the time of writing. This is general information rather than advice on your transaction; your AD bank and your advisers should confirm how the regulation applies to a specific trade.
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.
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You buy 40 tonnes of speciality chemicals from a supplier in Vietnam and sell them to a buyer in Germany. The container goes straight from Ho Chi Minh City to Hamburg. It never touches an Indian port, you never file a shipping bill, and yet your bank in Mumbai wants to know exactly when the money is coming back.
That is a merchanting trade transaction, and from 1 October 2026 it is governed by a regulation that did not exist when most of the guidance you can find online was written. The first page of search results on this topic is largely built on a circular from 2020. One widely-read guide states the new timing rule almost backwards. So here is what the regulation actually says, quoted, and what it means for the clock you are running against.
What a merchanting trade transaction is
In a merchanting trade, an Indian entity buys goods from a supplier in one foreign country and sells them to a buyer in another, without the goods entering India. You are the intermediary. Your profit is the spread between what you pay on the import leg and what you receive on the export leg. Both legs of money move through your Authorised Dealer bank, which is why the bank cares so much about the timing.
One clarification first, because it saves a lot of wasted reading: merchanting trade is a goods framework. If you are a design studio, a software consultancy or an agency invoicing a client abroad, this is not your regulation, and the six-month rule below does not apply to you.
The rule that changes on 1 October 2026
Merchanting trade now sits in Regulation 16 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, notified as FEMA 23(R)/2026-RB on 13 January 2026. Regulation 1(2) sets commencement at 1 October 2026, and on that date the 2026 Regulations supersede the 2015 Export Regulations. If you want the wider picture of what else changes that day, we have covered the FEMA 2026 changes for exporters separately.
Regulation 16(1)(a) reads: "the period between the outward remittance and inward remittance or vice versa does not exceed six months: Provided that the Authorised Dealer may, on request citing reasons for delay, allow extension of time, if the Authorised Dealer is satisfied of the reasons cited."
Read that slowly, because three details in it get lost in most summaries. The period is six months. It is measured between the two remittance legs, not from the date of shipment. And it runs in either direction, which matters if your buyer pays you before you pay your supplier.
What the top-ranking guidance gets wrong
One of the guides currently ranking on the first page for this topic tells readers that the 2026 regulations removed the old fixed nine-month completion deadline, leaving AD banks free to grant extensions for commercially justified reasons. That is half right in a way that could cost you. The fixed period was not removed. It was replaced with six months between the remittance legs, which is tighter than the nine months it succeeded, and the extension is a discretionary power your bank may exercise on a reasoned request, not something that happens by default. Plan to the six months and treat any extension as a favour you have to ask for.
Third-party payments: a blanket ban becomes a discretion
Under the older framework the position was flat: no third-party payments in either the import or the export leg. Several pages still state it that way. Regulation 16(1)(b) keeps the default rule, requiring that outward remittances go only to the overseas seller and inward remittances come only from the overseas buyer, but it adds a proviso: the Authorised Dealer may, on a request from the customer citing reasons, allow receipt from or payment to a third party where the bank is satisfied of those reasons.
In practice that is a discretion, not a right. If your structure genuinely needs a payment to or from someone other than the named counterparty, put the reasons to your bank in writing and get the answer before the money moves, not after it has been held.
What your bank has to do, and why it will chase you
Regulation 16(1)(c) requires you to give the bank the documents evidencing the transaction so it can establish that the trade is genuine. Regulation 16(2) then puts two duties on the bank: it may credit or debit your account for an MTT only after satisfying itself the transaction is genuine, and it must simultaneously close or update the corresponding entry in EDPMS or IDPMS. It must also monitor and follow up with you to make sure both legs complete within the period the regulations specify.
That last duty is the reason your relationship manager will call you in month five. The bank is not being difficult; it is being monitored on your file. Entries that sit open in EDPMS are also how exporters end up caution-listed, which restricts how you can transact on future shipments, so an open leg is worth more attention than it usually gets.
It has to be genuine trade, not financing dressed as trade
Regulation 16 opens by requiring that the person undertaking merchanting trade acts in accordance with the Foreign Trade Policy, which in practice means the goods must be ones India permits for export and import. The point commentators keep making, and it is a fair one, is that a merchanting trade has to have commercial substance. If the goods and the counterparties are real but the arrangement exists to move money rather than to trade, you are in a different and much less comfortable conversation with your bank. Keep the contract, the commercial invoices and the transport documents together as a set.
The six-month clock, worked through
Say you pay your Vietnamese supplier on 15 November 2026. Your German buyer's payment needs to reach you by 15 May 2027. Reverse the order and the rule reads the same: if the buyer pays you an advance on 1 December 2026, your payment to the supplier should go out by 1 June 2027. What you cannot do is treat the clock as starting from shipment, or assume the trade simply has to be finished inside some longer window.
If you can see the second leg slipping, go to your bank before the six months are up rather than after. From the same commencement date, Regulation 19 requires every Authorised Dealer to have a written policy covering the documents, timelines and charges for approvals of this kind, including extensions, and to publish its main features. That gives you something concrete to ask for. It also means your bank cannot penalise you for its own process in the way some have.
Can you just net the two legs against each other?
It is the obvious question when both legs sit with the same bank, and the answer lives in a different regulation. Regulation 7 lets an Authorised Dealer allow set-off of export receivables against import payables where the counterparty is the same overseas buyer or supplier, or an overseas group or associate company, within the realisation period. In a classic merchanting trade your supplier and your buyer are unrelated parties, so set-off usually will not reach it. Where they are part of the same group, it is worth putting to your bank.
What to do before 1 October 2026
Four things are worth doing in the next few weeks. List every merchanting trade you have open or planned, with the date of each remittance leg, and check which ones straddle 1 October. Ask your bank for its policy and the main features of its standard operating procedure under Regulation 19, since it is required to publish them. If your structure involves any third-party receipt or payment, get that pre-cleared in writing rather than discovering the default rule at settlement. And confirm that the EDPMS or IDPMS entry for every completed leg has actually been closed, because your bank closing it and you assuming it closed are not the same thing.
Where a collections account fits here, and where it does not
We should be straight about this, because merchanting trade is one of the places our own product is the wrong tool. A Winvesta Global Collections Account gives you local receiving details in USD, GBP, EUR and other currencies, and a FIRA for every payment that arrives, which is genuinely useful if you export services or goods and are being paid by clients abroad. It does not send outward remittances to an overseas supplier, and a merchanting trade needs that leg. More to the point, Regulation 16(2) requires the bank handling your MTT to monitor both legs together and to close the EDPMS or IDPMS entries itself, which is an argument for keeping the whole transaction with your AD bank rather than splitting it. If you are running merchanting trade in goods, your AD bank runs it. If you are a service exporter who landed here by accident, that is the case where we can help.
The quotations above are from the text of FEMA 23(R)/2026-RB as notified. How your bank applies them will depend on the policy and standard operating procedure it publishes under Regulation 19, which many banks had not released at the time of writing. This is general information rather than advice on your transaction; your AD bank and your advisers should confirm how the regulation applies to a specific trade.
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.