How Do You Refund an Export Advance When the Export Is Not Completed?
- Author:
- Manoj Sharma
- Verified by:
- Editorial team
- Published:
- Last modified:
Short answer
To refund an export advance when the export is not completed, ask the AD bank that received the advance to remit it to the buyer. From 1 October 2026, the AD bank handles this under its own policy. The bank records the refund in EDPMS. If a refund is impossible, the bank may close the entry instead.
| Applies to | Governed by | Deadline | Penalty | Last verified |
|---|---|---|---|---|
| Exporters of goods, software and services in India who received an advance from a foreign buyer and could not ship or deliver, fully or partly | Regulations 4, 10, 18 and 19 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, in force from 1 October 2026 | No fixed refund deadline in the 2026 regulations; your AD bank's policy applies. Under the 2015 regulations, refunds after the shipment period needed RBI approval | FEMA section 13: up to three times the sum involved where quantifiable, or up to ₹2 lakh where not quantifiable | 8 Oct 2026 |
What does refunding an export advance mean under FEMA?
Refunding an export advance means sending money that a foreign buyer paid before an export back to that buyer, because the goods were not shipped or the services were not delivered. Under FEMA it is an outward remittance linked to an export entry, so it goes through your AD bank and is recorded in EDPMS.
- Same bank: The advance came in through an AD bank, and later payments for that export must use the same AD bank unless you inform both banks of a change (Regulation 10(1)). The refund is normally handled by the bank holding the advance record.
- EDPMS record: AD banks enter details of inward and outward remittances for all exports in EDPMS (Regulation 18(1)(e)). A refund is an outward remittance against the open advance entry.
- Bank policy: Every AD bank's internal policy and SOP must cover advance receipts for exports and the adjustment of under, over and non-realisation of export proceeds (Regulation 19(1)(c) and (d)).
- No refund possible: Where no export has been made and a refund is not possible, the AD bank may close the advance entry in EDPMS on your request, if it accepts your reasons as genuine (Regulation 18(1)(i)).
- Old advances: AD banks now handle older transactions that earlier needed RBI approval under the 2015 regulations and the Master Direction (Regulation 20).
The 2026 regulations do not set a separate refund procedure or deadline. The practical steps, documents and charges come from your AD bank's published policy.
Who needs to follow the export advance refund process?
Any exporter in India who received an advance from a buyer outside India and then could not complete the export needs to follow the export advance refund process. This covers goods exporters, software and IT firms, and freelancers, because the 2026 regulations treat software as a service and apply the same rules.
| Situation | Applicable | Why | Best for |
|---|---|---|---|
| Goods exporter whose order was cancelled before shipment | Yes | Advance must be refunded or the EDPMS entry closed (Regulation 18(1)(i)) | Manufacturers and traders |
| Freelancer or agency whose project was cancelled after a deposit | Yes | Services include software (Regulation 2(1), Explanation), and the advance routing rule applies to every exporter (Regulation 10(1)) | Individuals and small service firms |
| Exporter who shipped or delivered part of the order | Yes, for the unused part | Only the unused balance is refunded; the delivered part is matched to the export | Exporters with partial deliveries |
| Exporter who delivered fully but gave a discount or claim | Different process | This is a reduction in export value, handled under Regulation 6 | Exporters settling quality or price disputes |
| Exporter holding an advance received before 1 October 2026 | Yes, through the AD bank | Cases that needed RBI approval now go to the AD bank (Regulation 20) | Exporters with long-pending advances |
How do you refund an export advance to the foreign buyer?
You refund an export advance by sending a written request to the AD bank that received it, with proof of the cancellation, and asking the bank to remit the unused amount to the buyer. The bank checks genuineness, sends the payment and updates the advance entry in EDPMS.
- Confirm with the buyer, in writing, that the export is cancelled in full or in part and the amount to be refunded.
- Check your AD bank's published export policy and SOP for the documents, timelines and charges that apply (Regulation 19(1)(a) and 19(4)).
- Write to the AD bank through which the advance was received (Regulation 10(1)), giving the inward remittance reference, the amount received, the amount to refund and the reason the export did not happen.
- Attach the contract or proforma invoice, the cancellation correspondence and the buyer's bank details. Refund to the overseas party that paid; a payment to any third party needs the bank's permission (Regulation 8).
- The bank debits your account and remits the refund only after it is satisfied the transaction is genuine (Regulation 4(2)).
- The bank records the outward remittance against the advance in EDPMS (Regulation 18(1)(e)) and reports it in FETERS with a purpose code (Regulation 18(2)).
- Keep the bank's debit advice and remittance confirmation. If you raised a GST receipt voucher on the advance, issue a refund voucher (CGST Act section 31(3)(e)).
What if refunding the export advance to the buyer is not possible?
If no export was made and the advance cannot be refunded, ask your AD bank to close the advance entry in EDPMS. The bank may close it on your request citing reasons, after it is satisfied the reasons are genuine (Regulation 18(1)(i)).
- Explain why a refund cannot be made, for example the buyer has closed down, cannot be traced or has waived the refund in writing.
- Attach whatever evidence you have, such as returned emails, the buyer's written waiver or public notice of closure.
- If the bank refuses, use its grievance and appeal process, which must be handled at a higher internal level (Regulation 19(2)).
How is a partial refund of an export advance handled?
When part of the order was shipped or delivered, the advance is matched to the export that happened and only the balance is refunded. The EDF for the export shows the actual export value, and the refund covers the unused portion of the advance.
- For services, the EDF is due within 30 days from the end of the month in which the invoice was raised (Regulation 3(2)). See EDF form for exports.
- Ask the bank to link the refund to the same advance entry so EDPMS shows the advance as fully used or refunded.
- If the export happened in full but you returned money as a discount or claim, the bank treats it as a reduction in export value under Regulation 6. See invoice value reduced after shipment.
How did refunds of export advances work before 1 October 2026?
Before 1 October 2026, Regulation 15 of the 2015 regulations required shipment within a set period from receipt of the advance. If you could not ship in that period, no refund or interest could be remitted after it ended without prior RBI approval (Master Direction, para C.2(1)).
- The period was one year until a 13 November 2025 amendment changed it to three years, including in the refund proviso.
- The Master Direction was superseded from 1 October 2026 (A.P. (DIR Series) Circular No. 20, para 4).
- From that date, AD banks handle such older cases that earlier needed RBI approval (Regulation 20).
Does a refunded export advance need GST adjustment?
A registered supplier who issued a receipt voucher on an advance, and then made no supply and no invoice, may issue a refund voucher to the payer (CGST Act section 31(3)(d) and (e)). The voucher must show the receipt voucher number, refund amount and tax details (CGST Rule 51).
- If GST was paid on the advance and no invoice was issued, CBIC says to issue a refund voucher and claim the tax in FORM GST RFD-01 as excess payment of tax (Circular No. 137/07/2020-GST, item 2).
- If an invoice was already issued before supply, CBIC says to issue a credit note under section 34 instead (Circular No. 137/07/2020-GST, item 1).
- Many service exports are made under LUT without paying IGST. For the GST side, see GST refund on export of services.
What documents and purpose codes are used to refund an export advance?
To refund an export advance, banks usually need your request letter, the original advance details, the contract and the cancellation proof. RBI does not publish one checklist; each AD bank lists its documents in its policy (Regulation 19(1)(a)). The purpose codes below come from RBI's FETERS purpose code list under A.P. (DIR Series) Circular No. 84.
| Item | What it is | Source | Best for |
|---|---|---|---|
| Request letter | Reason for non-export, advance reference, amount to refund, buyer's bank details | AD bank policy | Every refund request |
| Contract or proforma invoice | Shows the advance was for a genuine export | Regulation 4(2) | Proving the original transaction |
| Cancellation proof | Buyer's email or letter cancelling the order fully or partly | AD bank policy | Showing why no export happened |
| P0103 | "Advance receipts against export contracts, which will be covered later by GR/PP/SOFTEX/SDF – other than Nepal and Bhutan", the receipt code for an export advance | RBI purpose code list, A.P. (DIR Series) Circular No. 84 | Checking how the original advance was reported |
| S1501 | "Refunds / rebates / reduction in invoice value on account of exports" | RBI purpose code list, A.P. (DIR Series) Circular No. 84 | Outward refunds linked to exports |
| S1502 | "Reversal of wrong entries, refunds of amount remitted for non-exports" | RBI purpose code list, A.P. (DIR Series) Circular No. 84 | Money received by mistake that was never for an export |
| GST refund voucher | Voucher against the receipt voucher, for registered suppliers | CGST Rule 51 | GST-registered exporters who issued a receipt voucher |
What happens if an unused export advance is never refunded or closed?
An unused export advance that is never refunded or closed stays open in EDPMS, and your AD bank must monitor it and follow up with you for its closure (Regulation 18(1)(f)). An unresolved FEMA contravention can attract a penalty under section 13 of FEMA.
- Penalty: Up to three times the sum involved where it can be quantified, or up to ₹2 lakh where it cannot, plus up to ₹5,000 a day for a continuing contravention (Master Circular on Compounding, para 1.1).
- Bank follow-up: The bank monitors outstanding EDPMS entries for closure and follows up with you for the documents needed to close them (Regulation 18(1)(f)).
- Bank charges: An AD bank may not levy any charge or penalty on you for a regulatory delay or violation by you, and its charges for handling transactions must be reasonable and proportional to the service (Regulation 19(3)).
- Scrutiny: RBI directs AD banks to inform the Directorate of Enforcement of any doubtful transaction (A.P. (DIR Series) Circular No. 20, para 3). A clear paper trail for the refund helps the bank see it is genuine.
If an advance is still open, write to your AD bank now with the reason the export did not happen and either request the refund or ask for closure under Regulation 18(1)(i). For a past contravention, compounding under FEMA section 15 is a voluntary route; see FEMA penalties and compounding for export delays.
Which RBI rule governs the refund of an export advance?
From 1 October 2026, refunds of export advances fall under the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, mainly Regulations 10, 18 and 19. These replaced Regulation 15 of the 2015 regulations and paragraph C.2 of the Master Direction, which needed RBI approval for late refunds.
| Circular or regulation | Clause | Date | Plain meaning | Best for |
|---|---|---|---|---|
| FEMA 23(R)/2026-RB | Regulation 10(1) | 13 January 2026, in force 1 October 2026 | Advance and later proceeds go through the same AD bank | Knowing which bank handles the refund |
| FEMA 23(R)/2026-RB | Regulation 18(1)(e) | 13 January 2026, in force 1 October 2026 | Banks record inward and outward export remittances in EDPMS | Tracking the refund against the advance |
| FEMA 23(R)/2026-RB | Regulation 18(1)(i) | 13 January 2026, in force 1 October 2026 | Bank may close an advance entry where no export and no refund is possible | Buyers who cannot be refunded |
| FEMA 23(R)/2026-RB | Regulation 19(1)(c), (d) | 13 January 2026, in force 1 October 2026 | Bank policy must cover advances and adjustment of export proceeds | Finding your bank's documents and charges |
| FEMA 23(R)/2026-RB | Regulation 20 | 13 January 2026, in force 1 October 2026 | Banks handle older cases that needed RBI approval | Advances received before October 2026 |
| FEMA 23(R)/(7)/2025-RB | Regulation 15 of 2015 regulations | 13 November 2025 | Shipment and refund period changed from one year to three years | Understanding older advances |
| Master Direction, Export of Goods and Services | Para C.2(1) | Superseded 1 October 2026 | Late refunds of unused advances needed prior RBI approval | History of the rule |
| A.P. (DIR Series) Circular No. 20 | Para 4 | 16 January 2026 | Supersedes the Master Direction from 1 October 2026 | Confirming which rules apply now |
What mistakes do exporters make when refunding an export advance?
- Wrong bank: Sending the refund from a different bank than the one that received the advance, without informing both banks as Regulation 10(1) requires.
- Different payee: Refunding to a person or account other than the buyer who paid, without the bank's permission for a third-party payment under Regulation 8.
- Unlinked refund: Refunding money and not asking the bank to link it to the advance entry, so EDPMS still shows the advance as unused.
- Wrong route: Treating a post-delivery discount as an advance refund. A discount after export is a reduction in export value under Regulation 6.
- GST records: Forgetting the GST refund voucher where a receipt voucher was issued on the advance, which leaves GST records out of step.
- Old rule: Assuming RBI approval is still needed for an old advance. AD banks now handle these cases under Regulation 20.
How did we verify this?
Every rule, deadline and form on this page is linked to its official source, checked on the dates below.
- Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, Notification FEMA 23(R)/2026-RB dated 13 January 2026, amended up to 22 September 2026, Regulations 1(2), 2(1) Explanation, 3(2), 4(1), 4(2), 6, 8, 10(1), 18(1)(e), (f), (i), 18(2), 19(1)(a), (c), (d), 19(2), 19(3), 19(4), 20 (checked 8 Oct 2026)
- RBI A.P. (DIR Series) Circular No. 20, RBI/2025-26/194: Export and Import of Goods and Services, 16 January 2026, Para 3 (references and doubtful transactions), para 4 (supersession of Master Directions), para 7 (effective 1 October 2026) (checked 8 Oct 2026)
- RBI Master Direction: Export of Goods and Services (FED Master Direction No. 16/2015-16), superseded from 1 October 2026, Para C.2(1): no refund of unutilised advance after the shipment period without prior RBI approval (checked 8 Oct 2026)
- Foreign Exchange Management (Export of Goods and Services) (Second Amendment) Regulations, 2025, FEMA 23(R)/(7)/2025-RB, 13 November 2025, Para 3: Regulation 15(1)(i), proviso and 15(2), one year replaced by three years (checked 8 Oct 2026)
- RBI A.P. (DIR Series) Circular No. 84 (RBI/2011-12/413), 29 February 2012: Guidelines for submission of data under FETERS, revised purpose code list, Purpose codes P0103, S1501, S1502 (checked 8 Oct 2026)
- CGST Act, 2017, section 31 (CBIC tax information portal), Section 31(3)(d) receipt voucher; 31(3)(e) refund voucher (checked 8 Oct 2026)
- CGST Rules, 2017, Rule 51: Refund voucher (CBIC tax information portal), Rule 51(a) to (k), particulars of a refund voucher (checked 8 Oct 2026)
- CBIC Circular No. 137/07/2020-GST dated 13 April 2020, Items 1 and 2: credit note or refund voucher for cancelled service contracts with advances (checked 8 Oct 2026)
- RBI Master Circular on Compounding of Contraventions under FEMA, 1999, Para 1.1, FEMA section 13(1) penalties and section 15 compounding (checked 8 Oct 2026)
Frequently asked questions
Does a refund of an export advance need RBI approval under the FEMA 2026 regulations?
No separate RBI approval is set out for refunds under the FEMA 2026 regulations. Your AD bank handles the refund under its own policy. Regulation 20 also lets AD banks handle older transactions that earlier needed RBI approval, including late refunds of advances received under the 2015 regulations.
Which purpose code does a bank use for an outward refund of an export advance?
RBI's purpose code list includes S1501, described as refunds, rebates or reduction in invoice value on account of exports. S1502 covers reversal of wrong entries and refunds of amounts remitted for non-exports. The list does not name a code only for unused advances, so your AD bank selects the code when it remits.
Can a freelancer refund a client deposit for a cancelled export of services project?
Yes. A freelancer who received a deposit for an export of services project that was cancelled can ask the AD bank that received it to remit the unused amount back to the client. The freelancer should give the bank the cancellation emails, the original invoice or contract and the client's bank details.
Is there a time limit to refund an unused export advance after 1 October 2026?
The FEMA 2026 regulations do not set a time limit to refund an unused export advance. Each AD bank sets timelines in the internal policy that Regulation 19 requires it to publish. Ask your bank what follow-up period it applies, since the bank must monitor open EDPMS entries and follow up with you.
Can an exporter keep an export advance if the foreign buyer waives the refund?
An exporter can ask the AD bank to close the export advance entry under Regulation 18(1)(i) where no export was made and a refund is not possible. A written waiver from the buyer is useful evidence. The bank decides after checking that the reasons are genuine, so get its decision in writing.
Does the ₹10 lakh EDPMS declaration route apply when refunding an export advance?
The first proviso to Regulation 4(2) lets an AD bank close an EDPMS entry on the exporter's declaration where a shipping bill or invoice is up to ₹10 lakh. That proviso speaks of realised export payments and does not mention advance refunds. Ask your AD bank how it treats a small refunded advance.
Where can an exporter appeal an AD bank decision on closing an export advance entry?
Regulation 19(2) requires every AD bank to have a grievance escalation process and an appeal mechanism handled at a higher internal level. That level must decide based on the genuineness of your submissions. Raise the appeal in writing with your reasons and documents if the bank refuses to close an advance entry.