How Does Set-Off of Export Receivables Against Import Payables Work Under FEMA From 1 October 2026?

Set-off of export receivables against import payables is a way of settling two trade debts with one overseas counterparty by adjusting one against the other, so only the net balance moves across the border. Under the 2026 regulations, an AD bank may allow this set-off for receivables and payables from or to the same overseas buyer or supplier, or their overseas group or associate companies (Regulation 7).

• Counts as realisation: The amount set off counts towards realisation of the export value. Regulation 5(1) says the full export value must be realised, including by way of set-off under Regulation 7 (Regulation 5(1)).
• Who approves: Your AD bank decides. The regulation says an Authorised Dealer may allow the set-off, so there is no automatic right and no separate RBI application (Regulation 7).
• Counterparties: The set-off can be with the same overseas buyer or supplier, or with their overseas group or associate companies (Regulation 7).
• Time window: The set-off must take place within the period for realisation of export proceeds, or within the extended period the AD bank allows (Regulation 7).
• Services included: Services include software under the 2026 regulations, so service exporters and software exporters can use the same provision (Regulation 2(1), Explanation).
• Old rules: The Master Direction on Export of Goods and Services and A.P. (DIR Series) Circular No. 47 of 17 November 2011 on set-off stand superseded from 1 October 2026 (A.P. (DIR Series) Circular No. 20).

In short, set-off is a form of realisation that your AD bank permits and records. The general rules on the realisation period are covered in export realisation period, and the wider 2026 changes in new FEMA export and import regulations.

Any Indian exporter that both sells to and buys from the same overseas party, or that party's group or associate companies, can ask its AD bank for a set-off. The regulation applies to goods and services alike. It does not cover receivables and payables with unrelated parties (Regulation 7).

You get approval by applying to the AD bank that holds your export entries, showing both the outstanding export receivable and the matching import payable, and asking the bank to allow the set-off under Regulation 7. The bank follows its own internal policy and SOP, which must list documents, timelines and charges (Regulation 19).

1. Match the open items. List the unpaid export invoices or shipping bills and the unpaid import invoices or bills of entry with the same overseas party or its group companies. Each export stays open in EDPMS until the bank marks it off (Regulation 18(1)(g)). See EDPMS closure.
2. Check the dates. Confirm that each export is still within nine months of shipment or invoice, or twelve months if invoiced or settled in rupees (Regulation 5(1)). If the period has passed, ask for an extension first.
3. Read your AD bank's published export and import policy. Each bank must disclose its policy and the main features of its SOP on its website (Regulation 19(4)).
4. Agree the set-off in writing with the overseas party, so the invoices being adjusted and the amounts are clear to both sides and to the bank.
5. Send the request to your AD bank with the documents its policy lists. If you received an advance for the export, the advance and the realisation go through the same AD bank unless you tell both banks of a change (Regulation 10(1)).
6. Pay or receive the net balance in the manner set out in the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023, which apply to all export and import receipts and payments (Regulation 4(1)).
7. Confirm that the bank has closed or updated the EDPMS and IDPMS entries for every invoice covered by the set-off (Regulation 18(1)(g) and (h)).

An AD bank relies on the documents listed in its own internal policy for set-off of export receivables, because RBI requires each bank's internal policy to include a list of documents, timelines and charges for each process and approval (Regulation 19(1)(a)). The table shows the records the regulations refer to and items the old Master Direction allowed banks to ask for.

If a set-off of export receivables is not approved in time, the export amount stays unrealised in EDPMS and the normal rules on late realisation apply. Exports unrealised for more than one year beyond the due date or extended period restrict you to full advance or an irrevocable letter of credit for future exports (Regulation 13).

• Open entries: The bank marks off an EDPMS entry only after it is satisfied the export value has been realised, so an unapproved set-off leaves the entry open (Regulation 18(1)(g)).
• Bank follow-up: AD banks must have systems to monitor and follow up with exporters to realise proceeds within the period (Regulation 5(2)). See how AD banks monitor exports.
• Trade restriction: After one year beyond the due date, further exports need full advance or an irrevocable letter of credit (Regulation 13).
• FEMA penalty: A contravention of FEMA or its regulations can attract a penalty up to three times the sum involved where quantifiable, under section 13(1) of FEMA (RBI Master Circular on Compounding).
• Doubtful cases: AD banks are directed to report any doubtful transaction to the Directorate of Enforcement (A.P. (DIR Series) Circular No. 20, para 3).

If the realisation period is close to ending, ask your AD bank for an extension citing the reasons for delay (second proviso to Regulation 5(1)) and file the set-off request inside the extended period. If the bank refuses, use its grievance escalation and appeal process, which RBI requires every bank to have (Regulation 19(2)). See also export proceeds not realised.

Regulation 7 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 governs set-off of export receivables from 1 October 2026 (Regulation 7). A.P. (DIR Series) Circular No. 20 superseded the older Master Direction and set-off circular from the same date (Circular No. 20).

• Netting privately: Adjusting invoices with the overseas party without AD bank approval leaves the export open in EDPMS, because only the bank can allow the set-off (Regulation 7).
• Missing the window: Applying after nine months (or twelve for rupee trade) without an extension takes the request outside Regulation 7 (Regulation 5(1)).
• Wrong counterparty: Setting off against a payable to an unrelated supplier falls outside Regulation 7 and needs the third-party route under Regulation 8 instead (Regulation 8).
• Citing old rules: Quoting para C.26 of the Master Direction as current law is outdated from 1 October 2026 (Circular No. 20); read your bank's SOP for its present conditions.
• Skipping EDF: A set-off does not replace the export declaration. Service exporters still file the EDF within 30 days from the end of the invoice month, and exporters of services other than software may file it on or before the date of payment (Regulation 3(2)).
• Ignoring tax: Assuming GST zero-rating applies to the set-off portion without advice is risky, because section 2(6) refers to payment received (IGST Act section 2(6)).

Every rule, deadline and form on this page is linked to its official source, checked on the dates below.

1. Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (Notification No. FEMA 23(R)/2026-RB, amended up to 22 September 2026), Regulations 2(1), 3, 4, 5, 7, 8, 10(1), 13, 18, 19, 20 and footnotes on the 22 September 2026 amendment (checked 8 Oct 2026)
2. A.P. (DIR Series) Circular No. 20, RBI/2025-26/194, Export and Import of Goods and Services, 16 January 2026, Paras 3, 4 and 7; Annex A serial 51 (Circular No. 47 of 17 November 2011 on set-off) (checked 8 Oct 2026)
3. Master Direction - Export of Goods and Services (FED Master Direction No. 16/2015-16, updated as on 17 July 2026), superseded from 1 October 2026, Para C.26 (set-off), para C.27 (SEZ netting-off), earlier text of para A.3(vii)(f) on set-off under the Rupee Payment Mechanism (footnote 18, before substitution on 17 July 2026) (checked 8 Oct 2026)
4. RBI Master Circular No. 9/2014-15 on Compounding of Contraventions under FEMA, 1999, Para 1.1 (penalty under section 13(1) of FEMA) (checked 8 Oct 2026)
5. Integrated Goods and Services Tax Act, 2017, section 2 (definitions), CBIC, Section 2(6)(iv) (checked 8 Oct 2026)