India’s new cross-border trade regulations, which took effect on 1 October 2026, moved foreign exchange compliance directly into the commercial drafting process.
While FEMA 23(R)/2026-RB consolidates roughly 167 circulars under a single instrument, its core commercial reality is twofold: the lawyer drafting payment terms now establishes the regulatory compliance baseline, while the client’s bank, rather than the regulator becomes the discretionary gatekeeper of cross-border trade execution.
Notified in January as FEMA 23(R)/2026-RB, they replaced the 2015 export and import regulations, bringing exports and imports of goods, services, and software under a single, unified instrument for the first time.
Most market commentary has focused on consolidation and procedural liberalisation. Two structural provisions, however, alter how cross-border contracts must be drafted and administered.
First, the fixed six-month statutory limit on import payments is gone; payment timelines now follow the period specified in the underlying commercial contract. Second, the Reserve Bank of India (RBI) has stepped back from transaction-level approvals. The new regulations are principle-based, delegating operational discretion to Authorised Dealer (AD) banks to interpret compliance, process set-offs, and grant extensions based on their own internal policies and assessment of bona fides.
The Contract as the Regulatory Limit
Under the prior framework, statutory deadlines operated independent of commercial drafting. The payment terms specified by an import contract held when read against the regulatory backstop. A commercial lawyer drafting payment clauses did not need to evaluate the FEMA impact of extended credit terms.
Under the 2026 framework, the contractual payment timeline forms the baseline regulatory limit, monitored by AD banks through the Import Data Processing and Monitoring System (IDPMS).
This provides welcome commercial flexibility, but it bridges two functions that rarely coordinate during execution: the commercial lawyer drafting payment terms now establishes the compliance baseline, which the corporate treasury function must subsequently administer and the AD bank must monitor.
The same principle-based model extends across other core contexts:
- Group Set-Offs: Set-off between export receivables and import payables is codified, including across goods, services, and overseas associate entities, provided it is executed within the stipulated realisation period or an AD-bank-approved extension.
- Third-Party Settlements: Third-party receipts and payments are expressly permitted, provided the AD bank is satisfied regarding the bona fides and supporting documentation.
- Merchanting Trade: Merchanting trade transactions lose their legacy completion timeline, but acquire a strict rule that the gap between outward and inward remittances must not exceed six months.
Each provision converts a rigid statutory prohibition into a conditional permission with the conditions evaluated directly by the client’s bank.
Re-Intermediation: The Bank as Discretionary Gatekeeper
This framework introduces a distinct structural dynamic into cross-border advisory.
In cross-border legal advisory, mandates have disintermediated as deal filings show global clients increasingly instructing Indian counsel directly. In trade compliance, however, the opposite has occurred: the regulatory framework has re-intermediated around the client’s AD bank.
AD banks now carry codified obligations for data entry, monitoring, mark-offs, and closures under EDPMS and IDPMS. They exercise direct discretion over value reductions, non-realisations, group set-offs, and third-party settlements. For transactions below INR 10 lakh, banks may permit realisation based on an exporter’s declaration alone, including quarterly bulk closures.
As a consequence, a complex or non-standard trade structure no longer requires an RBI approval; it requires satisfying a bank compliance officer operating under an internal SOP. In the early months of this framework, banks will inevitably exercise this discretion conservatively. The adviser’s role is no longer only to petition the regulator, but to prepare the client to satisfy an AD bank’s risk assessment.
Immediate Exposure for Global Capability Centres and Captives
The most immediate operational exposure rests with Global Capability Centres (GCCs) and foreign-owned captives, where intercompany service terms have historically been driven by transfer pricing policies rather than FEMA realisation windows.
Under the 2026 regulations, service imports fall squarely within IDPMS reporting. Software exporters transition from the legacy SOFTEX framework to the unified Export Declaration Form (EDF), which now applies across goods, services, and software. Non-software service exporters must file an EDF within 30 days of the end of the month in which an invoice is raised.
For a captive invoicing an overseas parent, this creates immediate obligations: intercompany payment terms must be tested against applicable realisation windows, group set-offs require formal AD bank satisfaction, and monthly EDF filings must be institutionalised.
The scale makes this material: private investment in IT-enabled services and GCCs has reached INR 9.36 trillion. This is close to five times its earlier level, against total private project announcements that roughly doubled to INR 104 trillion across FY24 to FY26. The population of affected entities is large, growing, and substantially foreign-owned.
Operational Priorities Across the Corridor
Adapting to the new regime requires distinct actions across practice groups:
- Captives and Service Exporters: Require an immediate relook at service agreements between companies to align payment terms with realisation rules and establish workflows for 30-day EDF reporting.
- Group Set-Off Arrangements: Entities running cross-border set-offs must confirm that arrangements previously operating on standing practice now meet the specific conditions their AD bank will require within the 9-month realisation window.
- Long Dated Supply Contracts: Importers on long-term capital equipment or project supply contracts must ensure their agreements explicitly state extended payment terms to claim the benefit of the contract-aligned timeline.
- Foreign Parent Companies: Parent entities must reconcile global payment protocols with the local compliance obligations imposed on their Indian subsidiaries, ensuring both sides operate under aligned contractual terms.
Early Implementation Risks and Regulatory Limits
Export realisation timelines were revised shortly before implementation. Through an amendment notified on 22 September 2026 (FEMA 23(R)/(1)/2026-RB), the RBI reduced the general export realisation window from the originally proposed 15 months down to 9 months (from shipment for goods, or invoice date for services). Exports invoiced or settled in Indian Rupees carry a 12-month realisation window.
Also, exporters listed on the RBI Caution List as of 30 September 2026 remain governed by orders under the 2015 regulations until formally cleared.
Finally, the framework took effect on 1 October 2026 and is only four days old. How individual AD banks exercise their newly codified discretion is the single largest open variable. Practice will inevitably vary between institutions, and nothing can yet be stated with confidence about how bank compliance officers will interpret gray areas as the regime beds down. Establishing clear contractual terms and engaging AD banks early on non-standard structures is a prudent precaution, but it remains an exercise in managing genuine regulatory uncertainty.
What to check now
If you are in-house, the question is whether anyone has read your cross-border contracts against the new timelines since 1 October including supply, licensing, intercompany services and any set-off arrangements. The specific comparison is whether the payment terms sit inside the nine-month realisation window, or twelve months where the invoice is in rupees, and whether someone has been made responsible for the IDPMS and EDPMS filings rather than assuming the finance team has it.
If you are advising on a cross-border contract, the question is: does your engagement letter cover the FEMA consequence of the payment clause you are negotiating? Until last week it did not need to. The same applies to set-off terms and to anything that will require the AD bank’s agreement.
Lawfinity Solutions advises international law firms on cross-border legal market positioning. If the India corridor is a live question for your firm, we would be interested in a conversation. Lawfinity works with one firm per jurisdiction. Engagements begin with a single conversation about your firm’s current position and where the corridor question is live for you. Write to Prachi Shrivastava
