What an RBI purpose code is, the six codes students and families use, how the code sets your TCS rate, and how to split a payment that mixes purposes.

LRS Purpose Codes Explained: S0305, S1301, S1302 and When to Use Each

A purpose code is the five-character RBI label on your Form A2 that tells the bank and the regulator why money is leaving India. Tuition and hostel fees are S0305, monthly living money to a relative is S1301, a gift is S1302, medical treatment is S0304. The code drives your TCS rate, so the wrong one costs you.

Key facts

• Every LRS remittance carries one RBI purpose code, declared on Form A2.
• The six codes families use: S0305 education, S0304 medical, S0306 other travel, S1301 family maintenance, S1302 gifts, S0023 emigration.
• The code decides the TCS rate: 2% above INR 10 lakh for S0305 and S0304, 20% above INR 10 lakh for S1301 and S1302, 0% for loan-funded S0305.
• A wrong code means rejection by the AD or the wrong TCS, and both take weeks to fix.
• A payment that mixes purposes should be split into two remittances with two codes.

What a purpose code is and who reads it

Every authorised dealer (AD) in India files a return to RBI on the foreign exchange it sells. RBI needs to know what the money was for, to compile the balance of payments and to police the Liberalised Remittance Scheme, so each transaction is tagged with a code from RBI’s purpose-code list. Codes beginning with S are outward remittances; codes beginning with P are inward.

You meet the code on Form A2, the declaration every LRS remitter signs. The AD’s compliance team checks that the code matches your documents: an offer letter supports S0305, a hospital estimate supports S0304. From 1 April 2026 the AD also uses the code to pick the TCS rate under Section 206C(1G), because the Income Tax Act sets rates by purpose and the purpose code is the bank’s evidence of purpose.

The full list runs to well over a hundred codes, most of them for companies. Individuals under LRS use a handful. RBI’s LRS FAQ sets out the scheme, and IDFC First Bank’s purpose-wise document checklist is a useful cross-check for the descriptions below.

The six codes students and families actually use

S0305: Travel for education (including fees, hostel expenses). Tuition fees paid to a university, college or school abroad, and hostel or university-managed accommodation. It also covers a student’s own travel funds and living money remitted under the education head. A parent paying on the child’s behalf uses S0305 too; the code describes the purpose, not the relationship.

S0304: Travel for medical treatment. Hospital bills, a deposit demanded before admission, and the patient’s and attendant’s travel and stay. Support is the hospital estimate or invoice.

S0306: Other travel. Tourism, business travel by an individual, a family holiday. Forex card loading for a trip usually sits here. An overseas tour package bought from an Indian operator is a different TCS case (flat 2%), and the AD may record it under a specific travel code rather than S0306.

S1301: Remittance for family maintenance and savings. Money to a relative abroad for living costs, including a student’s rent and groceries when sent as maintenance rather than under the education head, and money to your own account abroad for savings. No invoice is needed; the AD wants a bank statement showing the source of funds.

S1302: Personal gifts and donations. A gift to a child, sibling or friend abroad, a wedding gift, a donation to an overseas charity. The recipient need not be a relative.

S0023: Emigration. Funds taken out by a person who is emigrating, typically for settlement costs or a proof-of-funds requirement for permanent residence.

For anything else, such as shares, property or an exam fee to a foreign body, describe the purpose in words and the AD assigns the code from RBI’s list.

How the code sets your TCS rate

The Income Tax Act does not mention purpose codes. It sets TCS by purpose: education, medical, tour package, and everything else. The AD maps its codes onto those buckets, and from 1 April 2026 the mapping produces the rates below. The INR 10 lakh threshold is per PAN per financial year across all ADs on your aggregate LRS remittances; once used, later remittances are taxed from the first rupee at their own rate.

Code	What it covers	TCS from 1 April 2026	Typical documents
S0305	Tuition, hostel, education travel (self-funded)	2% above INR 10 lakh	Passport, offer or admission letter, fee invoice, PAN, Aadhaar
S0305	Same, funded by a Section 80E education loan	0%	Above plus loan sanction letter
S0304	Medical treatment and related travel	2% above INR 10 lakh	Passport, hospital estimate or invoice
S0306	Other travel, forex card for a trip	20% above INR 10 lakh	Passport, ticket or hotel booking for larger amounts
S1301	Family maintenance and savings	20% above INR 10 lakh	Bank statement, relationship proof if asked
S1302	Gifts and donations	20% above INR 10 lakh	Bank statement, beneficiary details
S0023	Emigration	20% above INR 10 lakh	Passport, visa or PR grant letter

Two consequences follow. The same INR 15 lakh sent to the same student in the same month attracts INR 10,000 of TCS under S0305 (2% on the INR 5 lakh above threshold) and INR 1,00,000 under S1301 (20% on INR 5 lakh). And loan funding only reaches 0% under S0305: a loan used to send living money under S1301 still attracts 20%, which is why the living expenses leg of a student’s budget deserves thought before the money moves. Our post on the LRS scheme explains how the USD 250,000 limit sits alongside the TCS threshold.

What goes wrong with the wrong code

The two failure modes are different and both are avoidable.

Rejection. The AD’s compliance desk compares the code with the documents and the beneficiary. A university IBAN with S1302 (gift) will be queried. A private landlord in Manchester with S0305 may be queried, because the documents show a tenancy, not an institution. The transfer is held until you resubmit, usually two to five working days lost, with no rate lock in the meantime.

Wrong TCS. If the AD accepts the transaction but the code puts it in the wrong bucket, you pay the wrong rate. Over-collection (a hostel fee coded as maintenance at 20%) ties up money until your ITR refund a year later. Under-collection (a gift coded as education at 2%) is worse: the shortfall can be recovered with interest, and the AD’s TCS return shows a purpose the income tax department can compare with your AIS.

The commonest cause I see is a parent picking whatever purpose sits at the top of the bank’s drop-down.

Worked example: one father, three payments, three codes

A father’s son starts a master’s in Toronto in September 2026. In one week he wants to send CAD 34,000 tuition to the university (INR 21,93,000 at 64.50), CAD 9,300 for a university residence place (INR 5,99,850), and CAD 7,750 as a gift to his sister in Vancouver for helping the boy settle (INR 4,99,875). Total INR 32,92,725, all self-funded, first LRS remittances of the year.

Coded correctly:

• Tuition, S0305: INR 21,93,000. Threshold INR 10,00,000 consumed. 2% on INR 11,93,000 = INR 23,860.
• Residence, S0305: INR 5,99,850. Threshold gone. 2% on INR 5,99,850 = INR 11,997.
• Gift, S1302: INR 4,99,875. 20% on INR 4,99,875 = INR 99,975.

Total TCS INR 1,35,832, of which INR 99,975 is on the gift.

Coded wrongly in the expensive direction, with the residence fee sent as S1301 because “accommodation is living costs”: 20% on INR 5,99,850 = INR 1,19,970 instead of INR 11,997. An extra INR 1,07,973 locked up until the refund lands in late 2027.

Coded wrongly in the risky direction, with the gift bundled into the tuition payment as S0305: 2% on INR 4,99,875 = INR 9,998 instead of INR 99,975. INR 89,977 under-collected, under a purpose the sister’s bank statement will not support.

The right answer is three remittances with three codes. If the residence is a private landlord rather than the university, the second payment moves to S1301 and its TCS rises to INR 1,19,970; that is the rule, not an error.

When a payment mixes purposes: split it

A single university invoice that bundles tuition, residence and a meal plan is all education, and S0305 covers it. Problems arise when one transfer serves two different purposes: tuition plus pocket money, or a residence deposit plus a gift. The AD can only attach one code to one remittance.

Split the payment. Two Form A2s, two codes, two TCS calculations. The fee cost is small (Fairexpay charges from 0.4% per transfer, so a second leg of INR 5 lakh costs about INR 2,000) and far cheaper than a 20% rate on the whole amount. Splitting also gives the university a clean tuition payment and the student a clean maintenance payment.

Order matters because of the shared INR 10 lakh threshold. Send the 2% purpose first and let it consume the threshold; the 20% purpose then applies only to its own amount. In the example above, sending the gift first would have spent INR 4,99,875 of threshold where each rupee is worth 20 paise rather than 2.

Special cases people ask about

Exam fees paid to a foreign testing body (GRE, GMAT) are not S0305 in most ADs’ mapping; describe the purpose and let the AD assign the code. Paying in INR to the body’s Indian office avoids the question.

A parent paying a child’s rent directly to a landlord abroad is usually S1301, with the tenancy agreement as support, at 20% above threshold. Money to your own foreign bank account before a job move is coded by the AD from the RBI list; if you are emigrating with a PR grant, S0023 applies.

Refunds from a university come back as inward remittances with a P code assigned by the receiving bank.

How to do this with Fairexpay

Fairexpay exited RBI’s Regulatory Sandbox Cohort II and executes transfers through RBI-authorised AD-I bank and AD-II partners. The purpose code is not a free-text field on our platform. You select the purpose in plain language (tuition fee payments, living expenses, gift, medical, emigration), upload the documents that purpose requires, and the digital Form A2 carries the matching RBI code to the AD partner. The TCS line on the quote screen is calculated from that purpose and the amount above your INR 10 lakh threshold, so you see the difference between education and maintenance before you pay. Uploading an education loan sanction letter switches an S0305 payment to 0% automatically. The exchange rate is the live rate with no markup, the fee starts at 0.4%, KYC is PAN and Aadhaar, and processing is T+1. Each remittance and its Form A2 stay under My Remittances.

FAQs

What is the purpose code for tuition fees?

S0305, travel for education including fees and hostel expenses. It covers tuition, university-managed accommodation and a student’s own education-related travel. Self-funded, it attracts 2% TCS above INR 10 lakh; funded by a Section 80E education loan, 0%.

What is the difference between S1301 and S1302?

S1301 is family maintenance and savings: regular support for a relative’s living costs or transfers to your own account abroad. S1302 is a personal gift or donation, to anyone. Both attract 20% TCS above the INR 10 lakh threshold, but the documents differ: S1301 needs a source-of-funds statement, S1302 needs beneficiary details.

Can I use S0305 for a student’s living expenses?

Often, yes, when the money is sent under the education head and the AD accepts the offer letter and cost-of-attendance estimate as support. Some ADs treat money sent to a student’s personal account for rent and groceries as S1301. Ask before you send, because the TCS rate differs.

What happens if I select the wrong purpose code?

The AD may hold or reject the transfer pending correct documents, or process it and collect TCS at the wrong rate. Over-collected TCS is refundable through your ITR; under-collected TCS can be recovered from you with interest. Correction afterwards requires the AD to revise its TCS return.

Who assigns the purpose code?

You declare the purpose on Form A2 and the AD maps it to the RBI code. On most platforms you choose from a purpose list and the code is filled in for you. For purposes outside the common six, describe it in words and the AD selects the code.

Do purpose codes apply to forex cards?

Yes. Loading a forex card is an LRS remittance with a purpose code, usually S0306 for travel, and TCS follows the purpose. Education-related loading with an offer letter can be coded S0305. International card spends abroad are also under LRS; check your issuer for how they report the purpose.