Set-off means netting what a foreign party owes you for exports against what you owe the same party (or a related one) for imports, and settling only the difference. It sounds like common sense, but under FEMA it is not something you do on your own: it needs your AD bank's involvement, and the export entry still has to be closed properly in the bank's systems. This article explains the idea, where the rules sit, and the records that make it work.
Key takeaways
- Set-off replaces two cross-border payments with one net payment. The underlying export and import still happen and still get reported.
- Treat set-off as something your AD bank must approve and record. Do not just "adjust" invoices with the client.
- Your exports still go on the EDF at full invoice value. Set-off is about how the money settles, not about what you declare.
- The detailed conditions are in the 2026 Regulations and the RBI Directions for banks. Read the current text and confirm with your bank before agreeing anything with a client.
- Clean paperwork (invoices both ways, a netting statement, the bank's approval) is what lets the bank close the export entry.
What set-off looks like in practice
Take a fictional company, Orbital Analytics Pvt Ltd, in Hyderabad. It provides data engineering services to a Dutch firm, Veldhuis BV, and invoices EUR 20,000 a quarter. Veldhuis also licenses a software tool to Orbital for EUR 6,000 a quarter.
Without set-off, two payments cross borders:
- Veldhuis pays Orbital EUR 20,000.
- Orbital pays Veldhuis EUR 6,000.
With set-off, Veldhuis pays a net EUR 14,000 and both sides treat their invoices as settled.
The commercial logic is obvious: fewer transfers, lower bank charges, less exchange spread. The regulatory problem is that Orbital's EDPMS entry shows EUR 20,000 of exports, but only EUR 14,000 arrives. Unless the bank records that EUR 6,000 was settled by set-off against a legitimate import payable, the export looks partly unrealised.
Where the rules live
The >Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 came into force on 1 October 2026, alongside the Reserve Bank of India (Export and Import of Goods and Services) Directions, 2026, which tell AD banks how to handle exports and imports. Anything about how realisation can be achieved, including through set-off, has to be read in that framework, together with any amendments (RBI amended some provisions on 22 September 2026).
We are not going to paraphrase conditions we cannot quote precisely. What you need to know as an exporter is simpler:
- Set-off is a recognised concept in FEMA export rules, but it is conditional.
- The bank's role is central. It is the bank that reports and closes the export entry.
- Your bank will publish or explain its own process. Ask for it in writing.
Read our plain-English summary of the 2026 Regulations for the wider picture.
Questions to ask your AD bank first
Before you agree a netting arrangement with any client or supplier, put these questions to your relationship manager or trade desk:
| Question | Why it matters |
|---|---|
| Does the bank permit set-off for my type of transaction? | Not every combination of export and import may qualify. |
| Must the export and import be with the same overseas party? | Netting with a group company may be treated differently. |
| Does the import side need to be routed through the same bank? | The bank can only verify what it can see. |
| What documents do you need, and when? | So you can prepare them before the settlement, not after. |
| How will the export entry be closed in EDPMS? | You want confirmation that nothing stays open. |
| Is there any time limit linked to the realisation period? | Exports of services must be realised within 9 months of invoice date. |
If the bank says no, or says it needs prior approval, you have your answer. Settle the two payments separately.
How it affects the EDF
The EDF declares the export. Set-off is about how the export is paid for. So:
- Each export invoice still goes into Part 2B at its invoice value, with its own row.
- Net realisable value should reflect what you expect to realise in value terms. If set-off is approved, discuss with your bank whether NRV should show the full value (since the value is realised partly by set-off) or the net cash. Do not guess.
- Use the remarks column to flag that settlement is expected partly by set-off against an import payable, with the import invoice reference.
- In Part 4, the declaration about "the date by which full value will be received" still applies.
The EDF deadline does not move. Orbital's October 2026 invoice goes on an EDF due 30 November 2026, whatever the settlement method.
Records to keep
The bank will want to see both sides of the netting. Keep:
- Your export invoices to the overseas party.
- Their invoices to you for the import.
- A netting statement signed by both parties, listing each invoice offset and the net amount.
- The bank's approval or acknowledgement of the set-off.
- The FIRA or bank advice for the net amount received.
- Your EDF copy, with the remarks noting set-off.
File them together under the month of the export invoice. If your bank later issues an eBRC or closes the EDPMS entry, add that confirmation to the same folder.
GST and accounting are separate
Set-off does not change GST. The export of services remains a zero-rated supply if it meets the conditions in Section 2(6) of the IGST Act, which include receiving payment in convertible foreign exchange or in rupees where RBI permits. How a set-off is viewed for that payment condition is a question for your CA, especially if you claim a GST refund. Your import of services may attract GST under reverse charge separately. Book both invoices in full in your accounts, not just the net.
This is general information, not legal or tax advice.
Frequently asked questions
Can I just agree with my client to net invoices and receive the difference?
Not safely on your own. The export entry sits with your AD bank and has to be closed there, so the bank needs to know about and accept the set-off. Speak to your bank before you agree anything with the client.
Do I still file the EDF if the export is settled by set-off?
Yes. The EDF declares the export of services, and set-off only changes how the value is settled. Each export invoice still goes on that month's EDF.
Does set-off apply to group companies?
It depends on the current Regulations, the Directions and your bank's view. Netting with a parent or sister company may be treated differently from netting with the same party. Confirm with your bank and your CA before structuring it.
What if the bank refuses set-off?
Then settle both sides separately: receive the export proceeds in full and make the import payment as a normal outward remittance. That keeps the EDPMS entry clean and avoids open items.
Does set-off affect my GST refund?
It might. GST export conditions include receiving payment in convertible foreign exchange, and how set-off fits that test is a question for your CA. Raise it before claiming a refund on netted invoices.
Bottom line
Set-off can save fees, but only when your AD bank approves and records it, and only when every invoice is still declared and documented. Declare the exports as usual on the free EDF form generator, and keep your EDF guide handy for the rest of the process.
This guide is general information for Indian businesses, not legal or tax advice. Rules and bank processes change — confirm specifics with your AD bank or chartered accountant.