Importance of Compliance with RBI Guidelines

MTTs are subject to strict regulatory oversight by the Reserve Bank of India to prevent misuse, such as round-tripping, money laundering, or manipulation of trade routes. To stay compliant, businesses must ensure:

• Both transactions are routed through the same AD bank (Authorised Dealer) in India.

• Payments are received and made strictly within the RBI-prescribed time frame, usually 9 months.

• Goods involved are not on India’s restricted or prohibited list (e.g., arms, wildlife products).

• The trader maintains clear and complete documentation for both legs of the trade.

Any non-compliance—like delays in payment, shipment irregularities, or dealing in banned goods—can lead to penalties, loss of foreign trade benefits, or even suspension of trade licenses.

Key Features of MTT for Businesses

For businesses planning to expand across borders without the significant burden of overseeing goods or logistics, Merchanting Trade Transactions provide a simplified solution. Regardless of whether you are a small trading firm or an expanding export enterprise, MTTs can open doors to new markets and minimize cost and complexity.

1. Avoiding Customs Duties and Local Taxes

One of the biggest advantages of MTT is that the goods never physically enter India. This means the Indian trader isn’t subject to import duties, GST, warehousing charges, or customs clearance procedures.

That’s a huge cost saver. It also cuts down on red tape, delays, and compliance work that often comes with traditional cross-border shipments.

2. Flexibility in Global Trade

MTT offers a rare kind of agility in international commerce. Traders can:

• Source goods from anywhere in the world

• Sell them to any other global market

• Operate without holding inventory or investing in warehousing

This is especially valuable for:

• Intermediary traders

• E-commerce exporters

• Commodity brokers

• Startups in the global supply chain

By acting as a strategic link between suppliers and buyers in different countries, Indian businesses can create a borderless trade network—all managed from within India.

3. Faster, More Efficient Transactions

Because there’s no physical handling of goods within India, MTTs are often quicker and leaner than traditional import-export models. There’s no waiting on port clearance, customs checks, or last-mile domestic logistics.

Most MTT transactions can be completed within a few weeks—from order placement to payment—especially when backed by strong banking support and digital documentation.

This speed to market gives businesses a serious edge in competitive sectors like electronics, industrial parts, or perishable goods.

4. Real-World Example: How a Trading Business Used MTT

Let’s consider a practical example:

Company: XYZ International, based in Mumbai

Sector: Electronics component trading

Scenario:

XYZ International connects with a chip manufacturer in Taiwan and a buyer in Turkey who needs those chips urgently for a product launch. XYZ arranges the deal under MTT guidelines:

• They purchase the goods from Taiwan.

• The chips are shipped directly from Taiwan to Turkey.

• XYZ handles the contracts, forex payments, and banking from India—never touching the physical goods.

Outcome:

• No customs fees or local warehousing needed.

• Fast turnaround time: entire transaction completed in 21 days.

• Profitable margin secured through smart negotiation and efficient execution.

This kind of transaction wouldn’t be possible without MTT. It allowed XYZ to operate like a global trader without maintaining stock or setting up offices abroad.

RBI Regulations: What Businesses Need to Know

MTTs are regulated under the Foreign Exchange Management Act (FEMA) and related RBI circulars. These guidelines define who can engage in MTTs and under what conditions.

Some of the key RBI rules include:

• Direct shipment is mandatory: Goods must be shipped from the foreign supplier to the foreign buyer without entering Indian territory.

• Single bank handling both legs: Both the import and export transactions must be routed through the same Authorized Dealer (AD) bank in India.

• Timely settlement: The entire transaction—including receipt of export proceeds and payment for imports—must be completed within nine months from the date of shipment.

• Foreign currency only: All payments must be made and received in freely convertible foreign currencies.

• Prohibited goods not allowed: MTT cannot involve goods on India's restricted or prohibited trade lists.

Failure to meet these conditions can lead to penalties, compliance issues, and potential blacklisting from future international trade.

MTT vs Other Types of Trade Transactions

Understanding how Merchanting Trade Transactions (MTTs) differ from other international trade models is essential for businesses evaluating the most efficient way to manage cross-border deals. While MTT may sound similar to regular import-export or direct export models, the structure, compliance needs, and physical movement of goods vary significantly.

Let’s explore how MTT stacks up against other transaction types.

MTT vs Regular Import-Export Transactions

In a traditional import-export transaction, goods are physically brought into or sent out of the trader’s home country, requiring the full spectrum of customs, duties, warehousing, and logistics.

Conclusion: MTT eliminates logistical burdens and customs formalities, making it ideal for businesses that don’t need to hold stock or physically handle goods.

Compliance Backing: What the Rules Say

• Under FEMA and RBI guidelines, MTTs are permitted only if the trader does not physically take possession of the goods and transactions are completed within a 9-month period.

• Regular import-export and direct export transactions are covered under India’s Customs Act, where duties, GST, and border regulations apply.

MTT requires special purpose codes (as discussed earlier), while direct exports have separate reporting standards under India's Export Data Processing and Monitoring System (EDPMS).

Common Issues and Challenges with MTT Transactions

MTTs have benefits like customs duty avoidance and quicker trade, yet there are challenges. whether compliance or documentation. These include compliance, documentation, and operational challenges. Businesses must be aware of these common roadblocks to prevent holdups, penalties and/or transaction failures.

And let’s see the biggest problems — and how to solve them.

1. Documentation Issues

Proper documentation is crucial in MTTs, and even minor errors can lead to delays or regulatory red flags. Since the goods don’t physically pass through India, businesses must rely entirely on documentation to prove the legitimacy of the transaction.

Common challenges include:

• Missing or mismatched bills of lading, which must show direct shipment from supplier to buyer.

• Errors in commercial invoices or purchase/sale contracts, especially in foreign currency values or shipment dates.

• Inadequate clarity in documentation for foreign exchange transactions, which must be properly coded and submitted through the bank.

Pro tip: Always cross-check documents with your bank’s trade desk before submission. Involve legal and compliance teams early in the contract drafting phase.

2. Delays in Payments

Another challenge in MTT is the timely receipt and disbursement of funds, especially when dealing with multiple currencies and international banking systems.

Delays may occur due to:

• Miscommunication between banks and businesses about payment terms.

• Hold-ups in remittance due to missing compliance documents.

• Confusion around forex conversion rates, fees, and bank charges.

Since both import and export payments must be settled within nine months (as per RBI rules), any delay can make the transaction non-compliant.

Pro tip: Use digital platforms that offer real-time tracking of remittances and set automated alerts for approaching deadlines.

3. Legal Compliance Hurdles

The regulatory nature of MTTs means that even experienced traders can face legal risks if all RBI and FEMA guidelines are not strictly followed.

Common legal concerns include:

• Trading in goods from India’s restricted list, which can lead to penalties.

• Missing the nine-month deadline for completing both transaction legs.

• Lack of clarity in how transactions are reported to the RBI and what documentation is required.

4. Solution: Tools to Streamline MTT Transactions

To manage these challenges efficiently, it’s critical to take advantage of platforms that support cross-border trade and documentation.

Platforms like Infinity offer solutions for MTT participants by:

• Digitising trade documentation

• Automating payment tracking

• Ensuring purpose code alignment

• Helping you stay within RBI deadlines

Infinity significantly reduce human error, speed up approvals, and build confidence with banking partners—making your merchanting trade operations smoother and more scalable.

How Infinity Simplifies MTT Transactions for Indian Exporters

Merchanting Trade Transactions is complex and even experienced exporters can struggle to understand them. Between the control of strict timeliness, management for foreign exchange regulations and maintenance for smooth documentation, many things could go wrong. This is where Infinity comes in.

Infinity is a dedicated platform that eases the cross-border business for Indian businesses. It removes the guesswork from MTTs, and it gives exporters what they need to move faster, be compliant and worry about growth.

1. Instant Settlements for Faster Cash Flow

Speed is everything in global trade—and delayed settlements can disrupt deals and damage supplier relationships. Infinity solves this by offering same-day settlement for MTT payments. Hence, this helps businesses to close transactions faster and improve cash flow.

2. RBI-Compliant Processes, Built-In

One of the biggest pain points in MTT is staying aligned with the Reserve Bank of India’s regulations, especially around inward and outward remittances.

Infinity is designed with RBI’s FEMA and MTT guidelines in mind, helping businesses:

• Apply the correct purpose codes for each transaction

• Maintain proper documentation trails for both legs of the trade

• Avoid missed deadlines or non-compliance that could flag audits

This built-in compliance ensures exporters stay on the right side of the law, without needing to double-check everything manually.

3. Transparent and Competitive Forex Management

Currency exchange can make or break the profitability of an MTT deal. Infinity offers real-time forex rate visibility and automatic currency conversion at competitive rates, so exporters always know what they’re getting.

No hidden charges. No bank delays. Just clear numbers you can trust.

This helps businesses:

• Lock in favourable rates

• Avoid costly surprises

• Maintain margin control even in volatile currency environments

4. Real-Time Tracking and Payment Visibility

With multiple banks, time zones, and intermediaries involved, tracking MTT payments can become a guessing game. Infinity changes that.

Its real-time tracking dashboard keeps exporters informed at every stage—from invoice generation to settlement confirmation. You can:

• See when payments are received or sent

• Monitor documentation status

• Get alerts if there’s a delay or issue

This visibility gives businesses the peace of mind to focus on growth, not paperwork.

Ready to Streamline Your MTT Transactions?

MTTs now are a new era for Indian companies aiming of establishing global footprint. MTT's solutions are good and cost-effective, and they allow companies to easily participate in global trade, free from the constraints of goods and customs control and heavy inventory cost.

If you are an Indian exporter, MTT is just perfect for you. Infinity is the ideal solution. With features like same-day settlements, real-time tracking, and built-in RBI compliance, Infinity makes handling MTTs simple, fast, and stress-free.

Try Infinity now and experience the magic of frictionless cross-border trade. Register now to automate your MTT payments, so that you can concentrate on your most important priority: expanding your international business!

FAQs

1. What is the difference between MTT and regular import-export transactions?

Merchanting Trade Transactions (MTT) differ from regular import-export transactions primarily in how the goods move. In MTT, goods are imported into India for re-export to another country, without ever entering the domestic market. In contrast, regular import-export involves physically moving goods into or out of the country, which requires customs clearance, payment of duties, and warehousing.

2. How does MTT help businesses avoid customs duties?

Since the goods in an MTT never physically enter India, businesses can avoid paying customs duties and other import-related taxes. The goods are sold directly to foreign buyers, allowing Indian businesses to bypass the usual import-export regulations, streamlining the process and cutting down on associated costs.

3. What are the RBI regulations for MTT transactions in India?

The rules mandated by the Reserve Bank of India (RBI) under FEMA (Foreign Exchange Management Act) related to MTT transactions are quite clear. Further, players in MTT have to adhere to its foreign exchange management rules, which require proper documentation and use of purpose codes for inward remittance. RBI also stipulates a nine month window for the completion of both the legs of the transactions (purchase and export) to comply.