In plain words: buying goods in one country and selling them to another — without the goods ever touching India — is merchanting trade, and FEMA has specific rules for it.
What merchanting trade is
A Merchanting Trade Transaction (MTT) is where an Indian intermediary buys goods from one foreign country and sells them to a buyer in another foreign country, with the goods moving directly between those countries — not entering India. The Indian trader earns the margin.
The core conditions
- The goods must be permissible for trade (not items prohibited for India).
- The transaction should be completed within a prescribed time window, and the outflow should not precede the inflow for too long.
- Both legs flow through an AD bank, with proper documentation.
- The trader should normally earn a positive margin overall.
Why the time limits matter
FEMA watches that India's money does not go out and stay out. So the payment for the import leg and the receipt for the export leg must be managed within the allowed period, with short-term financing permitted within limits.
What to document
- The back-to-back contracts for purchase and sale.
- Transport documents showing goods moving between the two foreign countries.
- The banking trail for both legs.
Staying compliant
Merchanting trade is a legitimate, useful structure for traders — but it is closely conditioned. Keep within the time limits, trade only permissible goods, route both legs through your AD bank, and keep clean documentation.
Frequently asked questions
Do the goods come to India? No — in merchanting trade they move directly between the two foreign countries.
Is it legal? Yes — within the MTT conditions and time limits.
Can I pay for the import before I'm paid? Only within the permitted window and financing limits.
How Vakil Help Desk helps
Vakil Help Desk advises on FEMA compliance, NRI and foreign-national matters, foreign investment and compounding — and represents clients in ED FEMA proceedings. If you have a cross-border transaction or a FEMA question, we can help you get it right.
This article is for general legal awareness, not individual legal advice. FEMA rules, limits and forms are revised by the RBI and the Government from time to time, and the right treatment depends on your facts and the current position. Please consult a professional before acting on a cross-border transaction.