What is Merchanting Trade?
Merchanting trade, sometimes called a merchanting trade transaction, is a three-country deal in goods. An Indian business buys goods from a supplier in one country and sells them to a buyer in another. The goods move directly from the supplier to the buyer, or through a transit point, without being cleared into India for domestic use. The Indian merchant earns the margin between the purchase and sale prices.
Because there is an import leg and an export leg, both handled in foreign exchange, RBI regulates these transactions under FEMA and expects them to be routed through an AD bank, with conditions on timing and documentation. Those specific conditions are not part of our fact sheet, so check the current RBI text and your AD bank's policy before structuring a deal.
Why it matters for exporters
Merchanting trade is about goods, not services, so it is not something you report as a service export in Part 2B of the EDF. Service exporters run into the term for two reasons. First, trading firms sometimes also earn fees for arranging deals, and they need to work out which income is a merchanting margin and which is a fee for a service. Second, people confuse merchanting trade with intermediary services under GST, where an Indian agent arranges supplies between others for a commission.
If your business earns commissions from foreign principals or margins on cross-border goods deals, talk to your AD bank and CA early about how each stream should be documented.
Example
Coastline Traders Pvt Ltd in Mumbai buys 20 tonnes of spices from a supplier in Vietnam and sells them to a buyer in the UAE, with the goods shipped directly from Ho Chi Minh City to Jebel Ali. That is merchanting trade, handled through Coastline's AD bank. Separately, Coastline earns a USD 3,000 fee from a Dutch company for market research on Indian spice suppliers, a service export it lists on its monthly EDF.
Common confusion
Merchanting trade is not the same as export of services or intermediary services. See merchanting trade vs export of services. This is general information, not legal advice.