RBI caps maximum compounding fee at Rs. 2 Lakhs for certain FEMA Contraventions

RBI caps maximum compounding amount at Rs. 2,00,000/- for compounding of certain contraventions under FEMA, 1999 in exceptional circumstances/ facts involved.

RBI Master Directions on compounding of contraventions under FEMA, 1999, dated April 22, 2025 provides that as per provisions under section 13 of FEMA,1999, the penalty amount can be up to three times the sum involved in the contravention. However, the compounding amount payable, as per Section 15 of FEMA, 1999, is calculated based on guidance given in the Master Direction. The actual compounding amount payable may sometimes vary, depending on the circumstances of the case considering the factors indicated in the foregoing paragraph.

Different formulas have been prescribed as a guidance for fixed and variable amount of compounding amount for following categories /types of contraventions:

(a) Reporting/ submission Contraventions under provisions of (i) FEMA 20/ FEMA 20(R)/ FEMA 395 (ii) FEMA 3/ FEMA 3(R) (iii) FEMA 120/ FEMA 400 (iv) Any other reporting contraventions (except those in category (b) below and of LO/BO/PO), (v) Reporting contraventions by LO/ BO/ PO.

(b) Submission of AAC/ APR/ FLAR/ Share certificate – Non-submission/ delayed submission of

(i) APR/ share certificates (FEMA 120/ FEMA 400) or

(ii) AAC (FEMA 22/ FEMA 22(R)) or

(iii) FCGPR (B) or FLA Returns – FEMA 20 / FEMA 20 (R) / FEMA 120/ FEMA 395/ FEMA 400

(c) (A) Allotment/ Refunds- Non-allotment of shares or allotment/ refund after the stipulated period for Foreign Investment (B) Contraventions (Other than the reporting contraventions mentioned in Para 1(v) above) by LO/ BO/ PO

(d) Any contravention pertaining to issuance of any guarantee (other than reporting contraventions) and

(e) All other non-reporting contraventions.

However, the said amounts are subject to the following conditions, viz.

(i)The compounding amount payable shall not exceed 300% of the sum involved in contravention.

(ii) In case the sum involved in contravention is less than Rupees one lakh, the total compounding amount payable shall not be more than amount of simple interest @ 5% p.a. calculated on the sum involved in contravention and for the period of contravention in case of reporting contraventions and @ 10% p.a. in respect of all other contraventions.

(iii) In case of paragraph 8 of Schedule I to FEMA 20/2000 RB contraventions, the compounding amount payable will be further graded as provided

(iv) In cases where it is established that the contravener has made undue gains, the amount thereof may be neutralized to a reasonable extent by adding the same to the compounding amount calculated as per guidance formula.

RBI has issued Circular. No 04/2025-26 dated 24.04.2025 further providing that subject to satisfaction of the compounding authority, based on the nature of contravention, exceptional circumstances/ facts involved in case, and in wider public interest, the maximum compounding amount imposed may be capped at INR 2,00,000/- for contravention of each regulation/ rule (applied in a compounding application) with respect to the following contraventions:

All other non-reporting contraventions

Fixed Amount: INR 50,000/- (applied once for each regulation/ rule contravened, in a compounding application) plus

Variable amount: 

Download RBI Circular No. 04/2025-26 Click Here >>

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