TaxTMI 
TaxTMI 
Master Directions - Compounding of Contraventions under FEMA, 1999 (Updated as on April 24, 2025)
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....led in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix. 3. Further, in terms of Section 11 (2) of FEMA, 1999, the Reserve Bank may, for the purpose of ensuring the compliance with the provisions of the Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorized person to furnish such information, in such manner, as it deems fit. Authorised Dealers are therefore, advised to take necessary steps to ensure that checks and balances are incorporated in systems relating to dealing with and reporting of foreign exchange transactions so that contraventions of provisions of FEMA, 1999, attributable to the Authorised Dealers do not occur. In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999, the Reserve Bank may impose on the authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank. 4. All AD Category - I banks and Authorised banks may bring the guidelines contained in this circular to the notice of their constitue....
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.... of compounding of contraventions as specified in Section 15(1) of FEMA, 1999, has been provided to persons involved in foreign exchange transactions to reduce compliance burden as well as costs wherever violation of the Act or the Rules and Regulations issued under the Act are involved. However, compounding of contraventions of cases falling under Rule 4(2) and Rule 9 of the Compounding Rules, 2024 shall not be compounded. 2. Compounding of the contraventions by the Reserve Bank 2.1 In order to facilitate operational convenience, contraventions of following Rules and/or Regulations issued under the Act shall be compounded by the compounding authorities of the Reserve Bank at the Regional Offices. Regulations under Notification No. FEMA 20/2000-RB dated May 3, 2000 Regulations under Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017 Rules under FEM (Non-Debt Instruments) Rules, 2019 dated October 17, 2019 Regulations under Notification No. FEMA 395/2019-RB dated October 17, 2019 Paragraph 9(1)(A) of Schedule 1 Regulation 13.1(1) Rule 2(k) read with Rule 5 Regulation 3.1(I)(A) Paragraph 9(1)(B) of Schedule 1 Regulation 13.1(2) Rule 21....
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.... 2.3 Accordingly, compounding applications related to any of the above contraventions shall be submitted by the applicants to the respective Regional Offices under whose jurisdiction they fall or to FED, CO Cell, New Delhi, as applicable. With respect to jurisdiction to be exercised by Regional Offices, any compounding application related to foreign investment-related contraventions (as mentioned hereinabove) is to be submitted to the Regional Office having jurisdiction over the registered office of the investee Indian company concerned. 2.4 For all other contraventions, applications may be submitted to the Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, Reserve Bank of India, 11th floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400001. 3. Application for Compounding 3.1 An applicant may submit a compounding application, along with the relevant documents, physically or through PRAVAAH Portal of the Reserve Bank, either suo moto or based on a Memorandum of Contraventions issued by the Reserve Bank. Where an applicant, after issue of the Memorandum of contraventions issued by the Reserve Bank, does not opt for compound....
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....rity, during the pendency of the compounding application with the Reserve Bank. 3.7 In case of an incomplete application, wherever the applicant is allowed by the Reserve Bank to submit any necessary information or documents within a reasonable time, then the date of receipt of such information or documents, as the case may be, shall be taken as the date of receipt of the application. 4. Certain cases not eligible for compounding 4.1 In respect of a contravention committed by any person (applicant) within a period of three years from the date on which a similar contravention was committed and the same was compounded, such contraventions shall not be compounded, and the relevant provisions of the Act shall apply. Any contravention committed after the expiry of a period of three years from the date on which a similar contravention was previously compounded shall be deemed to be a first contravention. 4.2 No compounding application shall be processed unless the requisite administrative action is completed by the applicant. Explanation: Administrative action shall mean such action as may be necessary with respect to the transactions involved in such contravention (as per....
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....ation. 5. Procedure for compounding 5.1 On receipt of an application, the Reserve Bank shall examine the application based on the documents and submissions made in the application and assess whether contravention can be compounded in accordance with the Compounding Rules, 2024 and, if so, the sum involved in the contravention. 5.2 The Compounding Authority may call for any information, or any other documents relevant to the compounding proceedings. In case the contravener fails to submit the additional information/documents called for within the specified period, the application for compounding shall be liable to be returned. 5.3 The following factors, which are only indicative, shall be taken into consideration for the purpose of passing compounding order and determining amount on payment of which contravention shall be compounded: • Undue gains i.e., the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention (or) economic benefits accruing to the contravener from delayed compliance or compliance avoided; • the amount of loss caused to any authority/ exchequer as a result of the contravention; ....
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....eceipt of share certificate - INR.10000/- per year, the total amount being subject to ceiling of 300% of the amount invested. 3] 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 Fixed Amount: INR 30,000/- (applied once for each regulation/ rule contravened, in a compounding application) plus Variable amount: Period of delay/ non submission, as applicable Variable amount that may be imposed as percentage of "amount under contravention" Less than 1 year 0.30% 1 year and above but less than 2 years 0.35% 2 years and above but less than 3 years 0.40% 3 years and above but less than 4 years 0.45% 4 years and above but less than 5 years 0.50% 5 years or more 0.75% (For project offices the amount of contravention shall be deemed to be 10% of the cost of project). 4] Any contravention pertaining to issuance of any guarantee (other than reporting contraventions) Fixed Amount: INR 5,00,000/- (applied once for each regulation/ rule contravened,....
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....(subject to provisos at (i) & (ii) above). 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 matrix above. v. [Deleted]^1. vi. 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 contraventions under row 5 of the above computation matrix.^2 III. For calculating compounding amount in respect of reporting contraventions under para I.1 of above matrix, the period of contravention may be considered proportionately {(approx. rounded off to next higher month / 12) X amount for 1 year}. The total no. of days does not exclude Sundays/holidays. 6. Issue of the Compounding Order 6.1 The Compounding Authority shall pass a compounding order after affording an opportunity of being heard to the applicant as expeditiously as possible and not l....