Choose the remedy for the actual contravention
Section 15 of the Foreign Exchange Management Act, 1999 provides a voluntary procedure for compounding admitted contraventions. The Foreign Exchange (Compounding Proceedings) Rules, 2024 superseded the 2000 rules, with a saving for applications already pending at commencement. For a late reporting issue, first ask whether the applicable regulations and RBI directions allow a late submission fee (LSF). If the underlying transaction also breached FEMA, deal with that breach separately. Payment of an LSF does not cure a pricing, eligibility, approval or allotment breach.
| Issue | Late submission fee | Compounding |
|---|---|---|
| Scope | Specified eligible reporting delays. The September 2022 general direction provides a window of up to three years from the original due date; check any later sector-specific changes. | An eligible admitted contravention under FEMA, subject to corrective action, jurisdiction, restrictions and any pending proceeding. The authority decides on the facts. |
| Amount | The general matrix uses ₹7,500 for specified periodic or non-flow returns, including FLA; the transactional formula is ₹7,500 plus 0.025% of the amount times years of delay. | Use the current RBI guidance matrix as an estimate. It is neither an automatic charge nor a substitute for an order. |
| Outcome | Complete the reporting and the payment in the prescribed process. Under the general direction, a payment advice lapses if unpaid after 30 days. | A complete application is to be decided within 180 days after giving the applicant an opportunity to be heard. Pay the amount ordered within 15 days of the order. The protection is for the particular contravention compounded. |
For the general transactional LSF, round the delay up to the next month where needed, express years to two decimals, and apply the prescribed cap of 100% of the amount involved and upward rounding to the nearest ₹100. Start from the correct reporting trigger and retain the bank and portal records. The revised ECB regime has its own reporting and late-fee directions; do not apply an old ECB row without checking the borrowing and filing dates.
Officer rank and application office are different questions
| Amount involved in the contravention | Minimum RBI officer rank under Rule 4 |
|---|---|
| Up to ₹60 lakh | Assistant General Manager |
| Above ₹60 lakh to ₹2.50 crore | Deputy General Manager |
| Above ₹2.50 crore to ₹5 crore | General Manager |
| Above ₹5 crore | Chief General Manager |
Section 3(a) contraventions follow the Directorate of Enforcement route under Rule 5. For other matters, check the current Master Direction for the office: specified foreign investment cases go to the regional office for the investee’s registered office, while certain transactions and matters spanning delegated offices have separate allocations. The amount involved is not the fee or the amount eventually compounded.
Check eligibility and complete corrective action
- Identify and complete the administrative action required under Rule 8 and the RBI direction. That can include obtaining an approval, unwinding or reversing a transaction, meeting pricing requirements, repatriating funds or completing reporting. Simply uploading a draft or allotting shares late does not necessarily complete the action.
- The repeat bar under Rule 4(2) applies to a contravention committed within three years from the date a similar contravention by the same person was compounded. Use the actual prior compounding date.
- Rule 9 covers, among other cases, a non-quantifiable amount, application of FEMA section 37A, specified serious cases identified by Enforcement, an adjudication penalty order already passed, and cases requiring further Enforcement investigation to ascertain the amount. An existing investigation or complaint is not in itself a universal bar; disclose status and check Rules 6, 7 and 9.
- The section 13 adjudication ceiling is generally three times the quantifiable amount, or up to ₹2 lakh when it is not directly quantifiable, with a separate continuing-contravention rule. Those adjudication rules are distinct from the compounding matrix.
Use the correct row of the RBI guidance
| Category | Basis in the RBI guidance |
|---|---|
| Covered reporting lapses, including FC-GPR and FC-TRS | Row 1 generally applies ₹10,000 once per rule or regulation contravened in an application plus a time-based amount by band. The published yearly bands are ₹1,000 below ₹10 lakh; ₹2,500 from ₹10 lakh to below ₹40 lakh; ₹7,000 from ₹40 lakh to below ₹1 crore; ₹50,000 from ₹1 crore to below ₹10 crore; ₹1 lakh from ₹10 crore to below ₹100 crore; and ₹2 lakh from ₹100 crore. Check special reporting rows. |
| Certain periodic submissions | Row 2 specifies ₹10,000 for each delayed AAC, APR, FC-GPR (B) or FLA return, with separate treatment for share certificate delays. This is the compounding matrix, not the LSF rate. |
| Late allotment or refund; covered non-reporting LO, BO or PO breaches | Row 3 uses ₹30,000 once per provision plus the amount involved multiplied by the applicable duration band, from 0.30% for less than one year to 0.75% for five years or more. Check historical provision-specific adjustments and project office rules. |
| Other non-reporting breaches | Row 5 generally starts at ₹50,000 once per provision plus 0.50% for less than one year, rising by 0.05 percentage points for each band up to 0.75% for five years or more. The Direction provides an exceptional discretionary cap for this row. |
Check the full matrix for guarantees, small sums, ceilings, undue gains, duration and applicable exceptions. The authority considers the circumstances and conduct, any quantifiable gains or loss and the completeness of disclosure. These examples apply specified figures for illustration and do not represent RBI orders.
Seven worked scenarios
1. Late allotment and a separate FC-GPR delay
A Bengaluru company receives USD 600,000 on 1 October 2022. At ₹83 per dollar this is ₹4.98 crore. The 60-day issuance deadline is 30 November 2022; without issuance, the ordinary 15-day refund period ends on 15 December. Issuance on 1 April 2023 is 122 days late and 182 days after receipt. A 30-day FC-GPR period from issuance ends on 1 May 2023; filing on 1 December is 214 days late.
As an illustration of the current Row 3 calculation, if ₹4.98 crore is the amount involved and the under-one-year band applies, ₹30,000 plus 0.30% of ₹4.98 crore is ₹1,79,400 for the substantive issue. This does not retrospectively fix a historical award. If the regulator accepts a separate eligible LSF route for the reporting delay, the seven-month delay is 0.58 years and the formula gives ₹14,721 before rounding, or ₹14,800. First resolve the underlying allotment problem and verify which route is available.
2. FC-TRS on sale of 1,50,000 shares
Assume a resident seller transferred shares to a Japanese investor on 15 June 2021, with consideration also received on that date. ₹3 crore divided by 1,50,000 is ₹200 per share. This is ₹32 above the assumed ₹168 per share valuation floor; verify the prescribed valuation and other investment conditions. The 60-day due date is 14 August 2021. Filing on 15 June 2023 is 730 days after transfer and 670 days after the due date.
The interval is more than 22 and less than 23 months from the due date. Use 23 months or 1.92 years for the general LSF. If eligible and those are the dates accepted for the calculation, the fee is ₹21,900. There is no general 18-month bar in the cited September 2022 direction.
3. ECB proceeds diverted to a residential project
USD 5 million at ₹83 equals ₹41.50 crore. Assume ₹8 crore is diverted for nine months and that the residential use is outside the permitted activities under the applicable ECB regime. Replenishing the funds does not erase the earlier use. If the current Row 5 guidance applies to that admitted non-reporting breach, ₹50,000 plus 0.50% of ₹8 crore equals ₹4.50 lakh before any applicable cap or discretionary adjustment. Establish the specific instrument, end-use clause, amount and period, and whether corrective action and compounding are available.
4. Downstream investment and Form DI
An 85% foreign-owned Indian subsidiary invests ₹6 crore for a 40% shareholding on 1 March 2023; assume allotment the same day and that the investment counts as indirect foreign investment. Verify sector conditions and funding evidence, including whether claimed internal accruals qualify. The DPIIT notification is due within 30 days of the investment; Form DI is due within 30 days of allotment. The assumed Form DI due date is 31 March 2023.
Filing on 1 May 2024 is 427 days after allotment and 397 days past due, rather than a 425-day reporting delay. Rounded up to 14 months, or 1.17 years, the general LSF illustration is ₹25,050 before rounding and ₹25,100 after rounding if the route is available. Do not treat Form DI as curing a separate DPIIT or substantive default.
5. Historical land-border approval question
A Cayman fund invested ₹10 crore in 2021. A 2023 review identifies a person with 45% voting power who is a citizen of a country sharing a land border with India. Trace the beneficial ownership and the facts as they stood in 2021; test the Government approval rule then in force. Under the current compounding procedure, complete the applicable corrective action first, which may involve an approval or unwinding. No approval, retrospective validation or compounding outcome should be assumed.
6. Repeat default and separate fee eligibility
Assume an earlier FC-GPR delay was compounded in January 2022 for ₹85,000 and a similar contravention by the same company occurred in August 2023, approximately 19 months later. That is within three years. Verify the precise dates and applicable rules. A qualifying reporting-only lapse may separately be considered under the LSF rules; the original dates and amount are insufficient to compute an LSF for this example.
7. Liaison office undertakes commercial invoicing
An overseas trading company’s Indian liaison office invoices ₹1.80 crore in 18 months. Verify the prohibition on commercial activity and the specific authorisation, stop unauthorised activities and determine what corrective action is needed. If ₹1.80 crore is accepted as the amount involved and the current Row 3 band for one to below two years applies, ₹30,000 plus 0.35% of ₹1.80 crore gives ₹93,000 before adjustments. A new subsidiary or payment of domestic taxes does not itself regularise the earlier breach.
Prepare, file and close the application
- Identify each provision, responsible person, event and amount. Separate eligible LSF cases from admitted substantive breaches and complete required administrative action.
- Use the prescribed form and appropriate transaction annexures and investigation undertaking. Apply to the correct office physically or through RBI PRAVAAH, with the ₹10,000 fee plus applicable GST (₹11,800 at 18%). Retain the payment reference and send any payment intimation within the period in the Direction.
- Reply to requests and use the hearing opportunity where useful. The 180-day period is measured from receipt of a complete application under the Rules.
- Check the order against the admitted matters, pay within 15 days and retain the RBI certificate on realisation, subject to any order conditions.
Frequently asked questions
1. What happens if the amount ordered is not paid on time?
Rule 11 treats the person as never having applied for compounding, and the applicable FEMA provisions again apply.
2. Does an Enforcement investigation automatically prevent compounding?
No blanket answer applies. Disclose the investigation and check the Rule 9 exclusions, including the stage of adjudication and any requirement for further investigation.
3. Must the applicant attend a hearing?
The authority must afford an opportunity to be heard. Under the RBI direction, if the applicant does not opt for a hearing or does not attend, the order may be decided on the available record.
4. Is a compounding payment deductible for income tax?
Do not assume it is. The legacy section 37 disallows expenditure for a prohibited purpose and specifically addresses compounding expenditure; check the applicable year and distinguish the contravention payment from separately incurred costs.
5. Who makes the application?
The person who committed the relevant breach. Check the governing obligation and any permitted representation. For a resident to non-resident share transfer, check the FC-TRS reporting onus under regulation 4(3).
6. Can a compliance tracker calculate the final amount?
It can organise the evidence and model the current matrix. The competent authority determines the amount and any conditions.
Sources
- Gazette: Foreign Exchange (Compounding Proceedings) Rules, 2024
- RBI Master Directions on compounding, updated 23 October 2026
- RBI general LSF circular, 30 September 2022
- RBI payment and reporting regulations for non-debt instruments
- Gazette: 2026 RBI borrowing and lending amendment
- RBI 2026 ECB reporting and late fees
- Foreign Exchange Management Act, 1999: sections 13 and 15
- DPIIT: historical Press Note 3 government route and implementing rule
- RBI Master Direction on branch, liaison and project offices
- Income-tax Act, 1961: section 37 and its explanations