Master Directions - Compounding of Contraventions under FEMA, 1999, dated April 22, 2025 (Updated as on April 24, 2025)
UR
- Applies toBanks that handle foreign money
- StatusIn force
- IssuedApr 22, 2025
- Amendmentsnone tracked
- Length30 points in 4 sections · 3 min read
The four dates on this rule
- PublishedApr 22, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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29 of the 30 points name no product and bind every product. All products.
Numbers to remember
| Two lakh | Without compounding, a violation can draw a penalty of up to three times the amount involved, or Rupees Two lakhs. RBI Para 1 |
| Five thousand | A continuing violation can draw a further penalty of Rupees Five thousand for every extra day. RBI Para 1 |
| ₹10,000, | Every application must carry a fee of ₹10,000, plus 18% GST. RBI Para 3 |
| three years | A violation repeated within three years of an earlier compounded one cannot be compounded again. RBI Para 4 |
| one lakh rupees | Below one lakh rupees, the compounding charge is capped at simple interest of 5% a year. RBI Para 5 |
| 180 days | Shares allotted more than 180 days late without RBI's approval draw 1.25 times the usual charge. RBI Para 5 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Must know
1. Penalty without compounding
Without compounding, a violation can draw a penalty of up to three times the amount involved, or Rupees Two lakhs.
2. Daily penalty for continuing violations
A continuing violation can draw a further penalty of Rupees Five thousand for every extra day.
3. What compounding is for
Compounding lets someone pay a penalty to settle a FEMA violation instead of facing full legal proceedings.
4. Two rule violations barred outright
Violations of Rule 4(2) or Rule 9 of the Compounding Rules can never be compounded.
5. Application fee: ₹10,000 plus GST
Every application must carry a fee of ₹10,000, plus 18% GST.
6. Application fee is not refunded
If an application is returned, the fee already paid is not given back.
7. No fee on resubmission
If the applicant resubmits the same application, the fee is not charged again.
8. Repeat within three years barred
A violation repeated within three years of an earlier compounded one cannot be compounded again.
9. Clean record after three years
After three clean years, a repeated violation counts as a fresh, first-time one.
10. Corrective action comes before compounding
RBI will not process a compounding application until the applicant's corrective action is complete.
11. Serious violations go to enforcement
Violations suspected of money laundering or terror financing are treated as serious, not routine.
12. Section 3(a) violations excluded
A violation of Section 3(a) of FEMA is never eligible for compounding.
13. Reporting violations start at ₹10,000
A routine reporting violation starts with a fixed INR 10,000 charge per rule broken.
14. Guarantee violations start at ₹5,00,000
A violation over an issued guarantee starts with a fixed INR 5,00,000 charge per rule broken.
15. Loan-linked guarantees can triple
A guarantee taken to raise a loan brought back into India can see its charge trebled.
16. Other violations start at ₹50,000
Any other non-reporting violation starts with a fixed INR 50,000 charge per rule broken.
17. Compounding amount capped at 300%
No compounding amount may ever exceed three times the sum involved in the violation.
18. Small violations pay simple interest
Below one lakh rupees, the compounding charge is capped at simple interest of 5% a year.
19. Late allotment triples the fee
Shares allotted more than 180 days late without RBI's approval draw 1.25 times the usual charge.
20. Row-five violations capped at ₹2,00,000
For the lowest-risk category of violation, the amount can be capped at INR 2,00,000 per rule broken.
21. RBI decides within 180 days
The Compounding Authority must issue its order within 180 days of getting a complete application.
22. How the amount is paid
The compounding amount is paid by demand draft, NEFT or RTGS in RBI's favour.
23. Non-payment voids the application
If the compounded sum is not paid in time, the applicant is treated as never having applied.
Do it
1. Applications go by jurisdiction
An applicant sends the compounding application to the Regional Office with jurisdiction over the case.
2. Payment reported within two hours
The applicant must email proof of the fee payment within two hours of paying it.
3. Order copy also to enforcement
A copy of every compounding order also goes to the Adjudicating Authority.
Background
1. History affects the amount charged
RBI weighs the violator's track record and history of non-compliance when setting the charge.
2. Personal appearance is encouraged
RBI encourages the applicant to appear in person or by video, not through a lawyer.
3. Orders published on RBI's website
A summary of every compounding order made since March 2020 is posted on RBI's website.
4. No undoing a paid order
Once an order is passed, the applicant cannot ask to withdraw it or call it void.