FEMA Compounding Under the 2024 Rules: How RBI Self-Reporting Now Works
The Foreign Exchange Management (Compounding Proceedings) Rules, 2024 replaced the 2000 Rules and changed two things that matter most in practice: the self-reporting framework and the compounding fee structure. Companies that violated FEMA provisions and have not yet regularised their position need to understand how the 2024 Rules change the calculus.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
The Foreign Exchange Management (Compounding Proceedings) Rules, 2024 replaced the 2000 Rules and changed two things that matter most in practice: the self-reporting framework and the compounding fee structure. Companies that violated FEMA provisions — delayed FC-GPR, unreported FC-TRS, late APR filing for overseas investments, unreported ODI — and have not yet regularised their position need to understand how the 2024 Rules change the calculus.
What Is FEMA Compounding
Under Section 15 of the Foreign Exchange Management Act, 1999, a contravention of FEMA can be "compounded" — settled by paying a specified amount to the RBI rather than going through a formal adjudication under Section 13. Compounding is a regularisation mechanism, not an admission of guilt in the criminal sense.
Once compounding is completed and the compounding order is issued by the RBI, the contravention is treated as settled. Future due diligence by investors, lenders, or acquirers can be satisfied by producing the compounding order — it is clean documentation that the violation has been addressed.
The 2024 Rules: Key Changes
Change 1 — Self-reporting now has a defined framework.
Under the 2000 Rules, there was no formal self-reporting mechanism. A company that discovered a past FEMA violation had to apply for compounding and wait for the RBI to determine the fee. Self-reporting had no specific procedural benefit.
The 2024 Rules introduce a formal self-reporting window and framework:
- A person who has contravened FEMA provisions can file a self-reporting application with the RBI before the RBI initiates enforcement action
- Self-reporting applications are to be filed at the RBI regional office having jurisdiction over the applicant's place of business
- The application must: describe the nature of the contravention, the period of contravention, the amount involved, and the steps taken to regularise (e.g., delayed filing now completed)
- The 2024 Rules provide for a reduced compounding fee for self-reported contraventions compared to those detected by the RBI
Change 2 — Revised compounding fee structure.
The 2000 Rules had a fee structure based on the amount involved and the period of delay that had become outdated relative to actual transaction sizes. The 2024 Rules revise this:
For contraventions relating to reporting (FC-GPR, FC-TRS, APR, FLA, FCGPR for ODI):
Minimum fee: ₹5,000. Maximum fee: 300% of the amount involved.
For self-reported contraventions, the fee is computed at 75% of the above rates — a 25% reduction for voluntary disclosure.
For substantive violations (exceeding sectoral caps, investing in prohibited sectors, unapproved transactions): the fee is determined case-by-case based on the gravity of violation, with no fixed formula.
Change 3 — Timelines for RBI disposal.
The 2024 Rules prescribe disposal timelines for compounding applications:
- Reporting contraventions (self-reported): 60 working days from receipt of complete application
- Reporting contraventions (detected by RBI): 90 working days
- Substantive violations: 120 working days, extendable
This is meaningful for deal timelines — a startup seeking investment where the founders have past FEMA violations can now give investors a more predictable window for regularisation.
Common Contraventions That Get Compounded
FC-GPR late filing: Most common. Company receives FDI, allots shares, but files FC-GPR with RBI beyond 30 days (now 60 days under the Third Amendment — but prior violations at 30 days are not regularised retroactively). Fee: 0.025–0.075% of FDI amount per month of delay.
FC-TRS non-filing / late filing: When shares are transferred between a resident and non-resident (secondary sale), FC-TRS must be filed within 60 days. Late filing or non-filing is compounded.
APR (Annual Performance Report) non-filing: For Indian companies with Overseas Direct Investment (ODI), an Annual Performance Report must be filed with the RBI by December 31 each year. Missed APRs for multiple years compound linearly.
Form ODI non-compliance: Changes to an overseas subsidiary or JV (additional investment, guarantee, exit) must be reported within 30 days. Late or missed filings are compounded.
FEMA contraventions discovered during due diligence: Typically flagged by legal counsel during pre-investment or pre-acquisition due diligence. The investor or acquirer requires the target to file for compounding and produce the order as a condition precedent to closing.
The Self-Reporting Workflow Under 2024 Rules
Step 1 — Identify and document the contravention. Enumerate each FEMA violation: form type, date when obligation arose, date of actual filing (if filed late) or confirmation of non-filing, amount involved.
Step 2 — Regularise what can be regularised. If FC-GPR was filed late but the filing was made before the compounding application, include the date of filing in the application. This demonstrates the violation is historical rather than ongoing.
Step 3 — Compute the estimated compounding fee. Using the 2024 Rules formula, estimate the fee for each contravention. For self-reported applications, apply the 75% rate.
Step 4 — File the compounding application at the RBI regional office. File at the office having jurisdiction over the applicant's principal place of business. Application must include: covering letter describing each contravention, supporting documents (transaction records, bank certificates confirming inward/outward remittance, copies of any late filings), DD for the estimated fee.
Step 5 — Attend RBI interaction if called. For larger amounts or substantive violations, the RBI may call the applicant for an interaction. The CA or CS accompanying the client should be prepared to walk through each transaction.
Step 6 — Receive compounding order. Once the RBI issues the compounding order and the fee is paid, the compounding is complete.
Practical Consideration: Compounding Before Due Diligence
If your company is planning to raise a funding round, go through M&A, or list on an exchange in the next 12–24 months, any FEMA contraventions should be compounded before that process begins. Legal due diligence will surface them, and an outstanding FEMA violation without a compounding order can be a deal condition or, for serious violations, a deal blocker.
Filing for compounding proactively (self-reporting) has three advantages over waiting for detection: lower fees (75% of standard), faster disposal timelines, and a cleaner paper trail for due diligence.
I'm CA Harun Raaj, Visakhapatnam. If your company has FEMA violations — whether from delayed FC-GPR, missed APRs, or unreported secondary transfers — the 2024 Rules self-reporting window is the right mechanism to use before due diligence surfaces them.
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See Also
Frequently Asked Questions
What is the main difference between FEMA compounding under the 2024 Rules and the 2000 Rules?+
The 2024 Rules introduce two key changes: (1) a formal self-reporting framework with defined procedures and timelines, replacing the ad-hoc approach under the 2000 Rules where self-reporting had no specific procedural benefit, and (2) a revised compounding fee structure that is updated relative to modern transaction sizes. Under the 2024 Rules, self-reported contraventions receive a reduced compounding fee compared to those detected by the RBI.
How does self-reporting work under the Foreign Exchange Management Compounding Proceedings Rules 2024?+
Under the 2024 Rules, a person who has contravened FEMA provisions can file a self-reporting application with the RBI regional office having jurisdiction over the applicant's place of business before the RBI initiates enforcement action. The application must describe the nature of the contravention, the period of contravention, the amount involved, and the steps taken to regularise. Self-reported contraventions qualify for a reduced compounding fee compared to RBI-detected violations.
What FEMA violations can be settled through compounding under Section 15 of FEMA Act?+
Any contravention of FEMA provisions can be compounded under Section 15 of the Foreign Exchange Management Act, 1999. Common examples include delayed FC-GPR filings, unreported FC-TRS transactions, late APR filing for overseas investments, and unreported ODI. Once the RBI issues a compounding order, the contravention is treated as settled and the order serves as clean documentation for future due diligence by investors, lenders, or acquirers.
What documents and information must be included in a self-reporting application to the RBI?+
According to the 2024 Rules, a self-reporting application filed with the RBI regional office must include: a description of the nature of the contravention, the period of contravention, the amount involved, and the steps taken to regularise the violation (such as delayed filings now completed).
Is compounding an admission of guilt under FEMA law?+
No. Under Section 15 of the Foreign Exchange Management Act, 1999, compounding is a regularisation mechanism, not an admission of guilt in the criminal sense. Once the compounding order is issued by the RBI, the contravention is treated as settled, and the order can be produced as clean documentation that the violation has been addressed.
What types of FEMA reporting contraventions receive reduced fees under the 2024 compounding rules?+
According to the 2024 Rules, reduced compounding fees apply to contraventions relating to reporting requirements including FC-GPR, FC-TRS, APR, FLA, and FCGPR for ODI, provided that such contraventions are self-reported before the RBI initiates enforcement action.
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