FEMA Compounding Application

The Foreign Exchange (Compounding Proceedings) Rules 2000 read with RBI's Master Direction on Compounding of Contraventions under FEMA 1999 permit compounding of most technical and procedural violations — such as delay in FC-GPR filing, non-submission of FLA return, delay in reporting receipt of FDI, and failure to file Annual Performance Reports (APR) for overseas investments. However, contraventions involving money laundering, national security concerns, or matters referred to the Directorate of Enforcement under Section 37 of FEMA 1999 are not eligible for compounding. Willful suppression of facts or submission of false information also disentitles an applicant from the compounding route. If the contravention involves securities law violations, SEBI may have concurrent jurisdiction alongside RBI.

RBI computes the compounding amount based on the master direction on compounding, which prescribes a formula considering the amount involved in the contravention, the period of delay, and the nature of the violation. For FC-GPR delays, the formula typically results in a fixed amount plus an additional amount per day of delay applied to the rupee equivalent of the transaction. The minimum compounding amount is INR 5,000 under Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules 2000. For contraventions involving amounts below USD 10,000 or their equivalent, the Authorised Dealer bank may compound the contravention at its regional office level; above that threshold, the application is processed by the relevant RBI regional office. The compounding order specifies a payment timeline, and non-payment within that period revives the original liability under Section 13 of FEMA 1999.

A delay in FC-GPR filing beyond the 30-day window prescribed under Regulation 4 of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 constitutes a contravention under Section 13 of FEMA 1999. The recommended course is to voluntarily file a compounding application with the RBI regional office in whose jurisdiction the company is registered, along with a disclosure letter explaining the delay, copies of the share allotment documents, bank inward remittance certificates, and the FC-GPR filed belatedly. Based on published compounding orders, a four-month delay on a typical FDI tranche of INR 1–5 crore has attracted compounding amounts in the range of INR 15,000 to INR 75,000, depending on the quantum. Voluntary compounding before RBI initiates suo motu action is viewed more favourably and typically results in a lower compounding amount.

The Foreign Exchange (Compounding Proceedings) Rules 2000 require RBI to pass a compounding order within 180 days of receiving a complete application. In practice, the timeline at most regional offices ranges from 6 to 12 months, primarily because RBI may call for additional information or clarifications during processing, which resets the clock. The applicant must ensure the application is complete at the time of submission — including all KYC documents, board resolutions, relevant FEMA filings, and a computation of the compounding amount as per the master direction formula. Once the order is passed, the compounding amount must be paid within 15 days by demand draft or RTGS to RBI, after which a closure letter is issued confirming regularisation of the contravention.

Both resident and non-resident persons can apply for compounding of FEMA contraventions under Section 15 of FEMA 1999, because FEMA applies to all persons (defined under Section 2(u) to include non-residents) in respect of transactions involving foreign exchange in or from India. A foreign company with a branch, subsidiary, or transaction nexus in India can file a compounding application through its authorised representative. Non-resident individuals — for example, an NRI who failed to repatriate rental income from Indian property within permitted timelines — are also eligible. The application must be filed with the RBI regional office having territorial jurisdiction over the applicant's place of business or residence in India, as specified in the Foreign Exchange (Compounding Proceedings) Rules 2000.