Finance Ministry notifies New Rules for Compounding Applications under FEMA

The Finance Ministry issued new regulations on Thursday for handling compounding applications under the Foreign Exchange Management Act (FEMA).

According to the ministry, the new rules are intended to make it easier to invest.

This is in accordance with the Union Budget 2024-25 announcement by Union Finance Minister Nirmala Sitharaman to simplify rules and procedures governing foreign investments.

She promised to streamline the rules and regulations governing Foreign Direct Investments (FDIs) and abroad investments. The new laws, which will supersede the roughly 24-year-old Foreign Exchange (Compounding Proceedings) laws, will come into effect on Thursday.

The compounding process rules were thoroughly examined in business with the Reserve Bank of India as part of a larger endeavour to consolidate and rationalise current rules and regulations in order to facilitate ease of doing business.

The priority has been on enabling provisions to expedite and streamline the processing of compounding applications, the introduction of digital payment options for application fees and compounding amounts, and a focus on simplification and rationalization of the provisions to eliminate confusion and clarify the process,” according to a statement issued by the Finance Ministry.

The new rules have raised the threshold for RBI’s compounding authorities.

Now, if the amount involved in such a breach does not exceed Rs.60 lakh, an officer not lower than the rank of Assistant General Manager of the RBI shall be the authority. Previously, the limit was Rs. 10 lakh.

The threshold for matters handled by the deputy general manager has been raised to Rs.2.5 crore from Rs.10 lakh to Rs.40 lakh.

A general manager will be assigned a case with a violation of up to Rs.5 crore, as opposed to Rs.40 lakh – Rs.1 crore. The threshold for the Chief general manager would be higher than Rs.5 crore, rather than Rs.1 crore.

The thresholds for officers in the Directorate of Enforcement (ED) remain unchanged: up to Rs.5 lakh (Deputy Director), Rs.5 – Rs.10 lakh (Additional Director), Rs.10 – 50 lakh (Special Director), Rs.50 lakh – Rs.1 crore (Special Director with Deputy Legal Advisor), and Rs.1 crore or more (Director of Enforcement along with Special Director).