RBI Sets Maximum FEMA Compounding Fee at Rs. 2 Lakh per Rule or Regulation:

RBI Sets Maximum FEMA Compounding Fee at Rs. 2 Lakh per Rule or Regulation

The RBI has introduced a cap of INR 2 Lakh on the maximum compounding fee for certain FEMA violations to ease business compliance and encourage voluntary disclosures.

RBI Caps FEMA Compounding Fee at INR 2 Lakh for Certain Violations

authorSaloni KumaridateMay 5, 2025
Last update on May 5, 2025
RBI Sets Maximum FEMA Compounding Fee at Rs. 2 Lakh per Rule or Regulation The Reserve Bank of India (RBI) has made some influential changes to the RBI compounding application under FEMA, 1999, by setting a limit of INR 2,00,000 on the maximum compounding amount for certain violations. These have been done to facilitate businesses to organise themselves in a easy manner, minimise financial burdens on applicants, and make sure that small or procedural errors do not lead to astronomically high fines. With the imposition of these limits, the RBI is incentivising business and individuals who participate in international transactions to flag issues quickly and voluntarily disclose errors, without risking enormous fines. These changes are in continuation of:
  • A.P. (DIR Series) Circular No. 17/2024-25 dated October 1, 2024, and
  • Master Directions dated April 22, 2025.
A new clause has been added as Para 5.4.ii.vi in the Master Directions. As per the change: Cap on Compounding Amount: The maximum fine for certain violations under FEMA can now be capped at INR 2,00,000 per rule or regulation (for each violation in a single application).
RBI Revises FEMA Guidelines on Holding Foreign Currency and Assets Abroad
Conditions for Limitation: The limit will apply based on the compounding authority's judgment, considering:
  • The type of violation,
  • Any special circumstances or facts of the case?
  • The overall public interest.
This cap specifically applies to violations listed in Row 5 of the computation matrix attached to the Master Directions and Further Directions. Instructions for Banks: All Authorised Dealer Category-I (AD Category-I) Banks and Authorised Banks are required to inform their customers about these updated rules. These changes have been made under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (FEMA).

About Author

Saloni Kumari

Content Writer

Saloni is a Content Writer with 2+ years of experience at studycafe.in. She writes legal, taxation, and finance related content including GST, Income Tax etc. Skilled in translating complex judicial pronouncements and regulatory developments into clear, and reader-friendly articles. Experienced in covering judgements of ITAT, High Court, GSTAT, and news related to Income Tax, GST, and corporate law. She can be reached at [email protected].
StudyCafe
Delhi, Delhi, India
2389
Up Next

Loading suggestions…