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 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). 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).