RBI Caps FEMA Compounding Penalty at ₹2 Lakh for Exceptional Circumstances
The Reserve Bank of India (RBI) has amended the FEMA compounding guidelines by introducing a Rs. 2 lakh penalty cap for certain contraventions in exceptional circumstances.
The Reserve Bank of India (RBI) has made an important change to the rules for handling violations under the Foreign Exchange Management Act (FEMA), 1999. In a new circular issued on April 24, 2025, the RBI has announced that in certain special situations, the penalty for breaking FEMA rules can be limited to a maximum of Rs. 2 lakh for each violation. This decision will help people...
The Reserve Bank of India (RBI) has made an important change to the rules for handling violations under the Foreign Exchange Management Act (FEMA), 1999. In a new circular issued on April 24, 2025, the RBI has announced that in certain special situations, the penalty for breaking FEMA rules can be limited to a maximum of Rs. 2 lakh for each violation.
This decision will help people and companies who may have made small mistakes or unintentional errors while following FEMA rules.
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The Circular refers to:
- The existing Directions for Compounding of Contraventions under FEMA, issued via A.P. (DIR Series) Circular No. 17/2024-25 dated October 1, 2024.
- The Master Directions on Compounding of Contraventions under FEMA, dated April 22, 2025.
A new clause (Para 5.4.II.vi) is being added to the above-mentioned Master Directions:
“Subject to satisfaction of the compounding authority, based on the nature of contravention, exceptional circumstances/ facts involved in the case, and in wider public interest, the maximum compounding amount imposed may be capped at ₹2,00,000 per contravention of each regulation/rule (applied in a compounding application) with respect to contraventions under row 5 of the above computation matrix.”
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Explanation
If the compounding authority (the RBI officer who handles these cases) is satisfied that:
- The violation is not serious,
- There are special or exceptional reasons in the case,
- Reducing the penalty is in the public interest,
Then, the penalty can be capped at Rs. 2 lakh per violation. This penalty limit applies only to certain types of violations (those listed under Row 5 of the penalty calculation table in the RBI’s Master Directions). The compounding authority has the power to decide whether or not this cap should be applied. It is not automatic.
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