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Ministry of Finance (MoF) and Reserve Bank of India (RBI) issued new rules and directions respectively on compounding under Foreign Exchange Management Act, 1999 (FEMA)
Foreign Exchange (Compounding Proceedings) Rules, 2024 (Rules) and Master Direction dated 1 October 2024 aim to rationalize and streamline the compounding process under FEMA and facilitate ease of doing business.
The key changes are outlined below:
Increment in monetary thresholds of contraventions which shall be compounded by the designated officers of the RBI. The earlier and the revised limits are tabulated below:
Compounding Authority of RBI | Threshold
| |
Erstwhile rules | Rules | |
Assistant General Manager | Up to INR 10 lakhs | Up to INR 60 lakhs |
Deputy General Manager | Beyond INR 10 lakhs but less than INR 40 lakhs | Beyond INR 60 lakhs and up to INR 2.5 crores |
General Manager | INR 40 lakhs or more but less than INR 1 crore | Beyond INR 2.5 crores and up to INR 5 crores |
Chief General Manager | INR 1 crore or more | Beyond INR 5 crores |
The fee for filing compounding application has been increased from INR 5,000 to INR 10,000.
The applications shall not be processed until the completion of requisite administrative action on the part of the applicant. The term ‘administrative action’ has been clearly defined by RBI to include corrective measures necessitated to ensure compliance with the extant framework. Further, an indicative list of such actions is provided comprising the following:
- Obtaining requisite approvals/ permissions from the Government or RBI or any other statutory authority concerned, as case may be;
- Unwinding/ reversing the transaction;
- Repatriating the receivables due;
- Compliance with pricing guidelines or submission of valuation certificate;
- Compliance with reporting requirements;
- any other such corrective action as may be required
The guidance note on computation matrix for guarantees now covers all types of guarantees, expanding the scope beyond corporate guarantees.
All existing applications with RBI shall continue to be adjudicated in accordance with the erstwhile rules until their disposal.
Source: Ministry of Finance Notification G.S.R. 566 (E) dated 12 September 2024 and A.P. (DIR Series) Circular No. 17/2024-25 dated 1 October 2024