FEMA Compounding Under the 2024 Rules: How RBI Self-Reporting Now Works

FEMA Compounding Under the 2024 Rules: How RBI Self-Reporting Now Works

The Foreign Exchange Management (Compounding Proceedings) Rules, 2024 replaced the 2000 Rules and changed two things that matter most in practice: the self-reporting framework and the compounding fee structure. Companies that violated FEMA provisions — delayed FC-GPR, unreported FC-TRS, late APR filing for overseas investments, unreported ODI — and have not yet regularised their position need to understand how the 2024 Rules change the calculus.

What Is FEMA Compounding

Under Section 15 of the Foreign Exchange Management Act, 1999, a contravention of FEMA can be "compounded" — settled by paying a specified amount to the RBI rather than going through a formal adjudication under Section 13. Compounding is a regularisation mechanism, not an admission of guilt in the criminal sense.

Once compounding is completed and the compounding order is issued by the RBI, the contravention is treated as settled. Future due diligence by investors, lenders, or acquirers can be satisfied by producing the compounding order — it is clean documentation that the violation has been addressed.

The 2024 Rules: Key Changes

Change 1 — Self-reporting now has a defined framework.

Under the 2000 Rules, there was no formal self-reporting mechanism. A company that discovered a past FEMA violation had to apply for compounding and wait for the RBI to determine the fee. Self-reporting had no specific procedural benefit.

The 2024 Rules introduce a formal self-reporting window and framework:

• A person who has contravened FEMA provisions can file a self-reporting application with the RBI before the RBI initiates enforcement action
• Self-reporting applications are to be filed at the RBI regional office having jurisdiction over the applicant's place of business
• The application must: describe the nature of the contravention, the period of contravention, the amount involved, and the steps taken to regularise (e.g., delayed filing now completed)
• The 2024 Rules provide for a reduced compounding fee for self-reported contraventions compared to those detected by the RBI

Change 2 — Revised compounding fee structure.

The 2000 Rules had a fee structure based on the amount involved and the period of delay that had become outdated relative to actual transaction sizes. The 2024 Rules revise this:

For contraventions relating to reporting (FC-GPR, FC-TRS, APR, FLA, FCGPR for ODI):

Minimum fee: ₹5,000. Maximum fee: 300% of the amount involved.

For self-reported contraventions, the fee is computed at 75% of the above rates — a 25% reduction for voluntary disclosure.

For substantive violations (exceeding sectoral caps, investing in prohibited sectors, unapproved transactions): the fee is determined case-by-case based on the gravity of violation, with no fixed formula.

Change 3 — Timelines for RBI disposal.

The 2024 Rules prescribe disposal timelines for compounding applications:

• Reporting contraventions (self-reported): 60 working days from receipt of complete application


• Reporting contraventions (detected by RBI): 90 working days


• Substantive violations: 120 working days, extendable

This is meaningful for deal timelines — a startup seeking investment where the founders have past FEMA violations can now give investors a more predictable window for regularisation.

Common Contraventions That Get Compounded

FC-GPR late filing: Most common. Company receives FDI, allots shares, but files FC-GPR with RBI beyond 30 days (now 60 days under the Third Amendment — but prior violations at 30 days are not regularised retroactively). Fee: 0.025–0.075% of FDI amount per month of delay.

FC-TRS non-filing / late filing: When shares are transferred between a resident and non-resident (secondary sale), FC-TRS must be filed within 60 days. Late filing or non-filing is compounded.

APR (Annual Performance Report) non-filing: For Indian companies with Overseas Direct Investment (ODI), an Annual Performance Report must be filed with the RBI by December 31 each year. Missed APRs for multiple years compound linearly.

Form ODI non-compliance: Changes to an overseas subsidiary or JV (additional investment, guarantee, exit) must be reported within 30 days. Late or missed filings are compounded.

FEMA contraventions discovered during due diligence: Typically flagged by legal counsel during pre-investment or pre-acquisition due diligence. The investor or acquirer requires the target to file for compounding and produce the order as a condition precedent to closing.

The Self-Reporting Workflow Under 2024 Rules

Step 1 — Identify and document the contravention. Enumerate each FEMA violation: form type, date when obligation arose, date of actual filing (if filed late) or confirmation of non-filing, amount involved.

Step 2 — Regularise what can be regularised. If FC-GPR was filed late but the filing was made before the compounding application, include the date of filing in the application. This demonstrates the violation is historical rather than ongoing.

Step 3 — Compute the estimated compounding fee. Using the 2024 Rules formula, estimate the fee for each contravention. For self-reported applications, apply the 75% rate.

Step 4 — File the compounding application at the RBI regional office. File at the office having jurisdiction over the applicant's principal place of business. Application must include: covering letter describing each contravention, supporting documents (transaction records, bank certificates confirming inward/outward remittance, copies of any late filings), DD for the estimated fee.

Step 5 — Attend RBI interaction if called. For larger amounts or substantive violations, the RBI may call the applicant for an interaction. The CA or CS accompanying the client should be prepared to walk through each transaction.

Step 6 — Receive compounding order. Once the RBI issues the compounding order and the fee is paid, the compounding is complete.

Practical Consideration: Compounding Before Due Diligence

If your company is planning to raise a funding round, go through M&A, or list on an exchange in the next 12–24 months, any FEMA contraventions should be compounded before that process begins. Legal due diligence will surface them, and an outstanding FEMA violation without a compounding order can be a deal condition or, for serious violations, a deal blocker.

Filing for compounding proactively (self-reporting) has three advantages over waiting for detection: lower fees (75% of standard), faster disposal timelines, and a cleaner paper trail for due diligence.

I'm CA Harun Raaj, Visakhapatnam. If your company has FEMA violations — whether from delayed FC-GPR, missed APRs, or unreported secondary transfers — the 2024 Rules self-reporting window is the right mechanism to use before due diligence surfaces them.

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