FEMA Contraventions and Compounding: How It Works (2026)
What a FEMA contravention is, how compounding before the Reserve Bank of India works, the fee and timeline, and the penalty. Who applies, where, and the steps. Last verified October 2026.
How-to · FEMA · Process
If you have broken a rule under FEMA, for example a late filing on a foreign investment or an overseas remittance, you can often settle it by compounding instead of fighting an adjudication. Compounding under Section 15 of the Foreign Exchange Management Act, 1999 is a voluntary process. You admit the contravention and apply to the Reserve Bank of India, which fixes a compounding amount and closes the matter. This guide explains what a contravention is, the penalty exposure, who applies, where, the fee, and the timeline. Last verified October 2026.
- What it is: compounding under Section 15 of FEMA is a voluntary settlement of an admitted contravention with the Reserve Bank of India.
- Penalty exposure: under Section 13, up to three times the sum involved where quantifiable, or up to Rs 2 lakh where not, plus up to Rs 5,000 per day for a continuing breach.
- Fee and timeline: application fee of Rs 10,000 plus GST; the RBI passes the compounding order within 180 days of a complete application, and the amount is paid within 15 days.
- Not available: for a similar contravention compounded within the last three years, or matters involving money laundering, terror financing or national security.
01The problem: a technical FEMA breach
Many FEMA breaches are technical, not deliberate. A company receives foreign investment but files the reporting form late. An individual remits money abroad under the wrong route. A delay in filing an FC-GPR or an ODI form is enough to be a contravention, even where no one intended to break the law.
Left open, a contravention is a risk. It can block future approvals, complicate audits and due diligence, and expose the person to a penalty. Compounding is the clean way to close it: you admit the breach, pay a settled amount, and get a formal order that the matter is resolved.
Compounding is voluntary and admit-first
You cannot compound a contravention you deny. The process starts with admitting the breach. In return you avoid a contested adjudication and get certainty through a compounding order.
02What a contravention is and the penalty
A contravention is any breach of FEMA, its rules, regulations, notifications, or the conditions of an RBI authorisation. The penalty is set by Section 13 of the Act.
- Where the amount is quantifiable: a penalty of up to three times the sum involved in the contravention.
- Where the amount is not quantifiable: a penalty of up to two lakh rupees.
- For a continuing contravention: a further penalty of up to five thousand rupees for every day the contravention continues.
These are the ceilings an adjudicating authority can impose. Compounding usually settles the matter for far less than the maximum, under a calculation guide the RBI applies.
03What compounding means
Compounding under Section 15 lets a person who has contravened FEMA settle the matter by paying a compounding amount, rather than going through a full adjudication under Section 13. It is a one-time settlement of that specific contravention.
The process is now governed by the Foreign Exchange (Compounding Proceedings) Rules, 2024, which replaced the 2000 Rules. The Reserve Bank of India is the compounding authority for most contraventions, except those relating to Section 3(a) of FEMA (hawala-type unauthorised dealings), which are handled by the Directorate of Enforcement.
Compounding converts an open FEMA breach into a closed, settled matter through a formal order, usually for far less than the maximum penalty.
04Who applies and where
Who can apply: any person who has contravened a FEMA provision can apply to compound it. This includes companies, LLPs and individuals.
Where: the application goes to the Reserve Bank of India. Depending on the amount involved, it is handled at a Regional Office or at the Central Office, and it can be filed physically or through the RBI’s PRAVAAH portal. The monetary jurisdiction (which officer can compound up to what amount) is set by the RBI.
What to file: the prescribed application form, with details of the contravention, the relevant filings, and supporting documents, plus the fee.
05The process, fee and timeline
The 2024 Rules set out a clear, time-bound process.
| Stage | What happens | Detail |
|---|---|---|
| Apply | File the compounding application with the RBI | Fee of Rs 10,000 plus GST |
| Review | RBI examines the contravention and may call for documents | Payment by demand draft, NEFT or online mode |
| Order | RBI passes a compounding order fixing the amount | Within 180 days of receipt of a complete application |
| Pay | Applicant pays the compounding amount | Within 15 days of the order |
The application fee is Rs 10,000 plus goods and services tax. The RBI must pass the compounding order within 180 days from the date it receives a complete application. The compounding amount fixed in the order must be paid within 15 days of the order; if it is not paid in time, it is treated as if no compounding application had been made.
06When compounding is not available
Compounding is not open in every case.
- Repeat within three years: a contravention similar to one that was compounded within the previous three years cannot be compounded again. It goes to adjudication.
- Serious matters: cases that involve money laundering, terror financing, or that affect the sovereignty and integrity of the nation are not eligible.
- Enforcement cases: contraventions under Section 3(a) are dealt with by the Directorate of Enforcement, not by the RBI.
Where compounding is refused or not available, the matter proceeds to adjudication under Section 13, and an order there can be appealed to the Special Director (Appeals) under Section 17 and then to the Appellate Tribunal under Section 19, with a further appeal to the High Court under Section 35.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
A compounding order closes one contravention, but a contested FEMA matter can travel from the RBI to adjudication, the Appellate Tribunal and the High Court, and how the Tribunal or a court has read Section 13 or scored a penalty shapes what you should expect. Claw opens that record: more than 30 crore judgments to read, returned in under five seconds, so you can line up how like contraventions were treated before you apply. It also keeps watch on the live matters, cases, orders and hearings across 9,102 courts, benches and forums, by party or advocate name. Claw does not use the documents you upload to train its AI models.
Create a free Claw account to follow a pending FEMA appeal and compare penalty outcomes. For a broader search, see case search across Indian courts.
08Sources and further reading
- Reserve Bank of India (compounding of contraventions): rbi.org.in
- India Code (Foreign Exchange Management Act, 1999): indiacode.nic.in
- Claw: clawlaw.in
This guide is general information, not legal advice. FEMA rules and compounding procedures are updated often, so check the current RBI directions and the Foreign Exchange (Compounding Proceedings) Rules, 2024 and take advice from counsel before you act.
09Frequently asked questions
What is compounding under FEMA?
Compounding under Section 15 of the Foreign Exchange Management Act, 1999 is a voluntary way to settle a contravention. You admit the breach and apply to the Reserve Bank of India, which fixes a compounding amount and passes an order closing the matter, instead of a contested adjudication.
What is the penalty for a FEMA contravention?
Under Section 13, the penalty can be up to three times the sum involved where that is quantifiable, or up to Rs 2 lakh where it is not. For a continuing contravention there is a further penalty of up to Rs 5,000 for each day it continues. Compounding usually settles for far less than the maximum.
What is the fee to file a compounding application?
The application fee under the Foreign Exchange (Compounding Proceedings) Rules, 2024 is Rs 10,000 plus goods and services tax. The fee can be paid by demand draft, NEFT or another permitted online mode, and the application can be filed physically or through the RBI’s PRAVAAH portal.
How long does compounding take?
The Reserve Bank of India must pass the compounding order within 180 days from the date it receives a complete application. Once the order is passed, the compounding amount must be paid within 15 days, failing which the application is treated as never made.
When can a contravention not be compounded?
Compounding is not available where a similar contravention was compounded within the previous three years, or where the matter involves money laundering, terror financing or national security. Contraventions under Section 3(a) are dealt with by the Directorate of Enforcement, not the RBI.
Can I track a FEMA case in Claw?
Yes. Claw tracks a live FEMA appeal, its cases, orders and hearings, by party or advocate name across 9,102 courts, benches and forums, and lets you search more than 30 crore judgments in under five seconds to compare how similar contraventions were handled. It researches and follows the matter but does not give legal advice.