Quick Summary
The Reserve Bank of India (RBI) has announced a major compliance relief for minor violations under the Foreign Exchange Management Act (FEMA). Through its Master Direction on Compounding (22 April 2025) and Companion Circular (24 April 2025), RBI has allowed a Rs 2 lakh cap on penalties for certain
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FAQ :
Residual category contraventions are minor, technical, or procedural FEMA violations that are not explicitly listed in standard compounding schedules, occur due to oversight rather than malicious intent, and do not result in government financial loss or unfair gain.
The RBI has set a penalty cap of Rs 2 lakh for certain minor, low-risk FEMA violations, referred to as residual category contraventions.
The Rs 2 lakh cap applies at the Compounding Authority's discretion if the contravention is non-material and technical, a one-time lapse, without willful default or fraud, voluntarily corrected, and no investigation is pending with the ED or the matter doesn't fall under Section 3(a) of FEMA.
Examples include exceeding the LRS limit, delays in repatriation, failure to utilise export advances, delayed realisation of export proceeds, gifting shares without approval, or minor FDI/ECB end-use violations, provided they meet the criteria for residual contraventions.
The Rs 2 lakh cap does not cover matters under ED adjudication, serious or repeat offenses, or cases involving illegal foreign exchange dealings under Section 3(a) of FEMA.
This move reduces compliance costs for minor errors, encourages voluntary disclosure of old issues, simplifies regulatory clean-up during M&A or audits, and streamlines compliance through the RBI's PRAVAAH online platform.
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