FEMA penalty

Hi,

As I understand, penalty for not converting resident account to NRO account is:

As per FEMA rules, the penalty for not converting resident account to an NRO account is up to 3 times the amount involved in it or Rs 2 lakh when the sum is not quantifiable. A daily penalty of Rs 5,000 will also be charged from the 1st day of intervention until the penalty is paid.

Unfortunaly I am in a situation, I did remittence from UK to to my India account (resident account), all taxes have been paid in UK for this income. and I purchased a property in India with this amount. The India account in question is still resident savings account and I am following up with bank to convert it.

Total in one financial year, about 20 lacs were credited and 25 lacs debited. An income tax officer has sent me a notice under section 148A.

Does it mean that the penalty for this could be 3 times of 45 lacs? Or I am not understanding this rule correctly?

I can't pay 1 crore 35 lacs. What option do I have? Is there any provision of waving of panalty as its 1st mistake?

Thanks.

PS: I did actually asked bank to convert my account when I was in India, submitted form with my documents but for some reason it didn't happen. I don't have any proof of it though.

Hi Manish,

I understand your concern—it’s a tricky situation. Let me clarify the FEMA penalty part and your options:

1. Penalty under FEMA for not converting Resident Account to NRO Account:

Yes, as per FEMA, the penalty can be up to 3 times the amount involved (i.e., the sum credited/debited in violation).
If the amount is not quantifiable, a flat penalty of Rs 2 lakh applies.
Additionally, a daily penalty of Rs 5,000 can be charged from the date of violation till penalty is paid.

2. How is “amount involved” calculated?

The amount involved typically means the total remittance credited in violation (here approx Rs 20 lakhs), or possibly the net transaction amount (like Rs 45 lakhs in your case if both credit and debit are considered).
However, penalty calculation can vary depending on how authorities interpret the transactions.

3. Is it possible that penalty is 3 times Rs 45 lakhs?

Technically yes, but in practice, penalties are usually negotiated or reduced on merit, especially if it’s a genuine mistake.

4. Options and relief:

Voluntary Disclosure: If you disclose the violation proactively and pay the due penalty, it may reduce scrutiny.
Explain your case: Inform the authorities about your efforts to convert the account (with any proof like emails, bank communications).
Request waiver/reduction: FEMA authorities have discretion to waive or reduce penalties if it is a first-time, bona fide mistake.
Legal Representation: Consult a FEMA expert or lawyer to draft a strong response to the notice under Section 148A explaining your case.
Appeal: If penalty is imposed, you have the right to appeal to the appellate authority.

5. Regarding Income Tax notice (Section 148A):

This notice is separate and concerns reopening of assessment. Your FEMA issue might not directly cause this unless income is questioned.
Respond carefully with all documents.