"RBI Limits FEMA Violation Penalty to ₹2 Lakh, Simplifying Compliance"
RBI Caps FEMA Violation Penalties at ₹2 Lakh: Major Relief for Individuals and Businesses
In a significant regulatory relaxation, the Reserve Bank of India (RBI) has eased penalties under the Foreign Exchange Management Act (FEMA) by capping fines for violations at ₹2 lakh. Previously, penalties were calculated as a percentage of the violation amount, often ranging between 0.30% and 0.75%, leading to hefty charges in high-value cases.
The new rule impacts a range of FEMA contraventions, such as:
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Failure to reinvest proceeds under the Liberalised Remittance Scheme (LRS) within 180 days,
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Export obligations not completed within one year of receiving advance payments,
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Gifting of high-value shares to non-residents without prior RBI approval.
These changes were officially announced through updated master directions issued by the RBI on Thursday. According to the central bank, “based on the nature of contravention, exceptional circumstances involved, and public interest, the maximum compounding amount may now be capped at ₹2 lakh for each violation considered under a compounding application.”
FEMA regulations cover various restrictions, including:
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Prohibiting the purchase of foreign properties via mortgages abroad,
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Requiring valuation reports for the sale of overseas direct investments (ODI),
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Mandating repatriation of ODI sale proceeds within 90 days,
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Restricting resident Indians from gifting significant shareholdings to non-resident relatives without RBI permission,
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Banning NRIs from purchasing agricultural land in India.
Experts have welcomed the move. “Rationalization of the penalty amount will significantly ease the burden on individuals and corporations involved in high-value contraventions,” said Harshal Bhuta, Partner at P R Bhuta & Co, a chartered accountancy firm.
This regulatory update marks a clear step towards making FEMA compliance more manageable and less financially daunting for businesses and individuals alike.
Source: The Economic Times, 25th April 2025
