Master Direction - Compounding of Contraventions under FEMA, 1999: paragraphs 5 to 7 on the computation matrix, the order and payment

Master Direction explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Paragraph 5 of the Reserve Bank's Master Direction on compounding says how an application is examined and sets out the guidance note, a matrix that broadly indicates how the compounding amount is derived. Paragraph 6 deals with the order and the hearing, and paragraph 7 with payment and its consequences. This article reproduces the matrix as printed and then reads paragraphs 6 and 7.

As per the Master Direction, updated as on April 24, 2025, the penalty under section 13 can be up to three times the sum involved, but the compounding amount is calculated on a guidance note: a fixed amount plus a variable amount by the amount under contravention or the period, subject to provisos, including a cap of 300% of the sum involved. The matrix is indicative only; the actual amount may vary with the circumstances. The order follows a hearing within 180 days of a complete application, and payment is due within 15 days from the date of the order.

The text

The text is the Master Direction - Compounding of Contraventions under FEMA, 1999, FED Master Direction No.04/2025-26, April 22, 2025, "Updated as on April 24, 2025", issued to Authorised Dealer Category - I banks and authorised banks under the Reserve Bank's powers cited in its cover letter, section 15 and section 11(2) of the Foreign Exchange Management Act, 1999. See our articles on section 15 and sections 11 and 12. Paragraphs 1 to 4 are in the previous article. This is the Reserve Bank's direction to its authorised dealers and a guide to what the Reserve Bank's compounding authorities do; it is not a rule. Later amendments and circulars should be checked on the Reserve Bank site. For a calculation applied to your own case, our FEMA compounding team can help.

Paragraph 5: examination, factors and the guidance note

5.1. On receipt, the Reserve Bank examines the application on its documents and submissions and assesses whether the contravention can be compounded under the Rules and, if so, the sum involved.

5.2. The Compounding Authority may call for further information or documents. If the contravener fails to submit them within the specified period, the application is liable to be returned.

5.3. The following indicative factors are considered in passing the order and fixing the amount:

• undue gains, the amount of gain or unfair advantage, wherever quantifiable, or economic benefits from delayed compliance or compliance avoided;
• the amount of loss caused to any authority or the exchequer;
• the repetitive nature of the contravention, the track record or history of non-compliance;
• the contravener's conduct in undertaking the transaction and in disclosure of full facts in the application and at the personal hearing; and any other relevant factor.

5.4. Under section 13 the penalty can be up to three times the sum involved. The compounding amount under section 15 is calculated on the guidance note, which is "meant only for the purpose of broadly indicating the basis" and "the actual compounding amount payable may sometimes vary". See our article on section 13 and, for how this compares with other FEMA amounts, our guides on FEMA penalty calculation and the late submission fee framework.

I. The computation matrix, as printed

Row 1: Reporting or submission contraventions under (i) FEMA 20, FEMA 20(R) and FEMA 395; (ii) FEMA 3 and FEMA 3(R); (iii) FEMA 120 and FEMA 400; (iv) any other reporting contraventions (except those in row 2 and those of LO/BO/PO).

Fixed amount: INR 10,000/-, applied once for each regulation or rule contravened in a compounding application, plus a variable amount:

(v) Reporting contraventions by LO/BO/PO: as above, subject to a ceiling of INR 2 lakhs. For a Project Office, the amount imposed is calculated on 10% of total project cost.

Row 2: Submission of AAC, APR, FLAR or share certificate. Non-submission or delayed submission of (i) APR or share certificates (FEMA 120 and FEMA 400), (ii) AAC (FEMA 22 and FEMA 22(R)), or (iii) FCGPR (B) or FLA Returns (FEMA 20, 20(R), 120, 395 and 400): INR 10,000 per AAC, APR, FCGPR (B) or FLA Return delayed. Delayed or non-receipt of a share certificate: INR 10,000/- per year, the total subject to a ceiling of 300% of the amount invested.

Row 3: (A) Allotment and refunds; (B) other contraventions by LO/BO/PO. (A) is non-allotment of shares, or allotment or refund after the stipulated period, for foreign investment. (B) is contraventions, other than the reporting contraventions in row 1(v), by LO/BO/PO. Fixed amount: INR 30,000/-, applied once for each regulation or rule contravened, plus a variable amount as a percentage of the amount under contravention:

For project offices the amount of contravention is deemed to be 10% of the cost of project.

Row 4: Any contravention pertaining to issuance of any guarantee (other than reporting contraventions). Fixed amount: INR 5,00,000/-, applied once for each regulation or rule contravened, plus:

Where the contravention includes the issue of guarantees for raising loans which are invested back into India, the amount imposed may be trebled.

Row 5: All other non-reporting contraventions. Fixed amount: INR 50,000/-, applied once for each regulation or rule contravened, plus:

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II. The provisos

The amounts are "presently subject to" these provisos:

1. The compounding amount shall not exceed 300% of the sum involved.
2. Where the sum involved is less than Rupees one lakh, the total compounding amount shall not be more than simple interest at 5% p.a. on the sum involved for the period of contravention in reporting contraventions, and at 10% p.a. for all other contraventions.
3. For contraventions of paragraph 8 of Schedule I to FEMA 20/2000-RB, the amount is graded: 1.25 times the table amount if shares are allotted after 180 days without the prior approval of the Reserve Bank; 1.50 times if shares are not allotted and the amount is refunded after 180 days with the Bank's permission; 1.75 times if refunded after 180 days without permission (each subject to provisos 1 and 2).
4. Where undue gains are established, the amount may be neutralised to a reasonable extent by adding it to the compounding amount.
5. Printed "".
6. Subject to the satisfaction of the compounding authority, on the nature of the contravention, exceptional circumstances or facts and wider public interest, the maximum compounding amount may be capped at INR 2,00,000/- for contravention of each regulation or rule (applied in a compounding application) for row 5.

III. Counting the period

For reporting contraventions under row 1, the period may be considered proportionately: (approx. rounded off to next higher month ÷ 12) X amount for 1 year. The total number of days does not exclude Sundays or holidays.

An illustration using row 1

Say a reporting contravention involves ₹50 lakh and was eight months late. Row 1 gives a fixed INR 10,000 for the regulation contravened, plus the band "40 lakhs or more and below 100 lakhs" at 7,000 per year. Using paragraph III, eight months is 8 divided by 12 of the one-year amount, which is about 4,667. The indicative total is about INR 14,667, before any proviso. This is arithmetic on the guidance note only; the actual amount in an order may vary, as paragraph 5.4 says, and the matrix is not a rule.

Paragraph 6: the order

• 6.1. The Compounding Authority passes the order after affording an opportunity of being heard, as expeditiously as possible and not later than 180 days from receipt of the application complete in all respects, on the basis of the application and the submissions at the personal hearings.
• 6.2. If the applicant opts for the personal hearing, the Reserve Bank would encourage appearance personally or by virtual mode rather than being represented by legal experts or consultants, as compounding is a voluntary process and only for admitted contraventions. Appearing or opting out has no bearing on the amount. If the applicant does not opt for a hearing or is absent on the day, the order may be passed on available information.
• 6.3. The order specifies the provisions of the Act or the rule, regulation, notification, direction or order contravened and details of the contravention.
• 6.4. One copy goes to the applicant, and another to the Adjudicating Authority where the compounding follows a complaint under section 16(3).
• 6.5. Summary information about orders passed on or after March 01, 2020 is hosted on the Reserve Bank's website in a stated format: serial number, name of the applicant, details of contraventions, date of the order and amount imposed.

Paragraph 7: payment

• 7.1. The amount is paid by demand draft in favour of "Reserve Bank of India", NEFT, RTGS or other permissible electronic or online modes within 15 days from the date of the order. The manner is indicated in the order. Intimation of payment goes as soon as possible but not later than 2 hours from the time of payment, in the template in Para B of Annexure I (not on the page consulted).
• 7.2. The Rules confer no right, after an order, to withdraw it, to hold it void or to seek review.
• 7.3. Failure to pay in time means the contravener is deemed never to have applied.
• 7.4. For contraventions not compounded, the Act's provisions for contravention apply.
• 7.5. On realisation of the sum, the Reserve Bank issues a certificate, subject to any conditions in the order.

These match rules 8, 10, 11, 12 and 13 of the Rules, covered in the procedure article.

Common mistakes

• Treating the matrix as a fixed tariff. Paragraph 5.4 calls it a guidance note and says amounts may vary.
• Forgetting the fixed amount is applied once for each regulation or rule contravened.
• Forgetting that proviso 1 caps the amount at 300% of the sum involved.
• Expecting a review after the order (paragraph 7.2).

Need help estimating or negotiating the amount?

The factors in paragraph 5.3 and the provisos matter as much as the table. Our FEMA compounding team can estimate the indicative amount, prepare disclosures and attend the hearing with you.

Key takeaways

• The matrix has five rows, each with a fixed amount and a variable amount; it is indicative.
• The provisos include a cap of 300% of the sum involved and a lower cap for sums below one lakh.
• The order follows a hearing within 180 days of a complete application.
• Payment is due within 15 days of the order; failure means the application is deemed never made.
• A certificate is issued after realisation of the sum.

Read next

• Where and how to apply for compounding: paragraphs 1 to 4
• Compounding procedure, time limit and payment
• FEMA penalty calculation
• Late submission fee under the FEMA RBI framework

Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.