Rule 4 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.
Rule 4 ties the rank of the Reserve Bank officer who may compound a contravention to the sum involved in it. It also bars compounding of a similar contravention committed within three years of an earlier compounding, puts the Reserve Bank officers under the Governor's control, and prescribes the application and fee. It does not cover a contravention of clause (a) of section 3 of the Act, which rule 5 handles. Our FEMA compounding service can help you place a case in the right slab.
Under rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2024 (as notified on 12 September 2024), a Reserve Bank officer may compound a contravention, other than one of clause (a) of section 3, according to the sum involved: up to sixty lakh rupees, an officer not below Assistant General Manager; up to two and a half crore, Deputy General Manager; up to five crore, General Manager; above five crore, Chief General Manager. There is a three-year bar on a similar contravention, and the application carries a fee of ten thousand rupees plus goods and services tax.
Which text is being explained
The Rules are G.S.R. 566(E) of 12th September, 2024, made by the Central Government under clause (b) of sub-section (2) of section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999. See our articles on section 15 and section 46. For rules 1 to 3, including who is a compounding authority, read the first article of this series on the Rules. Later amendments should be checked on the Gazette and Reserve Bank sites.
Rule 4(1): four ranks, four slabs
Rule 4(1) opens: "If any person contravenes any provision of the Act, other than a contravention of clause (a) of section 3 thereof," and then sets out four cases. In each, the officer named "may compound such contravention in accordance with the provisions of these rules".
| Sum involved in the contravention | Reserve Bank officer (rule 4(1)) |
|---|---|
| Does not exceed sixty lakh rupees | Not below the rank of Assistant General Manager |
| Does not exceed two and a half crore rupees | Not below the rank of Deputy General Manager |
| Does not exceed five crore rupees | Not below the rank of General Manager |
| Above five crore rupees | Not below the rank of Chief General Manager |
The wording is "not below the rank". So a higher officer can compound a smaller sum, but a lower officer cannot compound a larger one. Rule 4(1) is also limited by the opening words: any provision of the Act other than clause (a) of section 3. Compounding of that clause goes to the Directorate of Enforcement under rule 5; see compounding by the Directorate of Enforcement. The meaning of the clause is in our article on section 3 of the Act.
The Rules do not define "sum involved" in rule 2. The Master Direction on compounding, updated as on April 24, 2025, handles how amounts are worked out; see our article on the compounding amount matrix.
Rule 4(2): the three-year bar
Rule 4(2) says nothing in sub-rule (1) applies to a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Rules. In other words, if you have had one contravention compounded, a similar contravention within three years from that date is not eligible to be compounded under rule 4(1). The Explanation adds that a second or subsequent contravention committed after the expiry of three years from the date on which the earlier contravention was compounded shall be deemed to be a first contravention.
Two things to note. The period runs from the date of compounding, not from the date of the earlier contravention. And the bar is on "similar" contraventions; the Rules do not define "similar", so what counts as similar is a question the compounding authority decides on the facts.
Rule 4(3): control by the Governor
Every Reserve Bank officer specified in sub-rule (1) shall exercise the power to compound subject to the direction, control and supervision of the Governor of the Reserve Bank.
Rule 4(4): the application and the fee
Every application for compounding under rule 4 shall be made in the prescribed Form to the Foreign Exchange Department, Reserve Bank, along with a fee of ten thousand rupees plus goods and services tax, as applicable, by demand draft, or National Electronic Fund Transfer (NEFT), or other permissible electronic or online modes of payment, in favour of the compounding authority. The Form is described in our article on the compounding application form and fee.
What happens after the application
Once the application is complete the authority hears the applicant and passes a compounding order within the period set by rule 8(2); payment of the sum compounded follows under rule 10; the consequences of non-payment are in rule 11. Those rules are covered in the article on procedure, time limit and payment. Rule 9 lists cases that cannot be compounded at all; see contraventions that cannot be compounded.
Example
Kiran Exports Pvt Ltd made a delayed filing involving a sum of ₹1,80,00,000. The sum is above sixty lakh rupees but does not exceed two and a half crore rupees, so rule 4(1)(b) requires an officer not below the rank of Deputy General Manager. If the sum had been ₹6,00,00,000, rule 4(1)(d) would apply and the officer must be not below Chief General Manager. Suppose Kiran Exports had a similar contravention compounded on 15 June 2025. A similar contravention committed on 10 March 2027 falls within three years of that date and rule 4(2) bars compounding under rule 4(1); one committed after 15 June 2028 would be deemed a first contravention.
The application would go to the Foreign Exchange Department of the Reserve Bank in the prescribed Form with the ten thousand rupee fee plus goods and services tax.
Common mistakes
- Measuring the three years from the earlier contravention instead of from the date it was compounded.
- Forgetting the goods and services tax on top of the ten thousand rupee fee. The Rules say "as applicable"; the Master Direction states its own figure for the tax at its date, and the Rules do not.
- Applying to the Reserve Bank for a clause (a) of section 3 matter, which rule 5 sends to the Directorate of Enforcement.
- Treating "does not exceed" and "above" as overlapping. The first three slabs are ceilings; the fourth begins above five crore rupees.
Need help with a Reserve Bank compounding application?
If your contravention involves a sum near a slab boundary, or you have a prior compounding on record, the choice of authority and the way the sum is computed matter. Our FEMA compounding team can prepare the application and track it with the Reserve Bank.
Key takeaways
- Rule 4(1) matches Reserve Bank ranks to four slabs: sixty lakh, two and a half crore, five crore, and above five crore rupees.
- The bar in rule 4(2) runs for three years from the date of the earlier compounding.
- Reserve Bank officers act under the Governor's direction, control and supervision.
- The fee is ten thousand rupees plus goods and services tax, as applicable, paid to the compounding authority.
- Contraventions of clause (a) of section 3 are outside rule 4.
Read next
- Compounding authority and defined terms: rules 1 to 3
- Compounding by the Directorate of Enforcement: rule 5
- Compounding application form and fee
- How to apply for FEMA compounding
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.