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.
The Reserve Bank's Master Direction on compounding tells authorised dealers, and through them applicants, which office of the Reserve Bank handles which kind of contravention, how a compounding application is made and what it must contain, when it will be returned, and which cases are not eligible. This article reads paragraphs 1 to 4. Paragraphs 5 to 7 (amount, order and payment) are in the next article.
As per the Master Direction, updated as on April 24, 2025, the Reserve Bank's Regional Offices compound contraventions of the listed foreign investment, overseas investment and related instruments, a cell at New Delhi deals with office, immovable property and similar cases, and all other contraventions go to the Cell for Effective implementation of FEMA (CEFA) in Mumbai. The application carries a fee of ₹10,000/- plus applicable GST, may be filed physically or on the PRAVAAH Portal, and no application is processed until the administrative action is complete.
The text and its footing
The text is the Master Direction - Compounding of Contraventions under FEMA, 1999, FED Master Direction No.04/2025-26, dated April 22, 2025, "Updated as on April 24, 2025", issued to Authorised Dealer Category - I banks and authorised banks. The cover letter cites section 15 of the Foreign Exchange Management Act, 1999 and section 11(2) (the Reserve Bank's power to direct an authorised person to furnish information). See our articles on section 15 and sections 11 and 12. It supersedes the earlier Master Direction updated as on May 24, 2022, and refers to the Foreign Exchange (Compounding Proceedings) Rules, 2024. A Master Direction is the Reserve Bank's direction to authorised dealers; it is not a rule. Annexures I to III are named on the page but their text is not on it. Later amendments and circulars should be checked on the Reserve Bank site. If you are preparing an application, our FEMA compounding team can help.
Paragraph 1: general
- 1.1. The Central Government notified the Compounding Rules, 2024 under section 46 read with section 15(1).
- 1.2. Under section 15, a contravention under section 13 (except section 3(a)) may, on an application, be compounded within one hundred and eighty days from receipt of the application by Reserve Bank officers as prescribed in rule 4 of the Rules.
- 1.3. The paragraph restates section 13(1): on adjudication a person is liable to a penalty up to thrice the sum involved where the amount is quantifiable, or up to Rupees Two lakhs where it is not directly quantifiable, and, for a continuing contravention, a further penalty which may extend to Rupees Five thousand for every day after the first day. See our article on section 13.
- 1.4. Compounding reduces compliance burden and cost, but contraventions falling under rule 4(2) and rule 9 of the Rules shall not be compounded.
Paragraph 2: which office handles which contravention
2.1. Contraventions of the following instruments are compounded by the compounding authorities of the Reserve Bank at the Regional Offices: the regulations under Notification FEMA 20/2000-RB dated May 3, 2000 (paragraph references to its Schedules 1 and 9 and regulations 2, 10A, 10B, 14); the regulations under Notification FEMA 20(R)/2017-RB dated November 07, 2017; the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 dated October 17, 2019; and the regulations under Notification FEMA 395/2019-RB dated October 17, 2019. The Master Direction prints a table of the particular provisions under each. The table is printed with its columns run together on the page consulted, so it is not rebuilt here; check the Reserve Bank's own text for the specific provision. The Non-Debt Instruments Rules, 2019 are not in the sources consulted for this series.
2.2. Contraventions related to Liaison, Branch or Project offices, Non-Resident Foreign Account (NRFAD) and Immovable Property are compounded by the compounding authorities attached to the FED, CO, Cell at New Delhi office. The Master Direction lists the notifications: FEMA 7/2000-RB and FEMA 7(R)/2015-RB, with rule 21 of the Overseas Investment Rules, 2022; FEMA 21/2000-RB and FEMA 21(R)/2018-RB, with Chapter IX of the Non-Debt Instruments Rules, 2019; FEMA 22/2000-RB and FEMA 22(R)/2016-RB; and FEMA 5/2000-RB and FEMA 5(R)/2016-RB. For the office regulations see the later articles of this series on branch, liaison and project offices.
2.3. Applications on those matters go to the Regional Office under whose jurisdiction the applicant falls, or to the FED, CO Cell, New Delhi, as applicable. For foreign investment related contraventions, the application goes to the Regional Office having jurisdiction over the registered office of the investee Indian company.
2.4. For all other contraventions, applications go to the Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, Reserve Bank of India, 11th floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400001.
| Kind of matter (paragraph) | Where the application goes |
|---|---|
| Listed rules and regulations, including foreign investment (2.1, 2.3) | Regional Office; for foreign investment, the one with jurisdiction over the investee company's registered office |
| Office, NRFAD and immovable property notifications (2.2, 2.3) | Regional Office with jurisdiction, or FED, CO Cell, New Delhi |
| All other contraventions (2.4) | CEFA, Foreign Exchange Department, Mumbai |
Paragraph 3: the application
- 3.1. An applicant may submit the application with relevant documents physically or through the PRAVAAH Portal of the Reserve Bank, either suo moto or based on a Memorandum of Contraventions issued by the Reserve Bank. If, after the Memorandum, the applicant does not opt for compounding within the period stated in it, the relevant provisions of the Act apply.
- 3.2. The fee is ₹10,000/- plus applicable GST, "which at present is 18%" as the Master Direction states, by demand draft in favour of "Reserve Bank of India" payable at the concerned Regional Office, CO Cell, New Delhi or Central Office, or by NEFT or other permissible electronic or online modes. Intimation of payment goes to the respective office by email, as soon as possible but not later than 2 hours from the time of payment, in the template in Para B of Annexure I, and the application must carry the payment details including the UTR number. The Rules themselves say "plus goods and services tax, as applicable"; the percentage is the Master Direction's statement at its date.
- 3.3. The format is appended to the Rules (see our article on the application Form). Applications must contain contact details: name of the applicant or authorised official, telephone or mobile number and email ID.
- 3.4. Along with the application the applicant also furnishes details as per Annex-II relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office or Liaison Office, as applicable; a copy of the Memorandum of Association, if available; and an undertaking as per Annex-III regarding enquiry, investigation or adjudication by the Directorate of Enforcement.
- 3.5. An application is returned where administrative action has not been completed, the application is incomplete, or the fee has not been paid. A fee already paid is not returned, but need not be paid again on re-submission.
- 3.6. The applicant should tell the authority of any change in address or contact details while the application is pending.
- 3.7. If the Reserve Bank allows an applicant to submit missing information or documents within a reasonable time, the date of receipt of that information or those documents is taken as the date of receipt of the application. This matters for the one hundred and eighty days in rule 8(2) of the Rules; see the procedure article.
Paragraph 4: cases not eligible
- 4.1. A contravention within three years from the date on which a similar contravention was committed and compounded shall not be compounded; one after three years is deemed a first contravention.
- 4.2. No application is processed unless the requisite administrative action is completed. The Explanation says administrative action means such action as is necessary with respect to the transactions involved (as per rule 8(1) of the Rules) and includes corrective action to bring the transaction into compliance. The indicative, not exhaustive, list: obtaining requisite approvals or permissions; unwinding or reversing the transaction; repatriating receivables due; compliance with pricing guidelines or submission of a valuation certificate; compliance with reporting requirements; and any other corrective action required.
- 4.3. Serious contraventions (money laundering, terror financing, sovereignty and integrity of the nation) or a failure to pay the compounded sum within the specified period are referred to the Directorate of Enforcement for further investigation and action.
- 4.4. Under rule 9, cases of non-quantifiable amount, section 37A, a penalty already imposed under section 13, or a serious contravention in the view of the Directorate are not eligible for compounding by the Reserve Bank. See rules 6, 7 and 9.
- 4.5. Contraventions of section 3(a) are not eligible for compounding by the Reserve Bank (rule 4(1)); the route is rule 5, via the Directorate of Enforcement.
- 4.6. Whenever a contravention is identified by or brought to the notice of the Reserve Bank, it examines whether it may be compounded, or whether it is sensitive or serious and should be referred to the Directorate for adjudication or further investigation.
Example
Bharat Alloys Pvt Ltd received foreign investment and issued shares late. It wants to compound. Under paragraph 2.3 a foreign investment application goes to the Regional Office with jurisdiction over Bharat Alloys' registered office. Before filing, it completes the administrative action in paragraph 4.2 (for instance, compliance with reporting requirements), pays ₹10,000/- plus applicable GST by NEFT, emails the intimation within 2 hours and attaches the UTR number. If it omits the payment, paragraph 3.5 says the application will be returned, though the fee already paid is not refunded.
Common mistakes
- Applying to the wrong office. Paragraph 2 divides the work by subject.
- Filing before the administrative action is done (paragraph 4.2).
- Forgetting the 2-hour email intimation and the UTR number.
- Assuming a returned application means paying the fee again. Paragraph 3.5 says it need not be.
Need help choosing the office and preparing the file?
The Master Direction is detailed about offices, annexures and administrative action, and a returned application costs time. Our FEMA compounding team can identify the office, complete the annexures and file the application.
Key takeaways
- Offices: Regional Offices, the New Delhi cell, and CEFA in Mumbai, by subject.
- Fee ₹10,000/- plus applicable GST, with an email intimation within 2 hours of payment.
- Filing is physical or via PRAVAAH; annexures II and III accompany the application.
- Incomplete applications and those without administrative action are returned; the fee is not refunded but need not be repaid.
- Paragraph 4 repeats the ineligible cases of the Rules.
Read next
- Compounding amount matrix, order and payment: paragraphs 5 to 7
- Compounding application form and fee
- How to apply for FEMA compounding
- Compounding of contraventions under FEMA
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.