Insights · FEMA
FEMA Compounding and Late Submission Fee: Fixing FDI and ODI Reporting Defaults
When a missed FC-GPR, FC-TRS, Form FC or Annual Performance Report can be settled with a Late Submission Fee, when it needs compounding by the RBI, and how each process runs.
Compounding is the process by which the Reserve Bank of India settles an admitted FEMA contravention on payment of a sum, without adjudication by the Enforcement Directorate. For delays in reporting foreign investment or overseas investment, there is usually a quicker remedy: the Late Submission Fee paid through your bank. Knowing which one applies saves months.
Key figures
- Late Submission Fee for transactional forms: Rs 7,500 plus 0.025% of the amount involved for each year of delay
- Late Submission Fee for periodic returns such as the Annual Performance Report: Rs 7,500 per return
- Late Submission Fee is available for up to three years from the due date
- Compounding application fee: Rs 10,000 plus GST under the 2024 Rules
- Compounding order within 180 days of a complete application; payment within 15 days of the order
Which remedy applies
| Situation | Remedy |
|---|---|
| FC-GPR for a share allotment filed after 30 days | Late Submission Fee on the FIRMS portal |
| FC-TRS for a share transfer filed after 60 days | Late Submission Fee |
| Form FC for overseas investment filed late, or Annual Performance Report missed | Late Submission Fee, if within three years |
| Reporting delay older than three years | Compounding |
| Shares allotted after 60 days of receiving funds, or funds not refunded in time | Compounding |
| Shares issued below fair value to a non-resident, or investment in a prohibited sector | Compounding, after the transaction is regularised or unwound; some cases need prior approval |
| Overseas company set up without any reporting and funded outside banking channels | Compounding |
How the Late Submission Fee works
The fee is computed by the authorised dealer bank or the portal using the Reserve Bank’s formula. For a form that reports a flow of funds, it is Rs 7,500 plus 0.025% of the amount involved multiplied by the years of delay, rounded up to the next month. For returns that do not capture flows, it is a flat Rs 7,500. Once paid, the delay is regularised and no contravention remains on record for that filing. The fee must be paid within 30 days of being advised. Further remittances and filings are generally blocked until it is.
The compounding process
- Complete the underlying compliance. File the overdue form, obtain the valuation, refund or allot as required. The Reserve Bank compounds a contravention that has been set right, not one that is continuing.
- Prepare the application in the prescribed format with the annexure relevant to the type of contravention, a chronology, bank certificates, board resolutions, audited accounts and a declaration that no Enforcement Directorate investigation is pending.
- Pay the fee of Rs 10,000 plus GST electronically and file with the Reserve Bank office having jurisdiction, physically or through the PRAVAAH portal.
- Personal hearing. The compounding authority offers a hearing, where the facts and mitigating circumstances can be explained.
- Order. The authority passes an order within 180 days of a complete application.
- Payment within 15 days of the order. If it is not paid, the matter is treated as never having been compounded and is referred for adjudication.
How the amount is computed
The Reserve Bank’s Directions on compounding contain a computation matrix. For reporting contraventions it is a fixed amount plus a small variable amount based on the sum involved and the period of delay. For substantive contraventions it is a higher fixed amount plus a percentage of the amount involved that rises with each year of contravention. The amount cannot exceed 300% of the sum involved. An amendment in April 2025 allows the authority to cap the amount at Rs 2 lakh per contravention for certain categories, having regard to the nature of the contravention and the public interest. The matrix is guidance and the authority considers gain made, duration, conduct and whether the applicant came forward voluntarily.
What cannot be compounded
- contraventions of section 3(a) of FEMA, which covers dealing in foreign exchange with unauthorised persons, including hawala
- cases involving money laundering, terror financing or national security concerns
- cases where the Enforcement Directorate objects, or where adjudication has already reached the appellate stage
- a similar contravention by the same person within three years of an earlier compounding
- transactions that needed government or Reserve Bank approval that has still not been obtained
Practical points
- Banks and investors find these defaults during diligence. A pending contravention commonly holds up a funding round, a share transfer or a buyback, so fix it before the transaction starts.
- Each missed filing is a separate contravention. One application can cover several, but each is computed separately.
- Compounding closes the FEMA contravention only. Tax or company law consequences of the same transaction are separate.
- Directors in charge at the time can be proceeded against along with the company. A compounding order for the company usually covers them if they are included in the application.
Our FEMA and RBI team runs diligence on past foreign investment and overseas investment filings, regularises them through the Late Submission Fee where possible, and handles compounding applications and hearings where not. Related reading: ODI vs LRS for funding a UAE company.