Context:
The Reserve Bank of India (RBI) has introduced a significant relief for individuals and businesses by capping the penalty for violations of Foreign Exchange Management Act (FEMA) regulations at ₹2 lakh per contravention, a shift from the earlier percentage-based fines.
Key Highlights of the Revised FEMA Guidelines
1. New Penalty Structure
- Earlier Penalty: 0.30% to 0.75% of the transaction amount in violation.
- Revised Cap: ₹2 lakh maximum for each contravention, irrespective of the transaction size.
2. Scope of Applicable Violations
- Misuse of Liberalised Remittance Scheme (LRS): Proceeds not reinvested within 180 days.
- Advance Export Receipts: If exports are not completed within one year of receiving advance payment.
- High-Value Gifting of Shares: Without prior approval from RBI.
3. RBI’s Justification
- The move aims to simplify compounding procedures, encourage voluntary compliance, and reduce litigation.
- The cap applies based on the nature and specifics of the case and in the larger public interest.
- Applicable to each rule/regulation cited in a compounding application.
