RBI Caps FEMA Violation Penalty at ₹2 Lakh in Regulatory Easing

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

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• 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.

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