On September 12, 2024, the Ministry of Finance introduced new compounding rules under FEMA, replacing the 2000 guidelines. Here’s what has changed and how it might affect you:
1. Non-Compoundable Offences
Rule 9 outlines offences that cannot be compounded. Think of it as a “no-compromise” list for certain violations:
Unquantifiable Amounts: If the amount involved is unknown, compounding is not allowed.
Example: If a company cannot determine the exact amount of a foreign exchange violation, they cannot apply for compounding.Section 37A: Violations covered by Section 37A, which deals with severe contraventions, are non-compoundable.
Example: Major illegal foreign investments fall under this rule.Serious Offences: If the Directorate of Enforcement (ED) suspects the offence involves money laundering, terror financing, or threats to national security, it cannot be compounded.
Example: Large, suspicious fund transfers that might relate to terrorism.Existing Penalty Orders: If a penalty has already been imposed under Section 13, the case cannot be compounded.
Example: A business already fined for a foreign exchange violation cannot seek compounding.Further Investigation Needed: If the case needs more investigation by the ED, it’s not eligible for compounding.
Example: Complex cases where the exact nature of the violation is still unclear.
2. Increased Pecuniary Limits
Rule 4 raises the financial limits for different compounding authorities:
Assistant General Manager of RBI: Can handle cases up to ₹60 Lakh.
Example: A violation involving ₹50 Lakh can be resolved by this authority.Deputy General Manager of RBI: Handles cases exceeding ₹60 Lakh but up to ₹2.5 Crores.
Example: A breach of ₹1.2 Crores falls within this range.General Manager of RBI: Deals with cases over ₹2.5 Crores but less than ₹5 Crores.
Example: A contravention of ₹4 Crores is managed by this level.Chief General Manager of RBI: Handles cases over ₹5 Crores.
Example: A large violation of ₹6 Crores will be dealt with by the Chief General Manager.
3. Simplified Payment Methods
Payments for compounding applications can now be made by:
- Demand Draft
- National Electronic Fund Transfer (NEFT)
- Other Electronic or Online Methods
Previously, only demand drafts were accepted.
Example: Instead of sending a demand draft by post, you can now pay online using NEFT.
4. Ongoing Proceedings
Applications submitted before the new rules took effect will continue under the old 2000 rules.
Example: If your application was already in process before September 12, 2024, it will be handled according to the previous guidelines.
Impact Summary:
- Clarity: The new rules specify which violations cannot be compounded, making it clearer for businesses.
- Higher Limits: The increased financial limits streamline handling of larger cases.
- Convenient Payments: More flexible payment options simplify the process.
- Consistency: Ongoing cases are unaffected by the new rules.
These updates aim to make the compounding process under FEMA more transparent and efficient.
