How does an exporter compound a FEMA contravention?

Most export problems under the Foreign Exchange Management Act, 1999 (FEMA) are fixed with your bank: an extension, a reduction, a late filing accepted with reasons.² Compounding is for when the deadline has passed and the lapse is already a contravention. It lets you settle with the Reserve Bank of India (RBI) by paying an amount, instead of facing adjudication and a penalty.¹

What is compounding of a FEMA contravention?

Compounding of a FEMA contravention is a voluntary settlement of an admitted contravention with the RBI. Section 15 of FEMA lets the RBI compound any contravention defined in section 13, except a contravention of section 3(a), on an application by the person who committed it, within 180 days of receiving the application.¹

• Procedure: the Foreign Exchange (Compounding Proceedings) Rules, 2024, notified on 12 September 2024, and the RBI's Master Direction on compounding dated 22 April 2025.¹
• Penalty without compounding: section 13 provides, on adjudication, a penalty of up to three times the sum involved where it can be quantified, or up to ₹2 lakh where it cannot, plus up to ₹5,000 for every day a continuing contravention lasts.¹

The FEMA (Export and Import of Goods and Services) Regulations, 2026 (the 2026 Regulations), in force from 1 October 2026, set the main export obligations.² A contravention could arise from, for example:

• Unrealised proceeds: not realising and repatriating the full export value within nine months of the invoice date, or the extended period, without a reduction approved under regulation 6 (regulation 5).²³
• Late EDF: not filing the Export Declaration Form (EDF) within 30 days from the end of the month of invoicing, without an extension (regulation 3).²
• Regulation 13: exporting other than against full advance or an irrevocable letter of credit while regulation 13 applies.²

Whether a lapse is treated as a contravention, and whether it is compounded or referred elsewhere, is decided by the RBI on the facts.¹

Who can compound a FEMA contravention as an exporter?

An exporter can compound a FEMA contravention if the case is not one the RBI Master Direction excludes and the corrective action is complete.¹

How do you apply to compound a FEMA contravention?

You apply to compound a FEMA contravention by first completing the "administrative action", then filing the application with the fee at the right RBI office.¹ The RBI will not process an application until the applicant has taken the corrective action needed to bring the transaction into compliance; the Master Direction's indicative list includes obtaining approvals, unwinding the transaction, "repatriating the receivables due", and completing reporting.¹

1. Complete the administrative action: for an exporter, that usually means getting the money in, or having your bank approve a reduction, extension or set-off, and filing any late EDF.² See export proceeds not realised.
2. Prepare the application in the format appended to the Compounding Rules, 2024, with contact details, and the undertaking in Annexure III about any Directorate of Enforcement proceedings.¹
3. Pay the application fee of ₹10,000 plus GST (18% at present) by demand draft or NEFT or other electronic mode, and email the payment details within two hours of paying.¹
4. Submit physically or through the RBI's PRAVAAH portal, either on your own (suo moto) or in response to a Memorandum of Contraventions from the RBI.¹ Contraventions of the regulations listed in paragraphs 2.1 and 2.2 go to RBI Regional Offices or the New Delhi cell; all other contraventions go to the Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, Central Office, Mumbai. The export regulations are not in the lists in paragraphs 2.1 and 2.2.¹
5. Attend the personal hearing if you opt for one, in person or virtually. The RBI encourages applicants to appear themselves rather than through consultants, and says opting out has no bearing on the amount.¹
6. Pay the compounding amount within 15 days of the order.¹

What fees, deadlines and amounts apply to FEMA compounding?

FEMA compounding carries a ₹10,000 application fee plus GST, a 180-day period for the RBI's order, a 15-day period to pay, and an amount set from the RBI's guidance matrix.¹ The RBI says the actual amount may vary with the facts, including undue gains, loss to the exchequer, repetition and the applicant's conduct.¹

The rows above are the ones most relevant to exporters in the RBI matrix.¹ Export contraventions are not named in the matrix, so the compounding authority decides which row applies.¹

• Cap on total: the total cannot exceed 300% of the sum involved.¹
• Small sums: where the sum is under ₹1 lakh, the amount cannot exceed simple interest at 5% a year for reporting contraventions or 10% a year for others.¹
• Row 5 cap: the authority may cap the amount at ₹2,00,000 per regulation in exceptional circumstances.¹

For example, if a ₹5 lakh shortfall unrealised for 18 months were treated under row 5, the matrix gives ₹50,000 plus 0.55% of ₹5 lakh (₹2,750), or ₹52,750, before any cap.¹ The RBI decides the row and amount in each case.

What happens if a FEMA compounding application goes wrong?

If a FEMA compounding application goes wrong, it can be returned, lapse or leave you facing adjudication.¹

• Incomplete application: an incomplete application, or one without the fee, is returned; the fee is not refunded, but need not be paid again on resubmission.¹
• Unpaid amount: if you do not pay within 15 days of the order, you are treated as never having applied.¹
• No review: you cannot ask for the order to be withdrawn or reviewed.¹
• Publication: summary details of compounding orders (name, provisions, date and amount) are published on the RBI website.¹

On payment, the RBI issues a certificate, subject to any conditions in the order.¹

Which RBI rule governs compounding of export contraventions?

Section 15 of FEMA, the Foreign Exchange (Compounding Proceedings) Rules, 2024 and the RBI Master Direction on compounding dated 22 April 2025 govern compounding of export contraventions.¹

Penalties and compounding are matters for the RBI and adjudicating authorities only.¹²

What are the common mistakes with FEMA compounding for exporters?

The common mistakes with FEMA compounding for exporters are applying before the corrective action is done and skipping the bank route that might avoid compounding.¹²

• Applying too early: the RBI will not process an application until administrative action is complete.¹
• Skipping the bank: an extension, reduction or set-off from your bank can regularise the export before it becomes a contravention.²
• Wrong office: export contraventions go to CEFA in Mumbai.¹
• Missing the 15-day payment: you are then treated as never having applied.¹
• Assuming a fixed amount: the matrix is guidance, and the RBI decides the row and amount.¹

Compounding involves admitting a contravention, so take advice from a chartered accountant or FEMA specialist before applying, and first try to regularise the export with your bank.