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RBI compounding is a process under the Foreign Exchange Management Act (FEMA) in India that allows individuals or companies to settle FEMA violations by admitting the error and paying a penalty.
This mechanism, managed by the Reserve Bank of India (RBI), enables individuals and entities to resolve FEMA violations by accepting the breach, paying a penalty, and meeting any conditions set by the RBI.
Under Section 15 of FEMA, 1999, the RBI can compound contraventions that are minor, unintentional, or technical. This process helps avoid prolonged legal actions and enables quick resolution. However, serious or deliberate violations may not qualify and could result in stricter penalties.
To compute the compound interest amount, use the formula:
A = P(1 + r/n)nt
Example:
P = ₹10,000, r = 6% (0.06), n = 4 (quarterly), t = 5 years
A = 10000 × (1 + 0.06/4)20 ≈ ₹13,468.55
Under FEMA, the RBI can impose penalties for non-compliance. Entities may opt to compound the offence by admitting the contravention and paying a penalty, thus avoiding legal proceedings.
Penalties are based on the severity and nature of the contravention. Often a percentage of the transaction amount. RBI specifies the amount in the compounding order, and it must be paid within the prescribed timeframe.
RBI compounding orders are formal decisions under FEMA that allow entities to resolve violations by paying a penalty and avoiding legal action.
It is a formal request submitted to the Reserve Bank of India to settle a FEMA contravention by paying a monetary penalty and avoiding litigation.
It refers to the process where an individual or entity admits to violating FEMA regulations and seeks to resolve the matter by paying a penalty.
Compounding under FEMA is a mechanism that allows voluntary admission and resolution of foreign exchange law violations through penalty payment, avoiding court proceedings.
The penalty is decided by the RBI based on the nature, amount, and seriousness of the violation. It’s often a percentage of the amount involved in the contravention.
The compounding fee is the monetary amount imposed by RBI to settle the contravention, and it must be paid within the time specified in the compounding order.
It is a consolidated set of instructions and guidelines issued by the RBI for regulated entities, including those related to compounding of FEMA offences.
It is the RBI’s process of allowing offenders to regularize FEMA violations by paying a prescribed penalty, thereby closing the matter without legal proceedings.
RBI issues a compounding order after reviewing the application and determining the penalty. The order includes the amount to be paid and the timeline for compliance.
You must submit a detailed application to the RBI with facts of the contravention, supporting documents, and the prescribed form. Assistance from a legal expert is recommended for accuracy.