What Are the FEMA Penalties and How Does Compounding Work for Export Delays?

A FEMA penalty is the amount an Adjudicating Authority can impose after an inquiry when a person breaks FEMA or a rule, regulation, direction or order made under it (section 13(1), FEMA). Compounding is the alternative route in which the person voluntarily admits the contravention and asks the RBI to settle it for a specified sum (RBI FAQ Q.1).

• Contravention: A breach of FEMA or of the rules, regulations, notifications, orders, directions or circulars issued under it (RBI FAQ Q.1).
• Export duty: A person resident in India must take all reasonable steps to realise and repatriate foreign exchange due to them within the period the RBI specifies (section 8, FEMA).
• Time limit: From 1 October 2026, export value must be realised within nine months of shipment for goods or of the invoice date for services, or twelve months when invoiced or settled in rupees (Regulation 5(1)).
• Penalty cap: Up to three times the sum involved where quantifiable, up to Rs 2 lakh where not, and up to Rs 5,000 for each day a continuing contravention lasts after the first day (section 13(1)).
• Compounding: Any contravention under section 13 may be compounded on the contravener's application within 180 days of receipt of the application (section 15(1)).
• Closure: Once a contravention is compounded, no proceeding or further proceeding can be started or continued against that person for it (section 15(2)).

For most exporters, the trigger is money that arrives late or never arrives. The rules on deadlines are covered in export realisation period, and the wider duties of exporters in FEMA sections 7 and 8.

Any person who contravenes FEMA (other than section 3(a)), or any rule, regulation, notification, direction or order under it, can apply to the RBI for compounding (RBI FAQ Q.2). Some cases are excluded by Rule 9 of the Compounding Rules, 2024.

An exporter applies by first fixing the underlying problem, then filing the prescribed compounding application with the RBI, physically or through the PRAVAAH portal, with a fee of Rs 10,000 plus GST (MD paras 3.1 and 3.2). The RBI examines the case, offers a hearing and passes an order.

1. Confirm the contravention with your AD bank: which shipping bills or invoices were realised late, the amounts, and the dates. Ask whether an extension was or can still be allowed under the proviso to Regulation 5(1).
2. Complete the administrative action first, such as repatriating the receivable or obtaining any approval needed. The RBI will not process an application until this is done (MD para 4.2).
3. Fill in the prescribed Form annexed to the Compounding Rules, 2024, with contact details of the applicant or authorised official.
4. Attach the Annex III undertaking on enquiry, investigation or adjudication by the Directorate of Enforcement, a copy of the Memorandum of Association if available, and any Annex II details that apply (MD para 3.4).
5. Pay the Rs 10,000 fee plus 18% GST by demand draft, NEFT or another permitted electronic mode. If paid electronically, email the payment intimation within 2 hours and quote the UTR number in the application (MD para 3.2).
6. Submit the application to the correct RBI office. Contraventions outside the listed foreign investment and office categories go to CEFA, Foreign Exchange Department, Central Office, Mumbai (MD para 2.4).
7. Answer any further information request within the time given, and attend the personal hearing if you choose to (MD paras 5.2 and 6.2).
8. Pay the compounding amount within 15 days of the order and keep the certificate the RBI issues after the payment is realised (MD paras 7.1 and 7.5).

The RBI uses a computation matrix in its Master Direction, adjusted for factors such as undue gains, loss to the exchequer, repeat behaviour and the applicant's conduct (MD paras 5.3 and 5.4). The matrix only broadly indicates the amount, and the actual figure can vary with the facts. Say a service exporter's Rs 20 lakh invoice was realised about 14 months late, with no extension. If the RBI treated it under row 5 (all other non-reporting contraventions), the indicative amount would be Rs 50,000 plus 0.55% of Rs 20 lakh (Rs 11,000), so Rs 61,000, plus the Rs 11,800 application fee including GST. These numbers are hypothetical. The RBI decides the category and amount for each case.

If an exporter does not compound, or the RBI does not compound the case, the other provisions of FEMA on contraventions apply (MD para 7.4). That can mean adjudication under section 16, where the penalty can be up to three times the sum involved.

• Adjudication: An Adjudicating Authority appointed by the Central Government holds an inquiry on a written complaint and gives the person a reasonable opportunity to be heard (section 16).
• Confiscation: The Adjudicating Authority may also order confiscation of the money or property involved and direct that foreign exchange holdings be brought back to India (section 13(2)).
• Non-payment: A person who fails to pay a section 13 penalty within 90 days of the notice can face civil imprisonment, subject to the conditions in the section (section 14).
• Future exports: If proceeds stay unrealised for more than one year past the due or extended date, further exports are allowed only against full advance or an irrevocable letter of credit (Regulation 13).
• Unpaid order: If the compounding amount is not paid within 15 days, the application is treated as never made and the case is referred to the Directorate of Enforcement (RBI FAQ Q.16).

The cheapest fix is to avoid the contravention. Ask your AD bank for an extension before the realisation period ends, since the bank may allow it if satisfied with your reasons (proviso to Regulation 5(1)). Where the buyer will not pay in full, ask for a reduction in export value, including non-realisation, under Regulation 6. See extension of export realisation period and write-off of unrealised export bills.

The penalty and compounding powers come from sections 13 and 15 of FEMA. The Central Government's Compounding Rules, 2024 set the procedure and the officers, and the RBI's Master Direction dated 22 April 2025 sets the fee, documents and computation matrix. The 2026 export regulations set the realisation deadline whose breach usually leads to compounding.

• Late extension: Waiting until after the realisation period to talk to the AD bank. An extension requested in time can keep the export within the rules under the proviso to Regulation 5(1).
• Premature filing: Applying before repatriating the money or completing other corrective steps. The RBI returns such applications and keeps the fee (MD para 3.5).
• Bank penalties: Paying a penalty demanded by a bank for a regulatory delay. AD banks may not levy any charge or penalty on an exporter for a regulatory delay or violation (Regulation 19(3)).
• Missed payment: Paying the compounding amount after 15 days. The application is then treated as never made and the case moves to the Directorate of Enforcement (RBI FAQ Q.16).
• Expecting appeals: Planning to appeal or negotiate the compounding amount later. The Compounding Rules, 2024 provide no appeal, reduction or extension of time to pay (RBI FAQ Q.17).
• Repeat breaches: Assuming a second similar breach can also be compounded. A similar contravention within three years of an earlier compounding cannot be (MD para 4.1).

Every rule, deadline and form on this page is linked to its official source, checked on the dates below.

1. Foreign Exchange Management Act, 1999 (India Code), Sections 3, 8, 13(1), 13(2), 14, 15, 16 (checked 8 Oct 2026)
2. Foreign Exchange (Compounding Proceedings) Rules, 2024, G.S.R. 566(E), Gazette of India, 12 September 2024, Rules 3, 4, 5, 6, 7, 8, 9 and the prescribed Form (checked 8 Oct 2026)
3. RBI Master Direction - Compounding of Contraventions under FEMA, 1999 (22 April 2025, updated 24 April 2025), Paras 1.3, 2.4, 3.1 to 3.7, 4.1 to 4.5, 5.2 to 5.4 (computation matrix and provisos), 6.1 to 6.5, 7.1 to 7.5 (checked 8 Oct 2026)
4. RBI FAQs on Compounding of Contraventions under FEMA, 1999 (updated 1 October 2024), Q.1, Q.2, Q.3, Q.5, Q.9, Q.10, Q.16, Q.17, Q.18 (checked 8 Oct 2026)
5. A.P. (DIR Series) Circular No. 17/2024-25, Directions - Compounding of Contraventions under FEMA, 1999 (1 October 2024), Introductory paragraph on the 2024 Rules superseding the 2000 Rules (checked 8 Oct 2026)
6. Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, Notification FEMA 23(R)/2026-RB dated 13 January 2026, as amended by FEMA 23(R)/(1)/2026-RB dated 22 September 2026, Regulations 1(2), 2(1), 5(1), 6, 13, 19(3) (checked 8 Oct 2026)