Finance Ministry has come out with new rules for processing of compounding applications under Foreign Exchange Management Act (FEMA). The new rules aim to further promote ease of investment.
These rules are a follow up to Finance Minister Nirmala Sitharaman’s Budget announcement, where she promised to simplify the rules and regulations for Foreign Direct Investments (FDIs) and overseas investments. The new rules will supersede nearly 24-year- old Foreign Exchange (Compounding Proceedings) Rules and will come into effect from Thursday.
The Ministry said that new rules have been framed after consultation with the Reserve Bank of India (RBI). “The emphasis has been on enabling provisions to expedite and streamline the processing of compounding applications, introduction of digital payment options for application fees and compounding amounts and a focus on simplification and rationalisation of the provisions to eliminate ambiguity and clarify the process,” the statement said.
Threshold raised
Under the new rules, threshold for compounding authorities of RBI has been raised. Now a case where the sum involved in such contravention does not exceed ₹60 lakh, an officer not below the rank of the Assistant General Manager of the RBI will be the authority. Earlier, here the threshold was ₹10 lakh. Similarly, the threshold for cases to be taken up by Deputy General Manager has been raised to ₹2.5 crore from ₹10 lakh-₹40 lakh.
Similarly, a General Manager will be assigned a case having contravention of up to ₹5 crore as against ₹40 lakh-₹1 crore. In case of Chief General Manager, the threshold would be more than ₹5 crore against ₹1 crore. However, there is no change in thresholds for officers in the Directorate of Enforcement (ED) and will remain as up to ₹5 lakh (Deputy Director), ₹5-₹10 lakh (Additional Director)< ₹10-50 lakh (Special Director), ₹50 lakh-₹1 crore (Special Director along with Deputy Legal Advisor) and ₹1 crore or more (Director of Enforcement along with Special Director)
Also, there is no change in the time line to pass the compounding officer which will remain 180 days from receipt of application. However, one key change is in the method to pay the compounded amount. Now it can be paid online through National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) or such other permissible electronic or online modes of payment apart from through draft within fifteen days from the date of the compounding order for such contravention.
The notification clarified that any compounding application pending before the compounding authority, on the date of commencement of new rules, will be be governed by the provisions of the old rules i.e., Foreign Exchange (Compounding Proceedings) Rules, 2000.