The Reserve Bank of India (RBI) has capped penalties for violations under the Foreign Exchange Management Act (FEMA) at Rs. 2 lakh. This change aims to reduce the financial burden on individuals and businesses, replacing the previous system where penalties were calculated as a percentage of the violation amount.

Key Points

New Penalty Structure:

Previously, penalties for FEMA violations ranged from 0.30% to 0.75% of the violation amount. The RBI's new cap limits the maximum penalty to ?2 lakh per violation, regardless of the contravention's value. ?

Types of Violations Affected:

• The capped penalty applies to various contraventions, including:
• Failure to reinvest proceeds from the Liberalised Remittance Scheme (LRS) within 180 days.
• Exports not completed within one year of receiving advance payments.
• Gifting high-value shares to non-resident relatives without prior RBI approval.
• Overseas Direct Investment (ODI) sales without a valuation report.
• Non-repatriation of ODI sale proceeds within 90 days.
• Purchasing agricultural property by Non-Resident Indians (NRIs).?

Rationale Behind the Decision:

The RBI stated that the cap would be applied based on the nature of the contravention, exceptional circumstances, and in the wider public interest. This approach aims to provide a more predictable and manageable compliance environment. ?