Key takeaways
- RBI circular of 23 October 2026: ODI, borrowing/lending and guarantee compounding moved to regional offices.
- ODI cases routed by UIN; borrowing and guarantees by registered office; multi-category or no-UIN cases stay central.
- Late reports within the window: late fee. Beyond it, or substantive breaches: compounding.
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What changed
- RBI circular A.P. (DIR Series) No. 28/2026-27, dated 23 October 2026, delegates compounding of contraventions relating to overseas investment, borrowing and lending and guarantees to selected regional offices.
- Which office: overseas investment cases go by the foreign entity’s UIN; borrowing, lending and guarantee cases go to the office covering the applicant’s registered office or domicile.
- What stays in Mumbai: applications without a UIN, or covering several categories at once, are still handled by the Foreign Exchange Department’s compounding cell (CEFA) at RBI’s central office.
- The office-wise jurisdiction table is in the Master Direction on Compounding of Contraventions under FEMA, 1999 (22 April 2025), which RBI is updating.
Late fee or compounding?
| Situation | Usual route |
|---|---|
| A report filed late (for example Form FC, APR, FC-GPR) within the window the rules allow | Pay a late submission fee; see the LSF calculator |
| Reporting so late that the late-fee route is no longer available | Compounding |
| A substantive breach: investing without the required approval, a foreign loan outside the borrowing rules, an unreported guarantee | Compounding |
How compounding works
- Map every contravention with dates and amounts; RBI wants the full picture in one application.
- File the compounding application with the documents and the application fee, to the right office.
- RBI computes the compounding amount under the Master Direction, based on the amount and the period of the contravention.
- Pay within the time given; the contravention is then treated as settled, and no further proceedings follow for it.
Who should act now
- Indian companies with foreign subsidiaries whose APRs or Form FC were missed in past years.
- Companies that gave guarantees or loans to overseas group companies without reporting them.
- Companies that raised foreign loans without completing the borrowing formalities.
- Groups planning a fundraise, IPO or sale: investors’ due diligence will find these defaults, and compounding before the deal is cheaper and faster than explaining them during it.
Related: APR and audit for overseas subsidiaries, ODI rules for US companies and FEMA / RBI compliance.
Sources
- TaxGuru: FEMA compounding for overseas investments, loans and guarantees delegated to regional offices
- Sansa Legal: RBI sends FEMA compounding to regional offices
- AK & Partners: Banking & Finance Digest, 2 November 2026
Frequently asked questions
What did RBI change about FEMA compounding in October 2026?
Circular A.P. (DIR Series) No. 28/2026-27 of 23 October 2026 delegated compounding of contraventions relating to overseas investment, borrowing and lending, and guarantees to selected RBI regional offices. Cases without a UIN or covering several categories stay with the central office.
Which RBI office handles my compounding application?
For overseas investment, the office mapped to the foreign entity's UIN; for borrowing, lending and guarantees, the office covering your registered office or domicile. The jurisdiction table is in the Master Direction on Compounding of Contraventions under FEMA.
Do I need compounding or just a late submission fee?
A late report filed within the window the rules allow can usually be regularised with a late submission fee. Reporting beyond that window, and substantive breaches such as investing without approval or unreported guarantees, need compounding.
Is compounding a penalty?
It is a voluntary settlement: you admit the contravention and pay a compounding amount computed by RBI, and the matter is closed without adjudication proceedings.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.