PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

 PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

WHAT IS THE ISSUE ?

In a stock exchange filing on Monday, the company said the RBI has imposed a compounding fee of Rs 18.76 lakh in connection with certain investments made in Little Internet Private Limited by Little Internet Singapore. The underlying transactions, with an aggregate value of about Rs 33 crore, pertained to the period between March 2016 and June 2017. 

DETAILS OF THE RBI ORDER

PENALTY                    AMOUNT	₹18.76 lakh
REASON:	FEMA contravention related to investments in Little Internet Pvt Ltd by Little Internet Singapore.
TRANSACTION VALUE:	Approximately ₹33 crore worth of transactions between March 2016 and June 2017.
COMPANY INVOLVED:	One 97 Communications Ltd (Paytm’s parent company).
COMPLIANCE STATUS:	Paytm has stated it is taking necessary steps to comply with the RBI order.
COMPOUNDING ORDER:	A compounding order allows a company to settle FEMA contraventions by paying a fee, avoiding prolonged litigation.
NATURE OF CONTRAVENTION:	The issue arose from cross-border investment flows between Paytm’s Indian and Singapore entities.

 

TABLE OF PENALTIES LEVIED ON PAYTM PAYMENTS BANK

PENALTY AMOUNT	REASON / VIOLATION	DATE OF ORDER
₹5.39 crore	Non-compliance with KYC norms, failure to identify beneficial owners, weak monitoring of payout transactions, and cyber security framework violations	October 10, 2023
₹5.49 crore	Violations under the Prevention of Money Laundering Act (PMLA); linked to illegal online gambling transactions and failure to meet anti-money laundering obligations	February 15, 2024 (announced March 1, 2024)
₹1 crore (Paytm Payments Bank) and ₹27.78 lakh (Western Union)	Paytm: Misrepresentation in application for Certificate of Authorisation under Payment and Settlement Systems Act, 2007;	October 1, 2021 (Paytm);

 

CONCLUDING REMARKS

This compounding order is not a major financial setback for Paytm but underscores the importance of strict compliance with FEMA regulations in cross-border investments. It also reflects the RBI’s increasing vigilance over fintech companies’ international transactions.

·      RBI penalties focus on compliance failures in KYC, cyber security, and payment system regulations.

•     FIU penalty was more severe in terms of reputational risk, as it linked Paytm Payments Bank to money laundering and illegal gambling networks.

•     The ₹5.39 crore and ₹5.49 crore fines are among the largest regulatory actions against Paytm Payments Bank, while the ₹1 crore penalty in 2021 was tied to authorization irregularities.

R V SECKAR , FCS , LLB 79047 19295

 

RBI’S FOREIGN EXCHANGE MANAGEMENT (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026----A MAJOR FEMA COMPLIANCE OVERHAUL

 RBI’S FOREIGN EXCHANGE MANAGEMENT (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026----A MAJOR FEMA COMPLIANCE OVERHAUL

FEMA (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026

The RBI has introduced the FEMA (Export & Import of Goods and Services) Regulations, 2026, effective October 1, 2026, overhauling old rules for simplified, unified, and digitalized trade compliance, bringing services under a single framework, easing burdens for smaller traders, and shifting more responsibility to AD banks for monitoring via systems like EDPMS and IDPMS.

WHAT IS NEW ?

KEY CHANGES INCLUDE

·    streamlined reporting timelines (e.g., within 5 days for export forms),

·    tighter monitoring, and

·    new reporting for guarantees (FEMA Guarantees Regulations 2026), aiming for greater transparency and ease of doing business.

EFFECTIVE DATE:

1 October 2026 (giving businesses time to realign systems & processes)

KEY CHANGES & BENEFITS

UNIFIED FRAMEWORK:

Combines goods and services trade under one set of rules.

DIGITAL FOCUS:

Mandates reporting via EDPMS/IDPMS for all remittances, with stricter timelines for AD banks.

EASE OF DOING BUSINESS:

Simplifies processes for smaller exporters and merchants, including self-declaration for import closures up to INR 1 million.

ENHANCED REPORTING:

Standardizes reporting for guarantees (Form GRN) and discontinues separate quarterly reporting for trade credit guarantees.

BANK RESPONSIBILITY:

Places more onus on Authorized Dealer banks for transaction oversight, using their internal assessment and digital platforms.

TRADE FAIR FLEXIBILITY:

Allows easier export of goods for exhibitions abroad, with provisions for selling, gifting, and simplified re-import reporting.

·    Simplification and compliance ease, especially for MSMEs and small traders.

·    Stronger oversight to mitigate risks such as delayed realization and misuse of advance payments.

MAJOR COMPLIANCE AND REPORTING CHANGES

A. REPORTING TIMELINES & DIGITAL PROCESSES

·    Authorised Dealer (AD) banks must enter export and import declarations into EDPMS/IDPMS within strict timelines (e.g., within five business days of receipt of required export documentation).

·    All inward and outward remittances tied to trade must be reported digitally, tightening the compliance regime relative to pre-existing circular-based processes.

COMPLIANCE IMPACT:

Trade finance teams must update SOPs and workflows to ensure punctual digital reporting and reconciliation, reducing manual exceptions.

EXTENDED REALISATION & REPATRIATION PERIODS

Although initially introduced in late 2025 under a second amendment, the 2026 Regulations formalize and align these extended timelines:

REALISATION OF EXPORT PROCEEDS: Extended to up to 15 months from the date of export (up from 9 months).

ADVANCE PAYMENTS:

Extended timelines to adjust/settle advance payments (previously a maximum of one year) — subject to AD bank assessment.

COMPLIANCE IMPACT:

Finance teams must revise cash-flow forecasts and FEMA tracking calendars to reflect extended realization windows.

SERVICE EXPORTS NOW FULLY WITHIN FEMA

A pivotal regulatory shift is that export of services — including software and IT services — is explicitly brought within the FEMA reporting regime, with defined timelines for filing Export Declaration Forms (EDF).

COMPLIANCE IMPACT:

Service exporters must adopt formal export tracking, aligning their documentation processes with those of goods exporters (EDF filing, bank reporting).

BANK DISCRETION AND OVERSIGHT

·    The Regulations give authorized dealer banks greater discretion to:

·    Grant extensions for delayed realization based on bona fide reasons.

·    Set-off receivables against payables within stipulated periods.

·    Monitor import payments and advance remittances with heightened scrutiny.

However, in cases of prolonged non-realisation of proceeds, exports may only continue against full advance payment or irrevocable letters of credit.

RELIEF FOR SMALL-VALUE TRANSACTIONS

For transactions up to ₹10 lakh per bill/invoice:

·    Self-declarations by exporters/importers are permitted for closing entries in EDPMS/IDPMS, easing small-value compliance burdens.

ADVANCE REMITTANCES & PROHIBITIONS

Advance remittances for imports continue to be allowed, but advance payments for bullion imports are now prohibited under the refreshed regime.

OTHER KEY HIGHLIGHTS

🔹 Under-realization norms rationalized with commercial practicality + self-declaration for smaller cases

🔹 Set-off & third-party receipts/payments allowed, subject to AD Bank satisfaction

🔹 Advance & default rules clarified (same AD routing + interest cap linked to trade credit norms)

🔹 Merchanting Trade tightened: entire cycle must be completed within 6 months

🔹 Higher accountability for AD Banks (SOPs, fair charges, transparency & customer protection)

TAKEAWAY FOR BUSINESSES

This is a shift from procedural FEMA compliance to outcome-based regulation.

Exporters/importers—especially service exporters, startups, MNCs & Merchanting trade players—should start preparing early for system/process alignment.

R V SECKAR FCS,LLB 79047 19295

RBI ISSUED COMPOUNDING ORDER FOR FEMA VIOLATIONS BY NEARBUY INDIA PVT. LTD AND NEARBUY SAVED LAKHS OF RUPEES AS FINE FOR FEMA VIOLATIONS

 RBI ISSUED COMPOUNDING ORDER FOR

 FEMA VIOLATIONS BY NEARBUY INDIA

 PVT. LTD AND NEARBUY SAVED LAKHS OF

 RUPEES AS FINE FOR FEMA VIOLATIONS

RBI Vs NEARBUY INDIA PVT. LTD

FACTS OF THE CASE

VIOLATIONS:

The violations were identified as procedural delays, not involving fraud or malicious intent.

The specific contraventions included:

·      Late reporting of foreign inward remittances totalling ₹35.82 crore.

·      Late filing of Form FCGPR (Foreign Currency-Gross Provisional Return) after issuing shares, covering transactions worth ₹73.01 crore.

SECTION 15  OF THE FEMA

The Reserve Bank of India (RBI) has issued a compounding order under Section 15  of the Foreign Exchange Management Act, 1999 (FEMA), in the case of Nearbuy India Private Limited which has resulted in the termination of proceedings against the company for alleged contraventions of the act, the Directorate of Enforcement (ED).

WHAT PROVISIONS OF SECTION 15 OF FEMA SAYS

COMPOUNDING AUTHORITY:

The power to compound contraventions under Section 13 is held by the Directorate of Enforcement (DoE) and authorized officers of the Reserve Bank of India (RBI). The RBI handles most contraventions, except those under Section 3(a) of FEMA, which fall under the DoE.

APPLICATION PROCESS:

An application for compounding must be made to the relevant authority within 180 days. Applications can be submitted through the RBI's PRAVAAH Portal or physically.

EFFECT OF COMPOUNDING:

Once compounded, no further proceedings will be initiated for that specific contravention.

CONDITIONS AND LIMITATIONS:

 Compounding requires admission of guilt and obtaining necessary approvals. Similar contraventions within three years of a previous compounding order are not eligible, nor are serious cases like money laundering.

PENALTY PAYMENT:

The penalty must be paid within 15 days of the order. Failure to pay renders the compounding void and other penalties apply.

Section 15 provides an administrative way for individuals and entities to resolve FEMA breaches by paying a penalty, thus avoiding prolonged legal procedures.

R V SECKAR , FCS, LLB 79047 19295

RBI SAYS NO OVERSEAS FDI OR ODI IF OLD LAPSES NOT FIXED

 

RBI SAYS NO OVERSEAS FDI OR ODI IF 

OLD LAPSES NOT FIXED

The RBI  will be cracking down on corporates with unresolved ODI of FDI violations, setting an August 25, 2025 deadline.

NON-RECTIFICATION PAST LAPSES

Companies failing to rectify past lapses face compounding or adjudication before making further foreign financial commitments.

FACE ADJUDICATION BY THE ENFORCEMENT DIRECTORATE

In an email sent in late April, the RBI instructed bank compliance heads to notify all corporate clients that failure to rectify past lapses by August 25, 2025, would require them to either undergo the compounding process or face adjudication by the Enforcement Directorate before making any further foreign financial commitments, according to banking industry sources.

WHAT ARE THE UNREPORTED  ODIs

·      Incorporating an offshore subsidiary company

·      Acquiring a stake in an unlisted foreign company

·      Acquiring in excess of 10% of any foreign listed company

·      Extending loans  or guarantee to a foreign company

At present  an company Indian company can invest as ODI 4 times of its net-worth.

Contraventions pertain to a company’s failure to disclose financial details of earlier ODIs either inadvertently or due to lack compliance.

Now companies have to rectify past lapses by August 25, 2025 else they can not make any further ODI investments.

R V Seckar FCS , LLB 79047 19295

RBI CAPS FEMA VIOLATION PENALTY AT RS 2 LAKH TO SIMPLIFY COMPLIANCE BURDEN

 RBI CAPS FEMA VIOLATION PENALTY AT

 RS2 LAKH TO SIMPLIFY COMPLIANCE

 BURDEN

 RBI CAPS FEMA VIOLATION PENALTY AT RS 2 LAKH TO SIMPLIFY COMPLIANCE BURDEN

PENALTY FOR FEMA VIOLATIONS NOW

 CAPPED -RBI

RBI has capped the penalty amount for FEMA violations to Rs 2 lakh, down from a percentage of the amount of violations earlier in an easing of regulations. Violations including

·       use of liberalised remittance scheme (LRS) proceeds not reinvested within 180 days,

·       exports not made within one year of advance receipt

·       and gifting high value shares without RBI permission will now be penalised to a maximum of Rs 2 lakhs versus 0.30% to 0.75% of the violation amount earlier.

AMENDMENT TO MASTER CIRCULAR BY RBI

The changes were made in the master directions on FEMA by RBI on Thursday. “…based on the nature of contravention, exceptional circumstances/ facts involved in case, and in wider public interest, the maximum compounding amount imposed may be capped at Rs 2 lakh for contravention of each regulation/ rule (applied in a compounding application)…” RBi said.

FEMA rules prevents for example

·       Foreign property to be bought on a mortgage abroad,

·       Overseas direct investment (ODI) sale without a valuation report

·       or ODI sale proceeds not repatriated within 90 days,

·        resident Indians gifting high value shares to non-resident relatives without RBI permission

·       and agricultural property purchases by NRIs.

“Rationalization of the penalty amount would significantly ease the burden on individuals and corporations involved in high-value contraventions.

Key Highlights of the New FEMA Penalty Framework

Penalty Cap: The maximum penalty for any FEMA contravention has been capped at ₹2 lakh.

Reporting Contraventions: For reporting-related violations, such as non-submission or delayed submission of forms like FCGPR, FLA Returns, or APR, the penalty structure is as follows:

Fixed Amount: ₹10,000 per contravention.

Variable Amount: Calculated based on the amount involved and the duration of the contravention.

Ceiling: The total penalty is subject to a ceiling of ₹2 lakh.

Project Offices: For Project Offices, the penalty is calculated at 10% of the total project cost.

Non-Reporting Contraventions: For other violations, such as non-allotment of shares or contraventions by Liaison Offices (LO), Branch Offices (BO), or Project Offices (PO), the penalty includes:

Fixed Amount: ₹30,000 per contravention.

Variable Amount: A percentage of the amount under contravention, varying based on the duration of the contravention.

Ceiling: The total penalty is subject to a ceiling of ₹2 lakh.

Benefits of the Revised Framework

Simplified Compliance: The cap on penalties reduces the financial uncertainty for businesses, making it easier to comply with FEMA regulations.

Encouragement for Voluntary Compliance: The predictable penalty structure encourages businesses to voluntarily rectify violations without prolonged litigation.

Streamlined Procedures: The revised framework aims to expedite the compounding process, reducing administrative delays.

These changes are part of the government's broader initiative to ease the compliance burden on businesses and promote a more investor-friendly environment.

If you require assistance in calculating potential penalties for specific contraventions or need guidance on the compounding process, feel free to ask.

Courtesy: ECONOMIC TIMES

R V SECKAR FCS,LLB 79047 19295

HOW CAN INDIAN RESIDENTS ACQUIRE FOREIGN ASSETS THROUGH GIFT CITY , AHAMADABAD UNDER LRS SCHEME AND GIFT CITY FACILITATES ALL FINANCIAL TRANSACTIONS IN INDIA USING FOREIGN CURRENCY TO NON-RESIDENTS

 HOW CAN INDIAN RESIDENTS ACQUIRE FOREIGN ASSETS THROUGH GIFT CITY , AHAMADABAD UNDER LRS SCHEME AND GIFT CITY FACILITATES ALL FINANCIAL TRANSACTIONS IN INDIA USING FOREIGN CURRENCY TO NON-RESIDENTS

WHAT IS GIFT CITY?

GIFT City is short for GUJARAT INTERNATIONAL FINANCE TEC-CITY. Situated close to Ahmedabad, GIFT City facilitates all financial transactions in India using foreign currency (not Indian rupees).

Though it is located within India, it is considered a jurisdiction separate from the rest of India.

INTERNATIONAL FINANCIAL SERVICES CENTRES (IFSC)

Countries aspire for other countries to conduct international transactions within their borders because it can fuel economic growth and bring foreign capital into the country. So, some countries set up International Financial Services Centres (IFSC) within their territory, facilitating such transactions.

DUBAI INTERNATIONAL FINANCIAL CENTRE

One that is close to us and widely known is DIFC – Dubai International Financial Centre. GIFT City is India’s first IFSC centre.

TAX ADVANTAGES

NRIs can invest in foreign currencies without converting to Indian rupees. Numerous tax advantages are also given to such investments to attract more investors and capital.

WHAT ARE THE BENEFITS OF TRADING/INVESTING IN GIFT CITY?

The central government has exempted capital gain tax on the transfer of the following securities listed on a recognized stock exchange located in IFSC for non-residents – 

(i)                      Foreign currency-denominated equity share of a company; 

(ii)                    Foreign currency-denominated bond;

(iii)                 Bullion depository receipt;

(iv)                 Unit of investment trust; (v) unit of a scheme;

(v)                    Unit of an Exchange Traded Fund launched under IFSCA FME Regulations, 2022.

·      Exemption from requirement to obtain PANS by certain non-residents who qualify as foreign investors, subject to fulfilment of certain conditions.

·      Exemption from stamp duty for transactions carried out on the IFSC exchanges.

·      Exemption from commodities transaction tax and securities transaction tax in respect of transactions carried out on the IFSC exchanges.

RESIDENTS CAN INVEST IN FOREIGN STOCKS

While there are no tax benefits specifically for Indian residents, it allows investment in foreign stocks or Unsponsored Depository Receipts (representing foreign shares) that are being traded on the exchange in the GIFT City.

DECLARATION BY RESIDENTS FOR INVESTMENT IN FOREIGN SHARES OR INVESTMENTS

Schedule FA section of the Income Tax Return (ITR) form requires residents and ordinary residents to disclose details of any beneficial interests held in foreign bank accounts or other overseas investments.

NON-DISCLOSURE ATTRACTS PENALTY

Non-disclosure or incorrect reporting of foreign assets can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with fines going up to ₹10 lakh.

INDIAN RESIIDENTS CAN INVEST IN FOREIGN STOCK UP TO $250000 PER ANNUM IN FOREIGN ASSETS OR FOREIGN STOCKS THROUGH LRS SCHEME.

IFSCA has provided much-needed clarity on operational aspects for opening bank accounts in GIFT IFSC under the LRS route through various circulars. Accordingly, remittances under the LRS route to GIFT IFSC are likely to pick up and therefore, disclosure requirements under Schedule FA need to be carefully evaluated. While the regulations are still evolving, it’s crucial to tread carefully and seek professional advice.

R V Seckar FCS, LLB

79047 19295

rvsekar2007@gmail.com