RBI UNIFORMS THE LATE SUBMISSION FEE – AN ALTERNATE TO FEMA COMPOUNDING

The Reserve Bank of India (“RBI”) vide A.P. (DIR Series) Circular No. 16 dated September 30, 20221 (“RBI Circular”) has revised the late submission fee (“LSF”) computation matrix for reporting delays under the Foreign Exchange Management Act, 1999 (“FEMA”), in order to bring uniformity in imposition of LSF across functions.

BACKGROUND

Practically, the reporting documentation of Foreign Investment (“FI”), External Commercial Borrowing (“ECB”) and Overseas Investment (“OI”) transactions involves a great deal of coordination amongst the multiple parties and the Authorised Dealer Bank (“AD Bank”), which may sometimes result in reporting of such transactions beyond the stipulated timeframes. While such reporting delays are mere procedural lapses, prior to introduction of LSF, the party in default had no other option but to undergo a cumbersome process of compounding to regularise such delays. This was a time consuming exercise and could take up to 6 months’ time to pay the penalty and obtain the order. Requiring a person to go for compounding to regularise the procedural lapses was an enormous administrative burden on the regulators. To address this, the RBI introduced LSF as an alternate mechanism. It was first introduced on November 07, 20172 for the reporting delays of FI and subsequently, for ECB and OI transactions w.e.f. January 16, 20193 and August 22, 2022 through the Foreign Exchange Management (Overseas Investment) Directions, 20224 (“OI Directions”), respectively.

LSF has been a great initiative to deal with procedural lapses in a much faster and efficient way. By easing the process for regularization, this has de-clogged the RBI compounding cell from such trivial matters and allowed the compounding authorities to focus on serious contraventions.

HOW DOES LSF WORKS?

LSF mechanism has laid down a simple process of paying a prescribed late fee to regularise reporting delays of FI, ECB and OI transactions. As a process, once the reporting of transaction (through Single Master Form (SMF) on RBI’s FIRMS portal5 for FI transactions and in physical form for ECB and OI transactions) is completed, in the event of delay in reporting, such cases shall be forwarded by AD Bank to the RBI. The RBI shall then condone the delay and issue a conditional acknowledgment subject to payment of LSF within a stipulated timeframe. LSF is levied as per the computation matrix. Final acknowledgment of reporting shall be issued only upon payment of LSF by the reporting party. The amount once paid as LSF is not refundable in any manner.

LSF payment is an additional facility for regularizing reporting delays without undergoing the compounding procedure. Hence, an option to undergo the compounding process is always available when the reporting party decides not to avail LSF facility. Importantly, the LSF applies only for the reporting delays, and contravention of any other provisions under the FEMA would still be subject to adjudication or compounding with the RBI.

NEW UNIFORMED LSF MATRIX

Prior to the RBI Circular, although LSF was applied for all the transactions, the manner of computation of LSF was not consistent across functions (i.e. FI, ECB and OI). While LSF was applied as a percentage of the amount involved for FI reporting delays, in case of ECB reporting delays, it was applied as a fixed amount which is linked to the period of delay occurred. Further, LSF which was recently applied for OI reporting delays under the OI Directions prescribed a different method of computation depending upon the nature of reporting involved.

In order to streamline and bring uniformity, the RBI Circular introduced a new uniformed LSF matrix (as below) (“New LSF”) which shall apply to all the reporting delays on or after September 30, 2022, across functions.

Sr. NoType of Reporting delaysLSF Amount (INR)
1Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, evidence of investment or any other return which does not capture flows or any other periodical reporting7500
2FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi, Form ODI-Part I, Form ODI-Part III, Form FC, Form ECB, Form ECB-2, Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting[7500 + (0.025% x A x n)]

Notes:

“n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.

“A” is the amount involved in the delayed reporting.

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RBI amends Foreign Investment guidelines for reporting in SMF on FIRMS

The Reserve Bank of India (RBI) vide Notification no. RBI/2022-23/160 A.P. (DIR Series) Circular No. 22, dated 04.01.2023 has amended the guidelines for reporting in SMF on FIRMS and issued a circular on Foreign Investment in India – Rationalisation of reporting in Single Master Form (SMF) on FIRMS Portal in exercise of power conferred under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law

RBI has introduced a Single Master Form (“SMF”) to integrate the reporting structure of various types of Foreign Investment in India. SMF would provide a facility for reporting total foreign investment in an Indian entity {as defined in Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations 2017, dated November 7, 2017}, as also investment by persons resident outside India in an Investment Vehicle

The following changes are being implemented with respect to the reporting of foreign investment in SMF on FIRMS portal:  

  1. The forms submitted on the portal will be auto-acknowledged. The AD banks shall verify the same within five working days based on the uploaded documents, as specified.
  2. In cases of delayed reporting, the AD banks shall either advise the Late Submission Fee (LSF) to the applicants, which will be computed by the system or advise for compounding of contravention, as the case may be.

Auto-acknowledgement of SMF in FIRMS and online calculation of LSF

The forms submitted in FIRMS will now be processed as detailed below:

All forms submitted with the requisite documents will be auto-acknowledged on the FIRMS portal with a time stamp and an auto-generated e-mail will be sent to the applicant.

  1. The forms submitted within prescribed timelines, will be verified by the AD banks based on the uploaded mandatory documents and ensure that the same are in compliance with the extant guidelines.  
  2. The system would identify the delay in reporting, if any.  
  3. For forms filed with a delay less than or equal to three years, the AD banks will approve the same, subject to payment of LSF.  
  4. The LSF will be computed by the system and an e-mail will be sent to the applicant and the concerned Regional Office (RO) of RBI specifying the amount and the timeline within which it is to be paid to the concerned RO of RBI.  
  5. Once the LSF amount is realised, the concerned RO will update the status in the FIRMS portal and the updated status will be communicated to the applicant through a system generated e-mail, which can also be viewed in the FIRMS portal.  
  6. The AD bank will approve the forms filed with a delay greater than three years, subject to compounding of contravention. The applicant may thereafter approach RBI with their application for compounding.
  7. The remarks of the AD Bank for rejection of forms, if any, will be communicated to the applicant through a system generated e-mail and the same can also be viewed in the FIRMS portal.

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