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. No | Type of Reporting delays | LSF Amount (INR) |
| 1 | Form 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 reporting | 7500 |
| 2 | FC-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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