FEMA Compliance Advisory & Review: Who Needs It and Who Does Not
Whether FEMA Compliance Advisory & Review applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the FEMA Compliance Advisory & Review page.
What is the Late Submission Fee (LSF) and how is it different from compounding?
LSF is a simplified, formula-based fee RBI allows for certain delayed reportable transactions — including several categories of FC-GPR, FC-TRS, and other FIRMS portal filings — as an alternative to full compounding, provided the delay and the transaction type fall within RBI's LSF-eligible parameters. It is faster to process and does not require the fuller narrative and adjudicative process that a compounding application involves. Compounding under Section 15 of FEMA is the broader mechanism used when LSF does not apply — for example, wrong pricing, wrong entry route, or delays outside the LSF window.
In practice: We always check LSF eligibility first. It is the more efficient outcome whenever it applies, and clients are often relieved to learn their specific delay qualifies for the simpler route rather than assuming compounding is automatically required.
Does FEMA apply if our foreign investor is an NRI, not a foreign company?
Yes. FEMA's definition of a 'person resident outside India' includes Non-Resident Indians, Overseas Citizens of India, and foreign nationals, in addition to foreign companies and funds. Investment from an NRI into an Indian company's equity is still FDI (or, in specific instruments, may qualify for the more liberal NRI/OCI investment schedule under the Non-Debt Instruments Rules) and still requires FC-GPR reporting on allotment.
In practice: It is a mistake to assume that because the investor is 'Indian by ethnicity or origin,' FEMA does not apply. Residency status under FEMA is determined by specific day-count and intent tests under Section 2(v) — not by nationality or ethnicity — and it governs whether the reporting obligation arises.
What is FLA Return and who needs to file it?
The Annual Return on Foreign Liabilities and Assets (FLA Return) must be filed by 15 July every year by every Indian entity that has received FDI and/or made overseas direct investment, and had foreign assets or liabilities outstanding on its balance sheet as of 31 March of that financial year. It is filed with RBI's Department of Statistics and Information Management, separately from the FIRMS portal FC-GPR/FC-TRS filings, and is a standalone annual obligation even in a year with no new transactions.
In practice: FLA Return is one of the filings most commonly forgotten precisely because it is not transaction-triggered — companies remember to file FC-GPR when they receive investment but forget the annual FLA obligation continues every year afterward, even in a year with zero new activity, as long as the foreign liability or asset remains on the balance sheet.
Can a private individual director be personally penalised for a company's FEMA contravention?
Yes, potentially. Under Section 42 of FEMA, where a contravention is committed by a company, every person who was in charge of and responsible for the conduct of the company's business at the time of the contravention — typically directors, and in some cases the company secretary or CFO — can be deemed guilty and proceeded against, unless they can show the contravention occurred without their knowledge or that they exercised due diligence to prevent it. This is why we recommend directors, not just the company, understand and engage with the remediation process.
In practice: We brief directors directly during a compliance review, not only the finance team, precisely because personal exposure under Section 42 means the people signing off on the remediation roadmap should understand what is being fixed and why.
What is the role of the Authorised Dealer (AD) Category-I bank in FEMA compliance?
An AD Category-I bank is the RBI-authorised commercial bank through which most FEMA-regulated cross-border transactions must actually be routed and reported — inward remittance certification, FC-GPR and FC-TRS filings on FIRMS (which require AD bank confirmation at various stages), ECB drawdown monitoring, and compounding application submission are all channelled through your AD bank. The relationship with your AD bank branch is not incidental — it is the operational gateway through which nearly every FEMA filing passes.
In practice: We recommend maintaining a consistent AD bank relationship and a specific relationship manager who understands your transaction history, rather than routing different cross-border transactions through different banks — continuity here materially smooths the filing process.
If we relocate our company's registered office or change our Authorised Dealer bank, does that affect our FEMA compliance history?
A change of registered office or AD bank does not itself alter your FEMA compliance history or obligations, but it does require updating the Entity Master details on the FIRMS portal and notifying the new AD bank of your transaction history so they can service future filings with full context. We recommend a compliance review at the time of any such transition, since it is a natural checkpoint to confirm all historical filings are correctly reflected before responsibility passes to a new banking relationship.
In practice: Continuity gaps can arise when a company switches AD banks without briefing the new bank on past FDI or ODI history — the new bank has no record of prior transactions and this can create confusion or duplicate queries on a later filing. A clean handover document resolves this.
Where this sits in the wider engagement
FEMA Compliance Advisory & Review rarely arrives on its own. The statutory basis and the current requirements are set out on the FEMA Compliance Advisory & Review service page, and the related services are grouped under Fema Rbi.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On FEMA Compliance Advisory & Review we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.