Section 13 of the FEMA Act states that if an individual contravenes any provisions mentioned in the Act or any rule, notification, regulation, order or direction issued while exercising the powers of the Act , or contravenes any condition subject to authorizations issued by the RBI, he shall be levied a penalty up to thrice the amount related to such a contravention. This amount can go to a maximum of Rs 2 lakhs, wherever the said amount is quantifiable. Whenever the amount is not quantifiable or the same is continuous in nature, the penalty may be extended to Rs 5000 per day, after the first day of the discovery of such a contravention.

In the context of law, compounding means a cordial or amicable settlement that may lead to avoiding prosecution for a past offence. However, compounding is not regarded as an intrinsic right. It is only provided/delegated by the concerned Acts of law under which the said offence has been committed.