In a bid to overhaul the overseas investment regime and simplify compliance, the Reserve Bank of India (RBI) introduced the Foreign Exchange Management (Overseas Investment) Rules, 2022 in August 2022. These rules, along with corresponding regulations and directions, replaced the previous Overseas Direct Investment (ODI) framework.
A key reform under the new rules was the introduction of the Late Submission Fee (LSF), a much-needed mechanism that allows Indian residents and entities to regularize past reporting delays without undergoing elaborate compounding process. With a critical compliance deadline looming on 25 August 2025, stakeholders must act now to ensure uninterrupted access to overseas investment opportunities.
1. LSF Structure as per RBI Notification Dated 30 September, 2022
The RBI’s notification of 30 September 2022 lays down a dual-track approach for delayed reporting under the new ODI framework based on the timing and nature of the delay:
> For Delays After 25 August 2022 (Post-Notification Period):
| Period of delay | Option for LSF? | Compounding mandatory? |
| Upto 3 years | Option for LSF shall be available | Applicant can opt for compounding or LSF |
| More than 3 years | No option for LSF | Compounding mandatory. |
> Delay in reporting of transactions prior to ODI Rules i.e. prior to 25 August, 2022
| Period of Delay | LSF Option Available |
| Any period (no restriction on duration) | ✔ Yes, but only up to 25 August 2025 |
| After 25 August 2025 | ✘ No, compounding becomes mandatory |
This transitional window of three years (ending 25 August 2025) is a unique opportunity to clean up historical lapses without getting entangled in the more complex and time-consuming compounding process.
2. What Happens After 25 August 2025?
Once the LSF regularization window closes, compounding becomes the only available remedy for unrectified past ODI reporting lapses with delay period of more than 3 years under ODI. The impact is two fold:
> Restriction on Further Financial Commitments: Entities with pending reporting lapses related to a specific UIN (Unique Identification Number) will not be allowed to make new overseas investments linked to that UIN until compliance is restored as provided under Regulation 12 of Foreign Exchange Management (Overseas Investment) Regulations, 2022.
> Time and Cost Implications: The compounding process typically takes 4–6 months, during which time investment plans may be put on hold. This could be a significant barrier for businesses or individuals seeking to seize time-sensitive international opportunities.
In contrast, Authorised Dealer (AD) Category-I Banks are empowered to handle LSF-based regularizations efficiently, usually within a matter of days to weeks making this route vastly preferable.
3. Preparedness for Entities and Individuals
To ensure compliance and avoid disruptions in overseas investment activities, entities and individuals should:
>Review All Past ODI Transactions:
Identify unreported or delayed filings related to ODI, APRs, Forms FC, or other required submissions.
> Evaluate the Applicable LSF
Calculate the LSF based on the amount involved and the length of delay and consult with the AD bank for guidance.
> Submit LSF Regularization Requests Promptly
File all overdue documents and pay the LSF well before the August 2025 deadline to avoid bottlenecks.
Take the step, before the door slams shut:
The RBI’s transitional window for regularizing past ODI lapses through LSF is a one-time opportunity. After August 2025, investors may face extensive and time-intensive compounding and more importantly, a halt in further overseas investment activity.
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Author: Ridhi Gada, Manager
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