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Regulatory Framework and Statutory Laws for NPOs: Part 2

FCRA (Foreign Contribution Regulation Act)

Key Concepts

  • Foreign Contribution includes donations in cash/kind/securities from foreign sources

  • Not considered FC: fees for services, goods in business, education fees from foreign students

  • Local interest/rent from FC deposits also treated as FC

Person Includes: individual, HUF, association, Sec 8 company

Conditions to receive FC:

  • Must have definite programme (CEERS)

  • Must register with/go through prior permission from central govt

  • Must not be prohibited under Section 3

Foreign Source Includes:

  • Foreign governments/companies/MNCs

  • Entities with >50% foreign shareholding

  • Trusts, societies, associations outside India

FCRA Architecture

  • Registration and Prior Permission

  • Bank account only at SBI, New Delhi

  • Separate books of accounts

  • FC4 filing mandatory even for NIL return

  • Admin cost ceiling, no transfer of FC to others

  • Intimations to be made: change in key info, etc.

2020 Amendments Highlights

  • No sub-granting

  • Cap on admin expenses

  • Aadhaar/Passport mandatory

  • SBI account compulsory

  • Suspension period extended to 360 days

  • No utilisation during inquiry

FC Examples

  • Donations from OCI/PIO/foreigners in INR

  • Proceeds from sale of FC-created assets

  • Interest earned on FC

  • Refunds of unutilised FC

Other Notes

  • Upload audited accounts within 9 months

  • Use reimbursement method for project advances

  • Refer to FCRA charter on official portal (www.fcraonline.nic.in)

CSR Law (Section 135, Companies Act 2013)

Applicability

  • Companies with:

    • Net worth ≥ ₹500 Cr, or

    • Turnover ≥ ₹1000 Cr, or

    • Net profit ≥ ₹5 Cr

Key CSR Responsibilities

  • Form CSR committee (≥3 directors, 1 independent)

  • Draft CSR policy and publish on website

  • Ensure spending of at least 2% of avg. profits of last 3 years

Unspent CSR Amount

  • Transfer to a Schedule VII fund within 6 months (if no ongoing project)

  • If ongoing project, transfer to special bank account within 30 days, spend within 3 FYs

  • If still unspent: transfer to Schedule VII fund within 30 days

Penalties

  • Company: Lesser of 2x unspent CSR or ₹1 Cr

  • Officers: Lesser of 1/10th of unspent or ₹2 Lakh

Schedule VII Activities Include

  • Health, education, gender equality, environment

  • National heritage, sports, rural/slum development

  • COVID-19 related spending (as per 2021 circular)

CSR Rules 2021

  • CSR can be done via: own org, sec 8 company, trust, society (with 12A/80G and 3-yr track record)

  • Must register via Form CSR-1

  • Get CSR Registration Number (URN)

Administration

  • Admin overheads capped at 5% of CSR expenditure

  • Engage international orgs for monitoring/evaluation

CSR Committee (if spend > ₹50 Lakh)

  • Must create action plan

  • Include list of projects, execution, monitoring, impact assessment

Reporting

  • Annual CSR report in Annexure II from 2020

  • Display policy and committee details on website

  • CFO certifies CSR fund utilisation

Surplus from CSR Projects

  • Must be ploughed back or transferred to CSR fund/account

Capital Asset Creation with CSR Funds

  • Must be in name of eligible entity (Sec 8/Trust/Public authority)

Impact Assessment

  • If avg CSR obligation ≥ ₹10 Cr in past 3 FYs

  • For projects > ₹1 Cr, completed at least 1 year ago

  • Budget: 2% of CSR spend or ₹50L (whichever higher)

Social Security Laws for NPOs

EPF (Employees’ Provident Fund)

  • Mandatory if ≥20 employees

  • 12% from employee & employer

  • EPS: 8.33% upto ₹1250/month; EDLI: insurance upto ₹7 Lakh

  • Online submissions; separate challans for FC/NFC staff

  • eKYC, UAN, Form-11, registers to be maintained

ESI (Employee State Insurance)

  • Mandatory if ≥10 employees

  • Applies to those earning ≤ ₹21,000/month

  • Employer: 3.25%, Employee: 0.75%

  • Benefits: health, maternity, disablement, funeral

Gratuity (Payment of Gratuity Act 1972)

  • Applicable if ≥10 employees

  • 5 years of service (or 4 yrs 240 days)

  • 15/26 * last salary * no. of years

  • Ceiling: ₹20 Lakh; 4.81% of basic recommended

Maternity Benefit Act

  • 26 weeks (8 prenatal + 18 postnatal) for first 2 kids

  • 12 weeks for later kids; 6 weeks miscarriage; 2 weeks tubectomy

  • Applicable if ≥10 employees; creche if >50 employees

Minimum Wages Act

  • Revised every 5 years by state and central govt

  • Based on skill category

Professional Tax

  • State-based; max ₹2500/year

  • Not applicable in Delhi, UP, Rajasthan, Haryana

Shops & Establishment Act

  • State law; covers leaves, holidays, work conditions

Budgeting Tip

  • Account for:

    • State Minimum Wage +

    • 13% EPF employer share +

    • 3.25% ESI employer share +

    • 15 days salary (for gratuity)

Example: ₹8,000 salary → budget ₹9,685/month

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