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