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Chapter XI - Foreign Contribution Regulation Act

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Made publicly available in the spirit of open access by its author, Noshir Dadrawala (CEO, Centre for Advancement of Philanthropy), and collaborators CAP and Forbes Marshall.

The Foreign Contribution Regulation Act was originally enacted in 1976 but subsequently repealed with the enactment of a more stringent Foreign Contribution Regulation (Amendment) Act 2010. In the year 2015 the rules were majorly amended and all registration, renewal, and reporting forms were made online. Thereafter, several new compliances were mandated, with the Ministry of Home Affairs (MHA) issuing official circulars and notifications from time to time.

In September 2020, MHA surprised the voluntary sector with major changes to the Act and subsequently to the rules in November 2020.

Foreign Contribution Regulation (Amendment) Act 2020

Foreign Contribution Regulation (Amendment) Act 2020 has come into force or effect from 29th September, 2020. Let us examine some of the key changes:

No sub-granting

No institution registered under FCRA in India or having prior permission under FCRA in India can make a grant or sub-grant to any other intuition from foreign contributions received in its designated FCRA bank account, even if the second recipient or sub-grantee in India has registration or prior permission under FCRA.

Prior to this amendment, an association registered under FCRA could make a grant from its designated FCRA bank account to another institution provided that institution (second recipient) too had a valid FCRA registration and the FCRA funds were credited to its designated FCRA account.

With effect from 29th September 2020, this is now strictly disallowed.

This amendment is a major blow to NGOs working collaboratively on projects and programmes as also to branches of overseas donors and intermediaries which have been funding medium to smalls implementing agencies.

Cap on administrative expenditure

Earlier, institutions were allowed to spend up to fifty per cent of foreign funds received during the fiscal year on administrative expenditure. The Amendment Act has now reduced it to twenty per cent. But, first let us understand what is 'administrative expenditure', as per FCRA.

Rule 5 of Foreign Contribution Regulation Rules 2011 defines administrative expenses to include the following:

  1. Salaries, wages, travel expenses or any remuneration realised by the Members of the Executive Committee or Governing Council

  2. All expenses towards hiring of personnel for management of the activities and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel

  3. All expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or the association is functioning, stationery and printing charges, transport and travel charges by the members of the executive committee or governing council and expenditure on office equipment

  4. Cost of accounting for and administering funds

  5. Expenses towards running and maintenance of vehicles

  6. Cost of writing and filing reports

  7. Legal and professional charges, and

  8. Rent of premises, repairs to premises and expenses on other utilities

Thus, as per Rule 5(ii) 'administrative expenditure' includes: 'all expenses towards hiring of personnel for management of the activities and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel'.

However, Rule 5 also makes two exceptions:

  1. Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses

  2. "Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisations shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school, etc."

Thus, all 'management related expenditure' is 'administrative expenditure' whereas expenses directly towards programmes, projects and welfare-oriented activities would not be considered as 'administrative expenditure'.

The term 'such as' is indicative and suggests that remuneration paid to project staff directly implementing the programme would not be an 'administrative expenditure.'

Suspension in case of contravention

As per the Amendment of 2020, if the Ministry of Home Affairs "on the basis of any information or report, and after holding a summary inquiry, has reason to believe that a person (person includes an association) who has been granted prior permission has contravened any of the provisions of this Act, it may, pending any further inquiry, direct that such person (or association) shall not utilise the unutilised foreign contribution or receive the remaining portion of foreign contribution which has not been received or, as the case may be, any additional foreign contribution, without prior approval of the Central Government."

In other words, MHA is now empowered, 'after holding a summary inquiry', to suspend the organisation's FCRA registration or prior permission and freeze the FCRA bank account in case of contravention of any provision of FCRA.

Aadhaar of board members and copy of passport/OCI card

Organisations applying for registration, prior permission or renewal of FCRA registration shall be required to "provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries, by whatever name called, issued under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, or a copy of the Passport or Overseas Citizen of India Card, in case of a foreigner."

Thus, furnishing Aadhaar number of all 'key members' or governing board members and the chief functionary is now mandatory. In case the 'key member' is a citizen of a foreign country but holding Person of Indian Origin (PIO) or Overseas Citizen of India (OCI) card, the same needs to be furnished.

Suspension of registration

Earlier the FCRA registration of an organisation which violated the provisions of FCRA could be suspended for "such period not exceeding one hundred and eighty days as may be specified". The Amendment Act has changed this to "one hundred and eighty days, or such further period, not exceeding one hundred and eighty days, as may be specified" (in aggregate three hundred and sixty days).

This amendment now empowers MHA to suspend FCRA registration of an organisation which has violated any provision of FCRA for virtually a year.

Voluntary surrendering of FCRA registration

Earlier there was no provision for an organisation to voluntarily surrender it's FCRA registration. Now under the Amendment Act, MHA may permit any organisation to surrender the certificate granted under this Act, if, after making such inquiry as it deems fit, MHA is satisfied that such organisation has not contravened any of the provisions of FCRA, and the management of foreign contribution and asset, if any, created out of such contribution has been vested in the competent authority as provided in Section 15(1).

While this amendment may prove to be a boon for organisations no longer interested in receipt of foreign funds, it could be a bane for organisations which may have created assets (e.g., corpus, endowments, capital, reserves, schools, hospitals, vocational training centers) out of foreign funds.

On surrendering FCRA registration, assets created out of foreign contributions shall be vested in the competent government authority.

Inquiry before renewal of FCRA

Generally, renewal of FCRA registration used to be relatively easy for organisations who were compliant with requirements under FCRA such as filing annual returns in online Form FC-4, etc. However, MHA before renewing the certificate, now makes such inquiry, as it deems fit, to satisfy itself that such organisation has fulfilled all conditions specified under Section 12(4) of FCRA 2010.

In terms of Sec. 12 (4) of FCRA, 2010, the following shall be the conditions for the grant of registration, prior permission and renewal:

  1. The 'person' making an application for registration or grant of prior permission:

    • Is not fictitious or benami

    • Has not been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious' faith to another

    • Has not been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country

    • Has not been found guilty of diversion or mis-utilisation of its funds

    • Is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends

    • Is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes

    • Has not contravened any of the provisions of this Act

    • Has not been prohibited from accepting foreign contribution

    • The person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him

    • The person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him

  2. The acceptance of foreign contribution by the association/person is not likely to affect prejudicially:

    • The sovereignty and integrity of India

    • The security, strategic, scientific or economic interest of the State

    • The public interest

    • Freedom or fairness of election to any Legislature

    • Friendly relation with any foreign State

    • Harmony between religious, racial, social, linguistic, regional groups, castes or communities

  3. The acceptance of foreign contribution:

    • Shall not lead to incitement of an offence

    • Shall not endanger the life or physical safety of any person

FCRA bank account with State Bank of India

Earlier organisations were allowed to open their designated FCRA bank account with any Core Banking Compliant Bank integrated with the Public Financial Management Systems (PFMS). The Amendment Act requires that the organisations granted registration or prior permission under FCRA shall receive foreign contribution only in one 'Designated FCRA Bank Account' i.e., State Bank of India, New Delhi Main Branch provided that such organisation may also open another FCRA account in any other scheduled bank of their choice for the purpose of keeping or utilising the foreign contribution which has been received from the FCRA account in The State Bank of India, New Delhi Main Branch.

Thus, from the requirement of having designated FCRA bank account with any Core Banking Compliant Bank integrated with the Public Financial Management Systems (PFMS) it has now been narrowed down to The State Bank of India, New Delhi Main Branch.

The FCRA bank account with The State Bank of India, New Delhi Main Branch (SBI NDMB) must be opened before applying for registration or prior permission of FCRA, and once opened it must be treated as the main designated FCRA bank account or FCRA gateway account.

The application for opening the designated FCRA bank account with SBI NDMB can be submitted at a branch of the SBI in your region.

Public servant cannot accept foreign contribution

Under FCRA, several persons are banned from receiving foreign contribution for any specific cultural, educational, economic, religious or social programme. These include a candidate for election, correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper, judge, government servant or employee of any corporation, member of any legislature, political party or office bearer thereof. To this list, the Amendment Act has added: 'Public servants' as defined under Section 21 of the Indian Penal Code.

A 'public servant' can fall under any one of these three categories: a) in the service or b) pay of the Government or c) remunerated by fees or commission for the performance of any public duty by the Government. In a strict sense the law only prohibits such 'persons', including now a 'public servant', from individually receiving foreign contribution for a specific cultural, economic, educational, religious or social programmes.

Foreign Contribution Regulation (Amendment) Rules 2020

On November 10, 2020 the Ministry of Home Affairs (MHA) Notified the Foreign Contribution Regulation (Amendment) Rules 2020.

Organisation of a political nature

Rule 3 which provides guidelines for declaring any organisation (which is not a political party) to be of a political nature has been amended such that organisations receiving foreign contributions shall be considered to be of a political nature, "if they participate in active politics or party politics, as the case may be". This amendment is in sync with the ruling of the Supreme Court of India.

However, organisations involved in active lobbying and advocacy work should still carry out their activities with restraint and caution.

Eligibility criteria for registration

Earlier the eligibility criteria for registering under FCRA was existence for three years and spending a minimum sum of Rs 10 lakhs on core activities for the benefit of society during the last three financial years. The sum of Rs 10 lakhs has been raised to Rs 15 lakhs.

Eligibility criteria for prior permission

If prior permission is sought for a sum of over Rs 1 crore, MHA may permit receipt of such foreign contribution in such instalments, as it may deem fit: Provided that the second and subsequent instalment shall be released only after submission of proof of utilisation of at least seventy-five per cent of the foreign contribution received in the previous instalment and after field inquiry of the utilisation of foreign contribution.

Renewal requirement

The application for renewal of FCRA registration should be made in Form FC-3C accompanied with an affidavit executed by each office bearer, key functionary and key member in Proforma 'AA' six months before the date of expiry of the certificate of registration. The amendment rules make it clear that on the expiry of the validity of the FCRA certificate the organisation can neither receive further contributions nor utilise balance funds in the FCRA bank account until the registration is renewed.

Further, if application for renewal is not received by MHA before the expiry date, the FCRA registration shall be deemed to have ceased and the amount of foreign contribution lying unutilised in the FCRA account and utilisation account of the organisations whose certificate of registration is deemed to have ceased and assets, if any, created out of the foreign contribution, shall vest with the prescribed government authority under the Act until the certificate is renewed or fresh registration is granted.

Hence, NGOs should apply for renewal at least six months before the date of expiry of the FCRA registration. Delay in applying would mean delay in getting the certificate renewed in time.

Designated FCRA bank account

Furnishing details of the FCRA bank account with State Bank of India, New Delhi Main Branch shall be mandatory when applying to MHA for registration, prior permission or renewal of FCRA registration.

Fees

The fees for grant of prior permission and renewal of registration shall be Rs 5,000 and for new registration a sum of Rs 10,000.

Online forms

The online forms have also undergone several changes.

  1. A new online Form FC-7 has been introduced for voluntary surrender of FCRA registration

  2. In the online form for registration, prior permission and renewal, if the nature of the association is religious it must state whether state whether (a) Hindu (b) Sikh (c) Muslim (d) Christian (e) Buddhist (f) Others

  3. Office-bearers and other key functionaries must disclose details of PAN and Aadhaar along with nationality and relationship with other member(s) of the executive council/governing body/ office bearers

  4. It must also be disclosed whether any current office bearer or director or other key functionary of the association has, in the discharge of his/her official functions or private conduct, has any prosecution for any offence pending against him

Declarations in the annual return

In the Annual Return in Form FC-4 the Chief Functionary must declare whether during the period under report:

  1. Any foreign contribution was transferred to any FCRA registered association

  2. Any foreign contribution was transferred to any non FCRA registered association

  3. Any functionary of the Association has been prosecuted or convicted under the law of the land

  4. Any asset created out of foreign contribution is registered in names other than the name of Association

  5. Any domestic contribution has been credited in any FCRA account

  6. The Association has received any foreign contribution in an account other than the designated FCRA receipt account

  7. The Association has utilised foreign contribution for any purpose other than the defined purposes in the FCRA certificate of registration or prior permission

  8. The Association has invested any foreign contribution in any speculative activity as defined in rule 4 of the Foreign Contribution (Regulation) Rules, 2011

  9. The Association or any of its functionary/office bearer has violated any of the conditions as enumerated under sub-section (4) of section 12 of the Act

  10. The Association has made expenditure on Administrative expenses exceeding 20 per cent of the foreign contribution received?

  11. Any fixed asset acquired out of foreign contribution has been sold out

  12. Sale proceed of above fixed asset has been diverted/ has not been deposited in FCRA account

  13. Any FD proceeds has been credited in any account other than the FCRA account

  14. Any organisation/entity not belonging to the Association is being managed/financially supported by the Association

  15. The Association has utilised any foreign contribution outside India

If the answer to any of the above is 'yes', brief details must be provided.

Change in governing board

Earlier, one had to provide intimation to MHA in online Form FC-6E only if there was change in more than fifty per cent of the key members. Now intimation must be provided within fifteen days even if one new key member is appointed, elected, resigns or dies, within forty five days and the change shall be effective only after MHA approves the same.

Among various requirements arising from the amendments to the Act and the Rules, in the year 2020, three key compliances relate to:

  1. Obtaining a DARPAN ID from NITI Aayog portal for the association

  2. Opening the Main FCRA Account in State Bank of India, New Delhi Main Branch; and

  3. Adhaar details of all office bearers

Charter issued by MHA

MHA has issued a charter for organisations which are registered under or have prior permission under FCRA. The Charter states:

  1. Registration and prior permission is granted for a definite cultural, economic, educational, religious, or social programme under sections 11 and 12 of the FCRA, 2010. An association is granted registration for five years. The prior permission is granted for a specific purpose/ project for a specific amount from a specific source.

  2. Every certificate of registration shall have to be renewed before the date of expiry of its validity. The application for renewal is to be made online in Form FC-3C along with the prescribed fee to be paid through online payment gateway, six months before the date of expiry of the certificate of registration. In case no application for renewal of registration is received, or such application is not finally submitted accompanied by the requisite fee through the prescribed mode, the validity of the certificate of registration shall be deemed to have ceased from the date of completion of the period of five years from the date of the grant of registration. Such deemed to have ceased associations are not permitted to either receive or utilise foreign contribution anymore.

  3. An association granted prior permission or registration under the FCRA, 2010 should initially receive the foreign contribution only in the FCRA account at State Bank of India, New Delhi Main Branch. This account number would be the same as has been intimated by the organisation in their application for prior permission/registration or intimated through FC-6C. Deposit of any local fund/domestic contribution in this bank account is not allowed. One or more accounts in any PFMS enabled scheduled bank may be opened for utilising the foreign contribution.

  4. Foreign contribution cannot be mixed with local/domestic funds being handled by the organisation.

  5. An association granted prior permission or registration is required to carry out the activities, for which foreign contribution is received, in India only and the amount should not be utilised for purposes other than for which it is received.

  6. The foreign contribution received by the association shall not be transferred to any other association for any other purpose.

  7. Any fixed asset acquired out of the foreign contribution and any article received in kind from the foreign source should be in the name of the association and not in the name of any individual in the association.

  8. Not more than twenty per cent of the foreign contribution shall be defrayed to meet administrative expenses of the association. What constitutes 'administrative expenses' has been defined in Rule 5 of the Foreign Contribution (Regulation) Rules, 2011 (FCRR, 2011).

  9. Any foreign contribution or any income (interest, rent, enterprise or FD, etc.) arising out of utilisation of foreign contribution shall not be used for 'speculative business'. What constitutes 'speculative business' has been defined in Rule 4 of FCRR, 2011.

  10. An association granted prior permission or registration shall maintain a separate set of accounts, assets and records, exclusively for foreign contribution received and utilised. If the foreign contribution relates only to articles/ foreign securities, the intimation shall be submitted online in Form FC-1 and such articles/ securities shall be reflected in online annual report FC-4.

  11. Every account giving details of the receipt and purpose-wise utilisation of the foreign contribution, including the interest earned on the foreign contribution amount, should be maintained on a yearly basis, commencing on the 1st day of April each year, and every such yearly account is to be uploaded online only, in the prescribed Form FC-4 and uploaded therewith the income and expenditure statement, balance sheet and statement of receipt and payment, duly certified by a chartered accountant, within nine months of the closure of the year, i.e., before 31st December on www.fcraonline. nic.in. A copy of a statement of account from the FCRA account in State Bank of India, New Delhi Main Branch and utilisation accounts in any scheduled bank duly certified by an officer of such bank should also be uploaded. The cash book and ledger account is to be maintained on double entry basis, where the foreign contribution relates to currency received and utilised.

  12. An online annual return in Form FC-4 shall reflect the foreign contribution received in the FCRA account at State Bank of India, New Delhi Main Branch and include the details in respect of other FCRA bank accounts, if any, for utilisation. No physical copy of annual return is accepted.

  13. The accounting statements shall have to be preserved by the NGO/ association for a period of six years.

  14. Even if no foreign contribution is received during a year, a 'Nil' return is required to be filed online in Form FC-4 within the prescribed time limit. However, certificate from Chartered Accountant or Income & Expenditure statement or R&P account or balance sheet is not required to be uploaded.

  15. Intimation for change of name, address, registration, nature of activities or aims and objectives of an association, bank and/or bank account number and opening of bank account for utilisation of foreign contribution should be intimated online only in Form FC-6(A to E) and uploading requisite documents within forty five days of effecting the change.

  16. For any change (addition/deletion) of any functionary or member, the associations shall apply online through FC-6E and seek approval from Central Government.

  17. All associations granted registration or prior permission under FCRA, 2010 shall be required to adhere to good practice guidelines of Financial Action Task Force (FATF).

Good practice guidelines to the NPOs to ensure compliance with FATF requirements:

  1. Wherever necessary, NPO shall inform the MHA (FCRA Wing) about the suspicious activities of the customer, without waiting for annual returns

  2. The board of directors/chief functionary of NPO shall issue directions regarding duties of official who shall be required to enforce these guidelines and other rules of FCRA, 2010 read with FCRR, 2011 as amended from time to time

  3. The NPO shall put its goals, objectives and activities on its website

  4. The NPO shall upload the details of key persons associated with NPOs activities on its website

  5. The NPO shall take due diligence of its employees at the time of recruitment

  6. The NPO shall maintain the information of beneficiaries of funds and upload on its website and monitor the activities of the beneficiaries. Wherever a beneficiary is a legal person, the details of beneficial owner shall also be uploaded

  7. The NPO shall ensure that the financial transactions involving more than Rs 20,000 to be routed through banking channels only

  8. The board of directors/trustees of NPO's must ensure utilisation of funds consistent with objectives as approved by MHA

  9. The board of directors/trustee of NPO's shall conduct meeting once at least in six months to review the working of these instructions and shall record the minutes of these meetings

  10. The NPO shall train its staff on the FCRA and about the application of these guidelines

  11. When any transaction is under investigation by any authority, the MHA shall be informed by such NPO

FCRA compliance checklist

Please check and ensure the following:

  1. Validity date of the FCRA registration and apply for renewal well in time

  2. Ensure designated FCRA bank account with State Bank of India, New Delhi Main Branch is opened before 31st March 2021

  3. Old designated FCRA bank account may be retained as another FCRA utilisation account, and must be so declared in online Form FC-6C

  4. One or more FCRA utilisation accounts can be maintained but only after prior approval of MHA in Form FC-6D

  5. Maintain separate books of account for FCRA

  6. Foreign contribution could be received from a 'foreign source' in the form of money (INR or forex), article (computers, relief material, equipment) or security (stock, share, bond, etc.)

  7. Ensure that the organisation has NGO Darpan UID

  8. Adhaar details of all key members and chief functionary are available

  9. No foreign national other than one of Indian origin should be an office bearer or a trustee, including the Chief Functionary of the organisation

  10. File annual returns on online Form FC-4 by 31st December every year

  11. Even if no foreign contribution is received nil return should be filed

  12. FCRA statements of accounts should be uploaded on the organisation's own website

  13. File online Form FC-1 if article/s received from foreign source

  14. Any income generated from an FCRA asset, be it interest or fees, must be accounted for under FCRA

  15. Change of name and/or address within the State of the Association should be intimated within forty five days in Form FC-6A.

  16. Any change in nature, aims, objects and registration with local/ relevant authorities in respect of the organisation must be intimated within forty-five days in Form FC-6B

  17. Opening additional FCRA utilisation account must be intimated within forty-five days in Form FC-6D

  18. Any change in key members or chief functionary must be intimated within forty-five days in Form FC-6E

  19. Funds received from a Non-Resident Indian (NRI) must be treated as local and not foreign contribution regardless the currency

  20. Funds received from Overseas Citizen of India (OCI) must be treated as foreign contribution even if received in Indian Rupees

  21. Funds received from citizen of a foreign country must be treated as foreign contribution even if received in Indian Rupees

  22. Donations/grants from companies where more than fifty per cent of shareholding is by foreigners is not to be treated as foreign contribution

  23. Donations/grants from foreign companies, subsidiaries of foreign companies and multinational companies not registered under the Indian Companies Act to be treated as foreign contribution

  24. Fees or commercial receipts from 'foreign source' not to be treated as 'foreign contribution'

  25. Foreign contributions must not be invested in Mutual Funds or in 'speculative investments.

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