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Foreign Contribution Regulation Act, 1976, Account (FCRA Account)

The Foreign Contribution Regulation Act, 1976 cast certain obligations on the banks in regards to the acceptance of foreign inward remittances for onward credit to the account of trusts and other association which receive Foreign Grants

Definition of Foreign Contribution

As defined in Section 2(1)(h) of FCRA, 2010 foreign contribution means any donation, delivery or transfer made by a foreign source;

  • Of any article which has not been given as a gift for the personal use of the person, provided the value of such article on the date of the gift does not exceed such sum as may be prescribed in the act from time to time, in India. The threshold limit for the gift not being reported currently stands at Rs.1,00,000.
  • Of any currency, whether Indian or foreign;
  • of any security as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in Section 2(o) of the Foreign Exchange Management Act, 1999.

Explanation 1 – The interest accrued on the foreign contribution deposited in any FCRA Bank Account referred to in Section 17(1) of the FCRA, 1976 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.

Exemption Clause

  • Explanation 3 – The term Foreign Contribution shall not include any amount received, by a person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost of goods or services rendered by such person whether within India or outside India or any contribution received from an agent or a foreign source towards such cost shall be excluded from the definition of foreign contribution within the meaning of this clause.
  • In terms of FCRA, 2010 ‘person” includes – (i) an individual; (ii) a Hindu undivided family; (iii) an association; and (iv) a company registered under section 25 of the Companies Act, 1956.
  • “The sum, as stated at (i) above, has been specified as Rs. 1,00,000/-vide the Foreign Contribution (Regulation) Second Amendment Rules, 2019 [G.S.R. (E) dated 16th November, 2019].
  • Earnings by an Indian from any foreign source in lieu of rendering some goods and services to foreign client(s) by a person in lieu of goods sold or services rendered by it is not treated as foreign contribution. It is further clarified that foreign contribution is distinct from foreign earnings as earnings are normally in lieu of goods sold or services rendered by it and as such is a transaction of commercial nature.

Definition of Foreign Source

  • Foreign source, as defined in Section 2(1) (j) of FCRA, 2010 includes:
  • the Government of any foreign country or territory and any agency of such Government;
  • any international agency, not being the United Nations or other specialized agencies, the World Bank, International Monetary Fund or such other agency as the Central Government may specify in this behalf;
  • Foreign company;
  • Corporation, not being a foreign company, incorporated in a foreign country or territory;
  • Multi-national corporation referred to in sub-clause (iv) of clause (g);
  • Foreign company;
  • Citizen of a foreign country;”
  • List of agencies of the which are not treated as Foreign Source is provided in the FCRA website

Beneficiaries who can receive Foreign Contribution

  • A ‘person’, as defined in Section 2(1)(m) with the exclusion of those mentioned in Section 3 of FCRA, 2010, having a definite cultural, economic, educational, religious or social program can receive foreign contribution after it obtains the prior permission of the Central Government, or gets itself registered with the Central Government.

Persons disqualified to receive foreign contribution

As defined in Section 3(1) of FCRA, 2010, foreign contribution cannot be accepted by any:

  • a candidate for election;
  • correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
  • Judge, government servant or employee of any Corporation or any other body controlled on owned by the Government;
  • member of any legislature;
  • political party or office bearer thereof;
  • organization of a political nature as may be specified under sub- section (1) of
  • individuals or associations who have been prohibited from receiving foreign contribution.

Banned Organizations from whom foreign contribution should not be accepted

  • FCRA is meant to ensure that foreign contribution is received from legitimate sources and utilized for legitimate purposes by any person. A list of banned organisations is available in MHA’s website. In particular, the list of foreign entities/individuals can be seen in MHA website.

Donation given by NRIs

  • Contributions made by a citizen of India living in another country (i.e., Non-Resident Indian), from his personal savings, through the normal banking channels, is not treated as foreign contribution. However, if you receive foreign contribution from any NRI of an amount exceeding Rs.1,00,000/- then the donee would have to fill up Form FC – 1 and submit the same to MHA (Ministry of Home Affairs) within 30 days of receiving the foreign contribution. As per Section 4(e) read with Rule 6 of FCRR, 2011

However, the donation received from a Person of Indian Origin, OCI cardholders and having foreign nationality would be regarded as foreign contribution

Foreign remittances received from a relative are to be treated as foreign contribution as per FCRA, 2010 only if the relative is a foreign citizen, OCI card holder or Overseas citizen of India.

  • Individuals not covered under Section 3 or an HUF can accept foreign contribution freely for the purposes listed in section 4 of FCRA, 2010 although they are otherwise restricted. However, the threshold limit would be Rs.1,00,000/-
  • “Delegate / participation Fees” paid in foreign currency by foreign delegates/participants for participation or for hosting conferences / seminars is not treated as foreign contribution
  • A company would be treated as a foreign source only if it is owned by a foreign government or owned by foreign citizens or the management of its substantial affairs are controlled from outside India
  • Where the foreign contribution is received in INR or in any other foreign currency it shall be regarded as foreign contribution because it is the source which is important and not the type of currency

Treatment of Interest earned on Foreign Contribution

  • Explanation 2 ‒ The interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of Section 17 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause
  • Interest or any other income earned out of foreign contributions cannot be shown as fresh foreign contribution receipt during that year. The, interest or any other income earned out of such foreign contribution out of such deposit should be shown against Column 2(i)(b) in the annual return (Form FC-4) during the year in which it is earned. Such interest or income would be considered as F.C.
  • Deposit should be shown as second / subsequent foreign contribution receipt in the annual return during the year in which it is earned.

Utilization of funds received by way of Foreign Contribution

  • Trusts / NGOs associations cannot use the foreign contributions for investment in speculative activities like investments in Mutual Funds, any asset where there is a risk of depreciation of the original value, in land or other similar assets and other speculative investments.
  • A debt-based secure investment shall not be treated as speculative investment.
  • Every association shall maintain a separate register of investments.
  • Every register of investments maintained under sub-rule (3) shall be submitted for audit.
  • In view of the above, secure investments and fixed deposits in any bank or Government approved financial institution which ensures a fixed return will not be treated as speculative investment.
  • Capital assets purchased with the help of foreign contributions cannot be acquired in the name of the office bearers of the association. Every asset purchased with foreign contribution should be acquired in the name of the association since an association has a separate legal entity distinct from its members.
  • Thus, the association should utilize such funds for the welfare purpose or activities for which it is received. The utilization should be in line with the objectives of the association. However, foreign contributions can be utilized for self-sustaining activities, not meant for commercial purposes.
  • The foreign contribution cannot be received in and utilized from multiple Bank Accounts.

No fund other than foreign contribution can be deposited in the exclusive single FC account of a Bank, as mentioned in the order for registration or a prior permission is to be obtained from MHA, to maintain it separately by the associations. However, one or more accounts in different banks may be opened for utilizing the foreign contribution. However, no funds other than that foreign contribution shall be deposited or withdrawn and transferred to those different accounts from that FCRA Account. An intimation on plain paper shall have to be furnished to MHA within 15 days of the opening of the accounts in all such cases. However, the inter – account transfer will not be permitted between those multiple accounts. The banks will have to carry out due diligence for the FCRA accounts.

  • An amount equal to a maximum of 10% of the total contribution of the value thereof collected during the year can be transferred by a person registered under Rule 24 of FCRR, 2011, as amended by FCRR amendment rules 2012. Provided an approval from the Central Government in Form – 10 has been obtained.
  • Following documents should be enclosed with the application for grant of Prior Permission:
  • Hard copy of the online application, duly signed by the Chief Functionary of the association;
  • Certified copy of registration certificate or Trust deed etc., as the case may be;
  • Commitment letter from foreign donor specifying the amount of foreign contribution and the purpose for which it is proposed to be
  • Subject to relaxation given on a case to case basis, foreign nationals fulfilling the following conditions may be appointed as Executive Committee members, after obtaining prior approval of the Central Government:
  • the foreigner is married to an Indian citizen;
  • the foreigner has been living and working in India for at least five years;
  • the foreigner has made available his/her specialized knowledge, especially in the medical and health related fields on a voluntary basis in India, in the past;

Offences and Penalties under FCRA, 2010

There are various penal provisions including fines and monetary compensation together with imprisonment in certain cases. Some of the important penal provisions are discussed as follows:

  • Section 11 of the FCRA, 2010 prescribes that no person, save as otherwise provided in the Act, shall accept foreign contribution unless such person obtains a certificate of registration or prior permission of the Central Government. Therefore, acceptance of foreign contribution without obtaining registration or prior permission from the Central Government constitutes an offence under the Act and is punishable.
  • The provisions of FCRA, 2010 regarding offences and penalties are:
  • Section 33: Making of false statement, declaration or delivering false accounts:
  • Section 34: Penalty for article or currency or security obtained in contravention of Section 10:
  • ‘Director” in relation to a firm, society, trade union or other association of individuals, means a partner in the firm or a members of the governing body of such society, trade union or other
  • association of individuals.
  • Section 40: Bar on prosecution of offences under the Act:
  • No court shall take cognizance of any offence under this Act, except with the previous sanction of the Central Government or any officer authorised by that Government in this behalf.
  • renewal twelve months before the date of expiry of the certificate of registration. 

List of Administrative Expenses

Administrative Expenses

As per Rule 5 of FCRR, 2011 defines Administrative Expenses constitute the following:

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

2. All expenses incurred towards hiring of personnel for management of the activities of the Trust. Salary, wage 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 organization or 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;

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

As per the FCRA Amendment Act, 2020 the maximum amount that can be spent by a Trust / Society on general and administrative expenses is limited to 20% of the total foreign contribution received during the year. We should keep the Rule 5 of FCRR, 2011 while allowing expenses under various heads

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