ISSUES ARISING DUE TO AMENDMENTS IN FCRA REQUIRING ALL FCRA TRUST TO FIRST DEPOSIT FOREIGN CONTRIBUTION TO SBI ACCOUNT DELHI DESIGNATED FRO THE PURPOSE:
Under the FCR Amendment Act 2020, all the FCRA registered organizations have to receive foreign contributions first in specified branch of State Bank of India in New Delhi. The foreign contribution has been defined under the act under S.2(1)(h) OF THE FCRA 2010 AND FAQ on FCRA site the following has been mentioned.
Key Definitions and Concepts under FCRA, 2010
A. Foreign Contribution
Q.1 what is foreign contribution?
Ans.
As defined in Section 2(1)(h) of FCRA, 2010, “foreign contribution” means the donation, delivery or transfer made by any foreign source ─ (i) of any article, not being an article given to a person* as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum as may be specified from time to time by the Central Government by the rules made by it in this behalf. (ii) of any currency, whether Indian or foreign; • (iii) of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999.
Explanation1–A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution within the meaning of this clause.
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.
Explanation3‒Any amount received, by any 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 in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or 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; (iv) a company registered under section 25 of the Companies Act, 1956 (now Section 8 of Companies Act, 2013)
The heighted part of the above (Explanations 2) clearly specifies that interest on foreign contribution earned from FCRA funds would also be treated as FC within the meaning of the said section of the Act.
Q.4 What is a foreign source?
Ans. Foreign source, as defined in Section 2(1)(j) of FCRA, 2010 includes:- (i) the Government of any foreign country or territory and any agency of such Government; (ii) any international agency, not being the United Nations or any of its specialized agencies, the World Bank, International Monetary Fund or such other agency as the Central Government may, by notification, specify in this behalf; (iii) a foreign company; (iv) a corporation, not being a foreign company, incorporated in a foreign country or territory; (v) a multi-national corporation referred to in sub-clause (iv) of clause (g); (vi) a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely:- (A) the Government of a foreign country or territory; (B) the citizens of a foreign country or territory; (C) corporations incorporated in a foreign country or territory; (D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory; (E) Foreign company; (vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory; (viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly financed by a foreign country or territory; (ix) a society, club or other association or individuals formed or registered outside India; (x) a citizen of a foreign country;” List of agencies of the United Nations, World Bank and some other International agencies/multilateral organizations, which are not treated as ‘foreign source’, are available on the website
B. Reading the above definition of foreign contribution it refers to two kinds of receipts:
- Amounts received as donation from foreign source as explained in the answer to Q 4 above.
- Amount earned from Indian source on Foreign source funds if they are invested in permissible investments under the FCRA Act which for the purposes of FCRA is added to and consideredfinally as part of FCRA funds
But reflects in the final accounts as Interest income and not as donation in the Income & expenditure or receipts & Payments accounts.
C. The purpose of bringing amendment to FCRA act requiring all FCRA trust to first deposit the their donations received from foreign source was primarily to monitor /regulate/ check the foreign source receipts to protect the national interest and that seems to be fine and acceptable but if the same also includes earning of income from Indian source by way of interest etc. and is required to be first deposited in SBI account as per the amended act, it raises many issues and practical difficulties listed and described hereunder:
1) Savings Bank Interest income from Utility account of FC funds kept in such bank accounts other than SBI account by transfer from the said SBI account. This interest income is in reality not donation from foreign source but would be covered under the definition of foreign contributions, are generally credited to credit the same directly in the FC account with SBI opened under the amended provisions?
2) Income from other Investments of the FCRA funds in permissible investment’s under the FCRA act such as Fixed deposit etc. , whether the same needs to go to the SBI account of the NGO directly either periodically or on maturity ?If so the principle amount which is repaid on maturity, will have to be credited to utility account as it is not a foreign contribution but the interest thereon will have to be credited to SBI account in Delhi being Foreign contribution although it is not a donation from any foreign source.
3) If there is TDS deducted on such FCRA income which when refunded by the Income Tax Department with interest thereon, whether the TDS pertaining to TDS of FCRA investments and interest thereon by the I.T DEPARTMENT will be refunded by the Income Tax department to the SBI FCRA account in Delhi and the TDS on Indian source fund investments and interest thereon have to be paid thereon by IT department to its Indian source Bank account?
Solution to the above issues is to require only donations (foreign contributions) received from foreign source to be received and deposited in the SBI account Delhi and no the income on FCRA funds due to their investments which in reality in neither a donation nor not it is is from a foreign source.
A clarification on the above aspect will help the FCRA NGO to comply the requirement of amended law and will also enable the authorities to monitor and regulate the foreign source from where the funds are flowing in the country in the name of donation.
Author Bio
On the comments from Scott on my article on FCRA issues published by TAX Guru on 4th July 2021, I have to say that th comments are in japanese and I don’t know Japanese . SO please send comments in English and I will reply thereto.