Understanding changes introduced by Foreign Contribution (Regulation) Amendment Rules, 2024
The Foreign Contribution (Regulation) Amendment Act, 2020 imposes a cap on administrative expenditures for entities registered under the Foreign Contribution (Regulation) Act, 2010 (FCRA), limiting such expenses to a maximum of 20% of the total financial contributions received during the financial year. Any administrative costs that exceed this stipulated limit shall necessitate prior consent from the Central Government.
The Ministry of Home Affairs, notified Foreign Contribution (Regulation) Amendment Rules, 2024 dated December 31, 2024 , thus amending the Foreign Contribution (Regulation) Amendment Rules, 2011. The amendment Rules now allow carrying forward unspent administrative expenses and transfer of income tax refund to FCRA account. The Amendment Regulations introduce following notable changes:
1. The provision allowing for the carry forward of Unspent Administrative Expenses for a duration of one year.
The amendment Regulations have now allowed carrying forward unutilised portion of allowable administrative expenditure to the succeeding financial year. This shall allow organisations registered under FCRA to spend amounts beyond the stipulated limit of 20% (to the extent of amount carried forward from the previous financial year)
It is however considerable that, the amendment Rules have been effective from 1st January 2025, which shall imply that registered organisations shall be allowed to carry forward the unutilised portion out of the allowable administrative expenses for 2024-25 and utilise the same for 2025-26.
The ceiling of 20% for the financial year shall be calculated on the basis of Total foreign contribution received during the year only (balance of the previous year carried forward shall not be included while calculating the limit for incurring administrative expenses for the current financial year)
2. Enabling transfer of Foreign Contribution part of income-tax refund from non-FCRA bank account.
The ministry had been receiving representations from associations over the difficulties faced by them over transfer of FCRA component of funds out of refund of tax deducted at source.
On examination of the matter, the Ministry of Home Affairs had issued clarification dated 31st December, 2024 later notifying amendment rules enabling transfer of consolidated income tax refund (pertaining to FCRA) received in non-FCRA account to be transferred back to the FCRA account. Such transfer shall not be treated as violation of Sec 17 of the FCRA Act.
3. Aligning reporting requirement in Form FC 4
The amendment regulation provides for revision in format of FC 4 so as to include the details of unspent part of administrative expenses carried forward, allowable administrative expenses during the year and unspent portion along with reasons for carrying forward such expenses to succeeding financial year.
4. Expansion of scope of Chartered accountant certificate
Earlier the Chartered Accountant was required to certify the details of receipt of foreign consideration, interest accrued, utilisation and maintenance of books of accounts, the amendment rules have now widened the scope of certification. The chartered accountant shall now be required to certify compliance or any violation under Foreign Contribution (Regulation) Act, 2010 or rules made thereunder or notifications issued.
Chartered Accountants shall now have a bigger role in making sure organizations follow the rules, hence it shall be important for organizations to have regular audits and comply with all the rules and regulations under FCRA to avoid adverse consequences.
Conclusion:
The amended Regulations shall enable following advancements:
1. Enabling carrying forward unspent part of allowed administrative expenses to the succeeding financial year and reporting of the same annually in Form FC 4 along with reasoning for the same. AND
2. Widened scope of certification to be submitted along with Form FC 4, requiring the Chartered Accountant to certify compliance or any contravention of provisions under Foreign Contribution (Regulation) Act, 2010 or applicable Rules or notification, thus mandating compliance and disclosure of any non compliances/ contravention.
Further, the Amendment Regulations shall provide ease to FCRA registered organisations by providing an opportunity to manage their administrative expenses and transfer tax refunds to FCRA accounts within the ambit of FCRA Rules.
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This article has been written by Kumudini Paranjape Bhalerao Senior Partner, Vrushali Bhave – Senior Manager and Ridhi Gada- Manager
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