Analysis of Foreign Contribution (Regulation) Amendment Act, 2020 (No. 33 of 2020)
Purpose and effective date
- Purpose
– To amend the Foreign Contribution (Regulation) Act 2010.
- Effective date
– 29th September 2020 is the date on which the amendments shall come into force (Notification S.O. 3395(E) dated 29.09.2020)
Amendments in a glance
- Public servants not to accept FC
- Restricting transfer of FC between organizations
- Reducing the permissible limit for administrative expenses
- Amendments regarding designated bank account
- Aadhaar number made mandatory for certain applications
- Other procedural amendments
Public servants not to accept FC
- Amendment to Section 3(1)(c)
- Public servants (as defined in section 21 of the Indian Penal Code) are prohibited from accepting Foreign Contribution.
- Please click this link to see the list of persons covered under the definition of public servants https://devgan.in/ipc/section/21/
Restricting transfer of FC between organizations
- Provision till 28.09.2020
– One FC registered person or prior permission (PP) holder transferring FC to another FC registered person – Permissible. Here prevailed the concept of subsequent recipient.
– One FC registered person or PP holder transferring FC to an unregistered person – Permissible subject to prior approval of Central Government
- These two situations are henceforth not possible as existing section 7 is replaced by a new section 7 wef 29.09.2020
Restricting transfer of FC between organizations contd…
- New section 7 analysed
– No person (Please note that it starts in negative)
– who is registered and granted a certificate or has obtained prior permission under the Act and
– who receives any foreign contribution
– shall transfer such foreign contribution to any other person.
- To sum up – Henceforth transfer of FC from one Indian entity to another Indian entity is not permissible. The concept of subsequent receipt now gets confined only to interest on bank account
Reducing the permissible limit for administrative expenses
- Amendment of Section 8(1)
- Prior to amendment administrative expenses could be met from FC to the extent of 50% of FC received during the year. For spending in excess of the said 50%, prior approval of central government was needed.
- This limit is now reduced to 20%.
- Since this is a mid year amendment the question is for FY 2020 – 21 what is the limit 20% or 50%?
- Administrative expenses – Rule 5 of FCR Rules 2011 – http://www.bareactslive.com/ACA/ACT2417.HTM
Amendments regarding designated bank account S 17
- Provision till 28.09.2020
–At the time of registration or PP – Open account with any scheduled bank – Declare it as designated bank account for receiving FC – Show particulars thereof in the application for registration or PP
–After registration or PP – Receive FC only through this bank account – Show details thereof in quarterly and annual FC returns
–One or more bank accounts could be opened for utilising FC received
–No other funds could be deposited in these accounts
Amendments regarding designated bank account S 17
- Effect of the amendment
–Three tier designated bank account concept has emerged (for existing registered persons and new applicants)
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- Primary bank account – It shall be opened only with the notified branch of State Bank of India New Delhi. State Bank of India, New Delhi Main Branch (NDMB), Sansad Marg, New Delhi is notified vide SO 3479(E) dated 07.10.2020 – FC shall be received only through this account.
- Secondary Bank Account – It shall be opened in any scheduled bank – This account is for transferring FC funds from SBI NDMB A/c and for utilizing the FC.
- Utilization bank account(s) – one or more bank account(s) can be opened in any scheduled bank. FC funds from primary or secondary bank account can be transferred to this/these bank account(s) for utilization.
–Funds other than FC shall not be deposited or received in any of the above accounts
Public Notice dated 13.10.2020 by MHA regarding amendments relating to designated bank account
- IFS code etc of NDMB of SBI
–Branch Code: 00691
–IFSC : SBIN 000 0691
–SWIFT: SBININBB104
–Email: [email protected], [email protected], [email protected]
- All registered persons and PP holders, other than those holding designated bank account in SBI NDMB branch, shall open primary designated account with SBI NDMB.
- Time is given till 31.03.2021 for opening primary designated bank account with SBI NDMB. Fresh applicants shall first open account with NDMB branch of SBI and then apply for registration or PP.
Public Notice dated 13.10.2020 by MHA regarding amendments relating to designated bank account
- Can FC be received in the old designated account after 29.09.2020?
This public notice (Para 11 and Para 6) says FC shall not be received in any account other than the designated account in SBI NDMB from the date of opening such account or 01.04.2021, whichever is earlier. That means FC can be received in the old designated account till the new account is opened or till 31.03.2021, whichever is earlier.
Public Notice dated 13.10.2020 by MHA regarding amendments relating to designated bank account
- To open the new designated bank account, one need not visit NDMB of SBI. They can visit any branch of SBI for opening designated bank account in NDMB of SBI.
- The NDMB will not levy any charges / fees for transferring FC from the FCRA account to another FCRA account(s) in any bank.
- The entity can opt the existing designated bank account as its secondary bank account. This account can be linked with the primary bank a/c.
- There is no clarity as to whether these bank accounts are to be intimated to MHA? The public notice tells us that standard operating procedure is being worked out and will be loaded in the FCRA portal.
- The stakeholders are advised to keep track in the portal.
Aadhaar number made mandatory for certain applications (S 12A)
For the following three purposes, AADHAAR numbers of all office bearers, by whatever name called are mandated. If office bearers are foreigners, then copy of passport/OCI card are mandated
–Application for prior permission/prior approval
–Application for registration
–Application for renewal of registration
Other procedural amendments
- Concept of summary proceedings initiated to deal with guilty persons (S 11)
- Additional 180 days available (over and above 180 days) to keep the certificate suspended pending an enquiry (S 13)
- Provision introduced to voluntarily surrender registration (S 14A and 15)
- The enquiries vis-à-vis conditions u/s 12(4) (https://indiankanoon.org/doc/196724/)are now made applicable for renewal of registration (S 16 provisio)
Position prior to amendment
Position after amendment
Author: CA Prasanth Srinivas and CA Ramya N., partners of S. S. Auyyar and Co., Chartered Accountants, Kottayam
