Guide to Foreign Contribution (Regulation) Act, 2010(FCRA)

Guide to Foreign Contribution (Regulation) Act, 2010(FCRA)

Legal Objective of the Act:

i. To regulate the acceptance and utilisation of FC/donations or foreign hospitality by certain individuals or associations or companies; and

ii. To prohibit acceptance and utilisation of FC/donations or foreign hospitality for any activities detrimental to the national interest and matters connected thereto.

It Applies to whole of India including (also applies to the following):

i. Citizens of India outside India;

ii. Foreign Branches and Subsidiaries of ‘Body Corporates registered in India’.

iii. However, not applies to a company registered under Companies Act, 1956/2013 whose more than half of nominal capital is held by foreign company or a foreign source.

Some Abbreviations used in the Article:

• FCRR: Foreign Contribution (Regulation) Rules, 2011
• FC- Foreign Contribution
• MHA- Ministry of Home Affairs or CG- Central Government
• Regt.- Registration
• PP- Prior Permission
• UAPA- Unlawful Activities (Prevention) Act

Meaning of some technical words

Association:

"Association" means an association of individuals and includes a society, whether incorporated or not, having an office in India by whatever name called.

Foreign Company (An Example of a foreign Source):

• Company incorporated outside India; or
• Company which is a subsidiary of above, wherever located.

However, if the control is situated in India, then it shall be treated as if a body corporate registered in India and hence the FCRA laws shall be applicable to it (second Para of this Article).

Person:

"person" includes- (i) an individual; (ii) a Hindu undivided family; (iii) an association; (iv) a company registered under section 25/Section8 of the Companies Act, 1956/2013

Relative:

Shall be same as per section 2(77) of Companies Act, 2013

Foreign source:

As per Section 2(1) (j) of FCRA, foreign source (Basically a source outside India from where the contribution is received) includes:-

i. The government of any foreign ‘country’ or ‘territory’ and its agency(s);

ii. Any international agency(not being the United Nations or any of its specialized agencies)

iii. a foreign company;

iv. a corporation, not being a foreign company, incorporated in a foreign country or territory;

v. a multi-national corporation as per clause (g)(iv);

vi. a company within the meaning of the Companies Act, 1956 or Companies Act, 2013 and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate by any of the following;

• the Government of a foreign country or territory;
• the citizens of a foreign country or territory;
• corporations incorporated in a foreign country or territory;
• trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;
• 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

Foreign Contribution (FC):

As per Section 2(1)(h) of FCRA, "FC" means the donation, delivery or transfer made by any foreign source of any, -

i. Article, (not being an article given to a person for his personal use as a gift having market value of not more than 25,000)(present specified threshold);
ii. Currency(includes Indian or foreign);
iii. Security (per Section 2(h) of the SCRA, 1956 and includes any foreign security per Section 2(o) of the FEMA, 1999).

Explanation 1 –can be received either directly or through one or more foreign source;

Explanation 2- includes, the ‘interest accrued’ on the FC deposited in any bank or ‘any other income and interest thereon’ derived from the FC;

Explanation 3- Fees (including fees charged by an educational institution in India from foreign student) or cost in lieu of goods or services in the ordinary course of his business, trade or commerce shall not be treated as FC.

Infusion of foreign share capital in a company registered under section 25/Section 8 of the Companies Act, 1956/2013 is treated as FC.Who can receive FC legally?

Any Person who is having a definite cultural, economic, educational, religious or social programme(practically all NGO’s having nationalist objects) can receive FC after getting registered under FCRA law or obtaining a prior permission from the Central Government. A PRIVATE LIMITED COMPANY too may seek prior permission/registration for receiving foreign funds in case they wish to do some charitable work.

Section 3(1) of FCRA, following Persons cannot accept FC:

a. candidate for election;

b. correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;

c. Judge, government servant or employee of any Corporation or any other body controlled on owned by the Government;

d. Member of any legislature;

e. Political party or office bearer thereof;

f. Organization of a political nature(section 5(1) of the Act)

g. Association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes as per Section 2(i)(r) of the Information Technology Act, 2000 and their owners.

h. prohibited Individuals or Associations.

Section 3(2): Acceptance or Delivery of FC:

A person ‘resident in India’ or ‘citizen of India’ shall not accept/deliver any FC to any person directly or indirectly, which in a way ultimately leads to delivery to a Political Party or Person mentioned in Section 3(1).

Section 4: The following can be accepted by anyone (even by the persons prohibited in section 3), however subject to section 10:

i. Relative(Definition below)
ii. Business receipt from official channel or as per FEMA, 1999
iii. Scholarships
iv. Wages for employees working under him
v. As an agent of foreign of source for transactions with CG/SG

Section 10, Prohibitory Order:

i. Deals with passing of prohibitory order by CG to not pay, deliver or transfer any article, security or currency unlawfully kept or controlled.

ii. Sub Section 2, 3, 4, 5 of section 7 of UAPA, 1967 shall apply.

Visit MHA Website: http://mha1.nic.in/fcra.htm

i. List of UN specialized agencies;

ii. List of banned Organisations;

iii. Status of registration/PP, however, renewal status not available;

iv. The procedures and online submission of forms for Registration/PP, change in name, address, designated FC account.

v. List of definite cultural, economic, educational, religious or social programme.

Rule 6 of FCRR, FC from relatives:

Any person receiving FC in excess of one lakh rupees or equivalent thereto in a financial year from any of his relatives shall inform the Central Government in Form FC-1 within thirty days from the date of receipt of such contribution.

Contributions by Non-Resident Indians (NRIs), Foreign Citizens:

i. Contributions made by a citizen of India living in another country (i.e., Non-Resident Indian, Indian passport holder), from his personal savings, through the normal banking channels, is not treated as FC.

ii. Contribution from an Individual of Indian Origin who has acquired foreign citizenship (PIO Card Holders) is treated as FC.

Delegation Fees:

“Delegate/participation Fees” for participation in a conference/seminar and which is utilized for the purpose of meeting the expenditure of hosting the conference/seminar is not treated as FC.

Investment of FC:

a. A separate register of investments and that must be audited.

b. It can be in a debt-based secure investment

c. It can be in fixed deposits in any bank or Government approved financial institution.

d. It cannot be in Speculative investments/activities.

Rule 4 of FCRR, Meaning of Speculative activities/investments:

a. Element of risk of appreciation or depreciation, linked to marked forces, including investment in mutual funds or in shares;

b. Scheme that promises high returns like investment in chits or land or similar assets not directly linked to the declared aims and objectives of the association.

FC Utilization and Foreign Currency (FC) Account:

a. As per the objectives of association.

b. Exclusive FC Account, No fund other than FC can be deposited. Further, this A/c number would be mentioned in the letter granting registration or prior permission to the association.

c. One or more accounts in one or more banks may be opened for utilizing the FC and intimation required for every account to CG within 15 days of opening.

Section 7, Transfer of FC to another registered person:

A person who is registered or obtained PP can transfer FC only if he also registered or obtained PP provided that the recipient has not been proceeded against under any of the provisions of the Act. (The transferor takes a written declaration from transferee that no proceeding is pending)

Section 7, Procedure for transferring FC to any unregistered persons:

Make an application (FC-10) supported with a declaration to the Central Government.

a. The amount proposed to be transferred during the financial year is less than ten per cent of the total value of the FC received during the financial year and will transfer only after approval;

b. Can be transferred only after approval of CG.

c. Both the transferor and the recipient shall be responsible for ensuring proper utilisation of the FC so transferred and reflected in the annual returns in Form FC-4 of both.

Eligibility criteria and other documents required for grant of registration-Online:

Association should:

a. be registered (under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or section 25 of the Companies Act, 1956 etc)

b. Existence for at least three years and required to Submit Activity Report of the undertaken activity in its chosen field. (Spent at least Rs.10,00,000/- over the last three years on its activities, excluding administrative expenditure).

c. Submit Audited Statement of Accounts , duly audited by Chartered Accountant, for last three years.

d. Fees of Rs.2,000/- and form(FC-3).

Eligibility criteria and documents required for grant of prior permission- Online:

An Organisation in formative stage is not eligible for registration. Such Organisation may apply for grant of prior permission under FCRA.

Prior permission is granted for receipt of a specific amount from a specific donor for carrying out specific activities/projects.

For this purpose, the association should:

a. be registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or section 25 of the Companies Act, 1956 etc;

b. Submit a specific commitment letter from the donor indicating the amount of FC and the purpose; and

c. Submit copy of a reasonable project for the benefit of the society for which the FC is proposed to be utilized.

d. Fees of Rs.1,000/- and form(FC-3).

Payment of fees and all the documents mentioned above must made/uploaded online within thirty days of the submission of the on-line application with the DSC of chief functionary, else need to be reapplied.

Submission of verification certificate from the District Collector or Deputy Commissioner or District Magistrate is not mandatory. However, assists in speedy clearance if the amount of FC for which prior permission is being sought is less than Rs.50 lakh.

Status of pending applications for grant of registration or prior permission may be checked on-line from MHA website.

Amount for which prior permission was granted may be received in Installments. However, the aggregate amount should not exceed the specified amount of prior permission.

Details to be furnished to Department and Website requirements:

a. Organisations receiving FC shall upload Audited Accounts on official website within 30 days.

b. Reporting of receiving of FC within 7 days at its own website or govt. website.

c. Details of ‘Social Media Accounts’, ‘Association Profile’, bank account details, ‘bio data’s of trustees’ and ‘whether ‘office bearers are part of other NGO’s’ to be given to department.

d. Any foreigner associated with an NGO, who is visiting India, will have to furnish his/her details with the Foreigners Regional Registration Office (FRRO), spelling out the purpose and dates of the visits.

e. List out the activities and declarations on website.

f. Filling of online tax returns.

Rule 16 of FCRR, Reporting by Banks:

a. Bank will have to report of FCRA department within 48 hours of any transactions in respect of receipt and utilization of any FC for both registered/PP persons and also for persons who were required to obtain registration/PP.

b. Further, the bank should not allow any withdrawal or transfer or utilisation of the FC amount till such time the Association produces documentary evidence from MHA permitting it to do so.

c. It is not necessary for the bank to report such FC that is returned to the donor (for want of registration or prior permission) without crediting in the account of the recipient.

d. Reporting by Banks is also applicable to transfer of funds from one FCRA registered Association to another.

e. Further, the banks shall be required provide online access to the MHA and Intelligence Bureau (IB) for monitoring the utilisation of accounts of FCRA-registered associations.

Sec.12 (4), Conditions of granting registration/PP:

The following shall be the conditions for the grant of registration and prior permission:

1. The 'person' making an application:

• is not fictitious or benami;
• has not been prosecuted or convicted for conversion, from one religious faith to another;
• has not been prosecuted or convicted for creating communal tension;
• has not been found guilty of mis-utilisation of its funds;
• is not engaged or likely to engage in sedition or violent methods to achieve its ends;
• is not likely to use the FC 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 FC;
• The person being an individual, has neither been convicted under any law nor any prosecution 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 nor any prosecution  is pending against him.

2. The acceptance of FC is not likely to affect prejudicially:

• The sovereignty and integrity of India; or
• The security, strategic, scientific or economic interest of the State; or
• The public interest; or
• Freedom or fairness of election to any Legislature; or
• Friendly relation with any foreign State; or
• Harmony between religious, racial, social, linguistic, regional groups, castes or communities.
• Further, as per recent developments it is Economic security shall be equated with Section 2, of UAPA.

3. The acceptance of FC:

• Shall not lead to incitement of an offence;
• Shall not endanger the life or physical safety of any person.

Distinction of Legal Entity of a person to receive FC:

The legal entity of a 'person' under FCRA is distinct from an individual person. Therefore, individuals who cannot receive FC may happen to be on the executive committees/boards of such an association.

Exempted Statutory Bodies:

All statutory bodies constituted or established by or under a Central Act or State Act required to have their accounts compulsorily audited by the Comptroller & Auditor General of India are exempted from all the provisions of FCRA.

Change in the body of the Executive Committee by fifty Percent:

If change causes replacement of 50% or more of such Members of the Executive Committee/Governing Council of the association, intimation is to be given to MHA within thirty days of such change. Further, the association should not accept any FC except with prior permission till the permission to replace the office bearer(s) has been granted by CG.

Separate Sets of Accounts & Annual Return:

a. Separate sets of accounts.

b. The association shall have to submit the mandatory online return within 9 months i.e. 31st December for every financial year in FC-4 form for receipt and utilization of the FC on a yearly basis, till the amount of FC is fully utilized. Even if no transaction takes place during a year, a NIL return should be submitted. Return should accompanied with the balance sheet and statement of receipt and payment be certified by CA. (Please refer to Sections 17, 18 and 19 of FCRA and Rule 17 of FCRR).

c. The interest or any other income earned out of deposit of FC should be shown as second / subsequent FC receipt in the annual return during the year in which it is earned.

Section 8, Utilisation of FC:

a. As per Purpose of receipt;

b. Not for Speculative Business;

c. Should not incur FC for administrative expenses for more than 50%, except with prior approval of CG.(Please refer rule 5 of FCRR for details)

Offences and Penalties:

Section 33:

Section 34:

Section 35:

Section 36:

Section 37:

Section 38:

Section 39: Offences by companies:

No court shall take cognizance of any offence, except with the previous sanction of the Central Government.

Compounding of Offences:

a. As per Notification S.O. 1976 (E) dated 26.08.2011, an application can be made for compounding of offences.

b. The offences for which only imprisonment is awarded are not capable for compounding.

c. Further the second/subsequent offence can be compounded only if committed after a period of three years from the date of compounding of first.

d. The categories of offences  can be compounded under section 41 of FCRA and the quantum of penalty for compounding are as under:

Acceptance of cheque or draft towards FC by a 'person' without registration or prior permission of the Central Government

In the event of failure to pay the penalty, for whatever reason, necessary action for prosecution of the person shall be initiated.

Notification S.O. 2446 (E) dated 27.10.2011, CBI or Investigating Agencies of States:

The Central Bureau of Investigation or the investigating agencies  of the State Governments for cause of action which arises in their respective States are the designated agencies for investigating and prosecuting.

Cancellation of Certificate of Registration or Prior Permission:

As per Section 14, The Central Government may cancel the certificate after giving reasonable opportunity of being heard if—

a. Incorrect or false statement for the grant of registration/PP or renewal or
b. Violated any of the terms of the certificate; or
c. In the public interest; or
d. Has violated any of the provisions of this Act or rules or order; or
e. Not engaged in any reasonable activity for two consecutive years or has become defunct.
f. Once cancelled, not be eligible for registration/PP for next 3 years.

Suspension:

a. As per Section 13, the CG may suspend certificate for the same grounds as given for cancellation pending consideration of questions of cancellation for upto 180 days.

b. Every person whose certificate has been suspended shall not receive and utilize any FC except with the permission of Central government

Rule 14 of FCRR, Utilisation of unspent amount in case of suspension:

a. Upto 25 percent with the prior approval of the CG for the declared aims and objects.
b. Remaining 75 per cent only after revocation of suspension of the certificate.

Section 16, Renewal of Certificate:

a. Application for renewal of certificate needs to be made within six months before the expiry.
b. Certificate is renewed by CG ordinarily within ninety days (else will specify the reasons for delay or denial).
c. Certificate is renewed for a period of 5 years.
d. Further, please refer rule 12 of FCRR for detailed understanding.

Foreign hospitality:

Foreign Hospitality means any offer, not being a purely casual one, made in cash or kind by a foreign source for providing a person with the costs of travel to any foreign country or territory or with free board, lodging, transport or medical treatment.

There is at present no requirement for individuals accepting foreign hospitality to give declaration or prior information.

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Regards,
CA. Shivashish Kumar
Taxation & Regulatory Matters
Add: F-50, Near Gurudwara, Madhu Vihar, I.P. Extension, Patparganj, Delhi-92
B.Com(H), ACA (Former Tax Consultant at Ernst & Young)
ca.shivashish@gmail.com

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