FCRA [Foreign Contribution (Regulation) Act]

Transcription

1 FCRA [Foreign Contribution (Regulation) Act] (Compiled by by Kishor Mistry, MD, PhD) Introduction This act regulates the donation to NGOs from foreign sources. It was updated in 2010 replacing 1976 FCRA law. According to this new law, the permanent FCRA registration is replaced with five year validity and the NGOs are now required to proactively disclose all donations exceeding Rs 1 crore (Rs 10 million) during financial year. During , associations (out of Associations registered under FCRA) reported a total receipt of an amount of Rs 11, crore as foreign contribution. Central Ministry of Home Affairs is responsible for the implementation and monitoring of FCRA. The FCRA Annual Report ( ) by Ministry of Home Affairs of India stipulates: The general policy of the Government of India is not to encourage soliciting of foreign contribution. If, however, it is intended for bonafide welfare activities, foreign contribution can be received either by obtaining registration or prior permission from the Central Government under FCRA. The primary purpose of this Act is to ensure that foreign contribution is utilized for bonafide activities without compromising on concerns for national security. While it is not proper to make sweeping generalizations, it is necessary to note that the NGO sector in India is vulnerable to the risks of money laundering and terrorist financing. Thus, in general it is getting difficult to obtain donation from foreign sources. Even after obtaining FCRA permission, the government can withdraw it if the NGO is found violating the FCRA law. Currently, about 2% of the total registered NGOs have FCRA permission. FCRA law prohibits foreign funding in following cases: a) Candidates for election; b) Correspondents, columnists, cartoonists, editors, owners, printers or publishers of registered newspapers; c) Judges, Government servants or employees of any Corporation or any other body controlled or owned by the Government; d) Members of any legislature; e) Political parties or office-bearers thereof; f) Organizations of a political nature as may be specified under subsection (1) of Section 5 of the Act by the Central Government; g) Associations or companies engaged in the production or broadcast of audio news or audio visuals or current affairs programmes through any electronic mode, or any other electronic form as defined in clause (r) of sub-section (i) of Section 2 of the Information Technology Act, 2000 or any other mode of mass communication; h) Correspondents or columnists, cartoonists, editors, owners of the Associations or companies referred to in clause (g); and i) Individuals or Associations who have been prohibited from receiving foreign contribution. Section 9 of the Act empowers the Central Government to prohibit any individual or Association not specified in Section 3 from accepting any foreign contribution, or to require any Association specified in Section 11 to receive foreign contribution only after obtaining prior permission of the Central Government. Government has created websites ( related to FCRA regulation providing:

2 a) On-line filing of application for registration; b) On-line filing of application for prior permission; c) On-line filing of the statutory annual FC-3 returns relating to receipt and utilization of foreign contribution; d) On-line status enquiry; and e) Uploading of approval letters communicating registration/prior permission. Another website ( provides FAQ, general information and annual reports related to FCRA activities. Types of permissions for receiving foreign contribution FCRA Prior permission: By this way any registered NGO can apply for one time approval for a specific project approved from foreign donor/agency. Thus one needs such approval letter along with the project details. FCRA registration: NGO can apply for FCRA registration after completion of at least 3 years of functioning. This approval allows acceptance of foreign funding multiple times during next five years. Conditions for Registration or Prior Permission As per Sec.12 (4) of FCRA, 2010, the following shall be the conditions for the grant of registration and prior permission: a) The 'person' making an application for registration or grant of prior permission Page 9 of 21 i. is not fictitious or benami; ii. has not been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another; iii. has not been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country; iv. has not been found guilty of diversion or misutilisation of its funds; v. is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends; vi. is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes; vii. has not contravened any of the provisions of this Act; viii. has not been prohibited from accepting foreign contribution; ix. the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him. x. the person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him. b) the acceptance of foreign contribution by the association/ person is not likely to affect prejudicially i. the sovereignty and integrity of India; or ii. the security, strategic, scientific or economic interest of the State; or iii. the public interest; or iv. freedom or fairness of election to any Legislature; or v. friendly relation with any foreign State; or vi. harmony between religious, racial, social, linguistic, regional groups, castes or communities.

3 c) the acceptance of foreign contributioni. shall not lead to incitement of an offence; ii. shall not endanger the life or physical safety of any person. Filing application Before filing the application, read the instruction online ( collect all the information and documents needed and then create and note down a user ID and password. Following documents should be enclosed with the application for Registration a) Hard-copy of the online application (Using form FC-3), duly signed by the Chief Functionary of the association; b) Certified copy of registration certificate or Trust deed, as the case may be; c) Details of activities during the last three years; d) Copies of audited statement of accounts for the past three years (Asset and Liabilities, Receipt and Payment, Income and Expenditure); e) If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Registrar of Newspaper for India that the publication is not a newspaper in terms of section 1(1) of the said Act. f) Fee of by means of demand draft or banker s cheque in favour of the Pay and Accounts Officer, Ministry of Home Affairs, payable at New Delhi. g) Copy of FCRA bank account Following documents should be enclosed with the application for Prior Permission a) Hard-copy of the online application (Using form FC-4), duly signed by the Chief Functionary of the association; b) Certified copy of registration certificate or Trust deed, as the case may be; c) Commitment letter from foreign donor specifying the amount of foreign contribution; d) Copy of the project report for which foreign contribution is solicited/being offered; e) If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Registrar of Newspaper for India that the publication is not a newspaper in terms of section 1(1) of the said Act. f) Fee of by means of demand draft or banker s cheque in favour of the Pay and Accounts Officer, Ministry of Home Affairs, payable at New Delhi. g) Copy of FCRA bank account After collecting all the information and documents, log in to the system and fill up the online application, print, sign and mail it (via Speed Post or Registered mail) along with required documents. This hard copy must reach the Ministry of Home Affairs, Foreigners Division (FCRA Wing) within thirty days of the submission of the online application, failing which the request for grant of registration or prior permission, as the case may be, shall be deemed to have ceased. After filing and submission of application to Ministry of Home Affairs, request the support letter from local Collector, who will obtain clearance of your NGO from local Mamlatdar and Police Commissioner. The Collector will also need copy of your filed application, resolution from trustees for FCRA application, NGO registration certificate, no-due certificate from Charity Commissioner, Trust deed, approval from Charity Commissioner for any change in Trustees, 80G certificate, 12A Certificate, audited account statements of last 3 years, details of bank account for FCRA, letter from donor (in case of FCRA prior permission) and Project details (in case of FCRA prior permission). The Mamlatdar officer will visit your NGO and fill the forms needed for clearance. The Police Commissioner office will refer your case to the relevant police Chowky (in the area where NGO functions) to screen your NGO and all the Trustees for any past criminal records. On the basis of local Police Chowky s report, the Police Commissioner

4 furnishes No due letter to Collector office. After getting letters from Mamlatdar and Police Commissioner, the Collector will provide supportive letter for Ministry of Home Affairs. These procedures involve multiple offices and it is recommended to follow up with them personally so that your application is not delayed unnecessarily. Meeting personally with Mamlatdar, Police Commissioner and Collector with a very short presentation of your NGO s activities can be helpful. It is advisable to personally collect support letter from Collector and send it to Ministry of Home Affairs along with a forwarding letter and reference to the filed application to speed up the process. It may take about three months to get a support letter from Collector. After receiving your application, the Ministry of Home Affairs will send a team of inspectors to your NGO to verify the functioning of NGO, meet the trustees to check the compliance with FCRA regulation and then submit the report to Ministry of Home Affairs. The Ministry of Home Affairs may request you to submit further information as needed and then makes decision for FCRA approval. The whole procedure may take about 6 months for Prior Permission and about 12 months for Registration. Common grounds for rejection of FCRA applications the association is not registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or section 25 of the Companies Act, any of the office bearers/trustees including the chief functionary is a foreign national, other than of Indian origin. the association has a single office bearer/member. the association is found to have been formed for personal gain or for diversion of the funds for undesirable purposes. the association is found to be fictitious or benami in nature. the credibility of any member of the governing body is in doubt. the association has close links with another association which has been refused registration under FCRA or prohibited under FCRA or violated the provisions of FCRA. the association has links with any banned organizations. the principal office bearers of the association have been convicted by any court of law under any act or if a prosecution for any offence is pending against them. the principal office bearers of the association have been found guilty of diversion or misutilisation of funds of the said association or any other association in the past. the activities of the association are found to be aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another. he association is found to propagate sedition or to advocate violent methods to achieve its ends. the association is found to be creating communal tensions or disharmony. the office bearers of the association are also office bearers of another association and one of these associations has come to adverse notice. the association s printed work is not certified by the Registrar of Newspapers for India not to be a newspaper in terms of section 1(1) of the Press Registration of Books Act, the source of foreign contribution is found to be adverse to the interests of the country. the acceptance of foreign contribution by the association is likely to be prejudicial to (a) the sovereignty and integrity of India; (b) free and fair elections to any Legislature or House of

5 Parliament; (c) public interest; (d) friendly relations with a foreign state; or (e) harmony between any religious, social, linguistic, regional groups, caste or community. the association has not filed its annual returns of receipt and utilization of foreign contribution received with prior permission, within the stipulated period. the association has violated any provisions of the Act or Rules in the preceding three years and the said violation has not been remedied or rectified. Additional grounds for rejection of application for Registration the association has not been in existence for three years from the date of its registration under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or Section 25 of the Companies Act, the association has not carried on any activity in its chosen field during the last three years. the association has not received foreign contribution, with prior permission, during the preceding three years. the association has not made any substantial contribution, i.e., at least Rs.10,00,000/- over a period of three years, in its field of activity excluding expenditure on administration. Additional grounds for rejection of application for Prior Permission the application is not accompanied by the commitment letter of the donor. the application is not accompanied by the copy of project for which foreign contribution was solicited/is being offered. The Central Government may cancel the FCRA permission in following cases a) the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or b) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or c) in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or d) the holder of the certificate has violated any of the provisions of this Act or rules or order made there under. e) if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for two consecutive years or has become defunct. General guidelines for FCRA (Prior permission and Registration) compliance 1. Without FCRA approval, NGOs should not receive the foreign funding (in foreign currency or Indian currency) except from UNO or its agencies, World Bank or International Monetary Fund. 2. Such Associations are required to submit annual accounts (duly audited) in the prescribed form to the Central Government within nine months of the closure of the financial year i.e. by the 31st December of the subsequent financial year. The information includes details of receipt and utilization of foreign contribution along with the corresponding Balance Sheet and the Receipts & Payments Account duly audited by a Chartered Accountant. A certificate from a Chartered Accountant that the accounts of the Association have been maintained as prescribed by the Act is mandatory. 3. After grant of registration or prior permission under the Act, the Association is permitted to receive foreign contribution only in the single Bank Account mentioned in the order for registration or prior permission granted by the Central Government. This account number

6 would be the same as has been intimated by the organisation in their application for registration/prior permission. However, one or more accounts, in one or more scheduled banks, may be opened for utilizing the foreign contribution provided that no funds other than the foreign contribution received shall be deposited in such account or accounts. 4. An Association which has received foreign contribution is also required to inform the Central Government of the amount of each foreign contribution received by it, the sources thereof, the manner in which such foreign contribution was received and the purposes for which such foreign contribution was utilized by it. 5. A detailed inspection of the books of accounts and the records of the Association under Section 23 is conducted in those cases where prima facie violation of the provisions of FC(R) Act, 2010 is established. These inspections have twin objectives one, to educate the Associations in respect of bonafide errors and two, to detect and prosecute wilful violators. The main emphasis of the inspection is to ensure that the foreign contribution is utilized judiciously and in conformity with the declared aims and objectives of the Association % of gross receipts or 15% of income, whichever is higher, will not be taxed provided it is spent in next 3 years. In other words, 85% of income or 90% of gross receipts will be taxed if not spent during the year. All receipts except loan and corpus donation shall be considered as part of income. Any surplus from receipt and cash expenditure during the year will be NGOs cannot transfer any amount to their corpus without paying taxes. Currently 15% of income can be accumulated indefinitely. If the NGO is unable to spend the income during the year, then it can only accumulate 15% of income to be spent in the next 3 years. 7. Interest accumulated from the previous foreign contribution should also be treated as foreign contribution. 8. Foreign funding cannot be invested in mutual fund, shares or other speculative investments. 9. For FCRA Prior permission and FCRA Registration submit annual return with FC-6 form to the FCRA agency. This can be done online: before Dec 31 of the year. For noncash (in-kind) donation from foreign sources, the form FC-7 is needed to be filed annually. FC-8 form is needed for donation in the form of securities (bond, fixed deposits, shares). 10. Administrative expense (see the definition below) should be less than 50% of total expenses in FCRA related activities. 11. Foreign contribution should not be donated to other NGOs without FCRA registration. 12. Foreign contribution cannot be deposited or utilised from the bank account being used for domestic funds. 13. The accounting statements shall have to be preserved by the NGO/association for a period of six years. 14. Change of name, address, registration, nature of activities or aims and objectives of an association should be intimated to the Ministry of Home Affairs within 30 days of effecting the change, along with the documentary evidence effecting the change. 15. Prior permission of Ministry of Home Affairs should be obtained for replacing 50% or more of the office bearers. 16. Prior permission of Ministry of Home Affairs should be obtained for changing bank account for valid and convincing reasons. 17. Every person who has been granted registration or prior permission under section 12 shall maintain a separate set of accounts and records, exclusively, for the foreign contribution received and utilised. 18. For the renewal of FCRA registration, use Form FC-5 (six month before the expiry), with DD of Rs 500, and provide information on last 5 years receipt and utilization of foreign

7 funds. The renewal application can be made online and there is no need to send a hard copy. Definition of Administrative expenses i. salaries, wages, travel expenses or any remuneration realised by the Members of the Executive Committee or Governing Council of the person; ii. all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel; iii. all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation 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; iv. cost of accounting for and administering funds; v. expenses towards running and maintenance of vehicles; vi. cost of writing and filing reports; vii. legal and professional charges; and viii. rent of premises, repairs to premises and expenses on other utilities: 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 organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc. References for further reading 1. Government website for online FCRA filing and follow up: 2. Government website for FCRA information and FAQ: 3. FCRA Annual Report ( ), Ministry of Home Affairs, Foreigners Division, FCRA Wing, 4. AccountAble Handbook FCRA 2010: Theory and Practice, by Sanjay Agrawal, Published by AccountAid India, New Delhi, 2 nd Ed (Last updated: November 2015)