Foreign Contribution Regulation Act, 2010

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. FCRA 2010 Act has been notified vide No. 42 of 2010 dated 26.09.2010 Considering the flow of funds into the country for purposes other than business, the Government has specified that acceptance of Foreign Contribution (FC) against national interest would not be permissible, requiring persons accepting FC to be subject to enhanced scrutiny. The measures include prior CG approval for accepting FC, registration and renewal, conditions for end use of FC and for transfer of FC to other persons etc. Salient changes between provisions of FCRA 2010 and FCRA 1976 are as under: Foreign Company and Foreign Source The existing FCRA 1976 considers Indian Companies, where more than 50% of equity is held by foreigners as foreign source. For example: Companies like ICICI Bank, Infosys etc. are foreign source and donations can not be accepted from them without FCRA registration. Unfortunately this provision has been retained in the FCRA Act 2010, though the stated intent of the Government was to exclude such companies. This provision could be a drafting error and need to be corrected. The FCRA 2010 has defined a foreign company under clause(g) of section 2, which does not include Indian Companies. This clause is apparently inserted to exclude Indian Companies having more than 50% of Foreign Equity holding. However section 2(j) (vi)

Foreign Contribution Regulation Act, 2010

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which defined the term foreign source includes an Indian Company under the category of foreign source if more than 50% of its equity is held by foreigners. Business/Consultancy Income of An NGO The definition of foreign contribution includes all kinds of foreign receipts. It does not distinguish between a commercial receipt or a voluntary contribution. However explanation 3 to section 2(h) excludes income from business, trade or commerce. However the problem is that this provision is in contradiction with the amended section 2(15) of the Income Tax Act which prohibits trade or business related receipts beyond Rs. Ten Lakh. Therefore NGOs should be careful in treating consultancy income and other receipts as local income even though it is now permissible under the FEMA 2010.

Modification of definition FC would also inter alia include donation, delivery or transfer made by any foreign source of any security as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 interest accrued on FC deposited in bank, any other income derived from FC or interest thereon.

Prohibition to accept FC: Following persons have been prohibited from accepting FC: (i) (ii) Association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode or form or any other mode of mass communication Correspondent or columnist, cartoonist, editor, owner of the association or company referred in (i) above.

Foreign Contribution Regulation Act, 2010

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(iii)

Organization of political nature not being a political party, which may be specified by the CG, would be banned from accepting FC as against earlier provision of obtaining prior approval of CG for accepting FC.

Non applicability of FCRA 2010 to certain FC FCRA 2010 will not apply to FC accepted from a relative (under FCRA 1976 prior approval of CG is required for receipt of FC in excess of ` 8000 p.a.) by way of any scholarship, stipend or any payment of like nature

Prohibition to transfer FC to other Person Person who is granted certificate of registration or has obtained prior permission under FCRA 2010 and receives any FC is prohibited from transferring such FC to any other person unless that other person is also granted certificate of registration or obtained prior permission under FCRA 2010. A part of FC can be transferred to any other person with prior approval of CG.

Restriction on utilization of FC FCRA 2010 restricts utilization of FC and any income arising from FC for speculative businesses FC for payment in excess of 50% of FC towards administrative purpose in one financial year

Registration with CG

Foreign Contribution Regulation Act, 2010

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Any person having definite cultural, economic, educational, religious or social programme can accept FC only after obtaining certificate of registration from CG; or prior permission from CG

Certificate of registration would be valid for 5 years (under FCRA 1976 no end date of validity of registration is specified) and prior permission would be valid for the specific purpose or specific amount of FC proposed to be received. Any registration / permission granted under FCRA 1976 would be valid for 5 years from the date of enactment of FCRA Act 2010 i.e. Five Years from 26.09.2010 CG shall within 90 days of receiving application grant the certificate of registration / permission or communicate reasons for not granting such registration / permission. However the act is silent about the way forward if an order is not passed within 90 days. (under FCRA 1976 no timeframe is mentioned for disposal of application). FCRA 2010 provides that application for prior permission shall be granted or rejected within a period of 90 days from the date of receipt of application. It may be noted that under the FCRA 1976 there is a provision for deemed prior permission. In other words , now onwards organizations can not receive foreign funds in case of delay in processing of a prior permission application.

While granting registration / permission, CG would inter alia consider various factors including whether applicant is fictitious or benami, whether applicant has been prosecuted / convicted for creating communal tension or disharmony has been found guilty of diversion / mis-utilization of its funds etc. acceptance of FC is not likely to affect prejudicially sovereignty and integrity of India, public interest, freedom or fairness of election to any Legislature, friendly

Foreign Contribution Regulation Act, 2010

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relation with any foreign State, harmony between religious, racial, social, linguistic, regional groups, castes or communities etc. acceptance of FC shall not lead to incitement of an offence or endanger the life or physical safety of any person etc. in case the person being an individual, such individual has been convicted under any law or prosecution for any offence is pending against him in case the person other than an individual, any of its directors or office bearers has been convicted under any law or prosecution for any offence is pending against him

Registration certificate can be suspended for a period upto 180 days or cancelled by CG on various grounds like: information in the application / renewal thereof is incorrect or false holder of certificate has violated terms of the certificate public interest holder of certificate has violated any provisions of FCRA 2010 holder of certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for 2 consecutive years or has become defunct

Bank Account FC shall be received only in a single bank account. However, multiple bank accounts can be opened for utilization of FC. Others

Foreign Contribution Regulation Act, 2010

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CG empowered to issue notification with regard to: person or class of persons who shall obtain prior permission of CG before accepting FC area in which FC shall be accepted and utilized with prior permission of CG purpose for which FC shall be utilized with prior permission of CG source from which FC shall be accepted with prior permission of CG

Foreign Contribution Regulation Act, 2010

FCRA Registration Consultant Email: fcra.consultant@ozg.co.in

Website: http://fcra.ozg.in
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