Foreign Contribution

(Regulation) Act, 2010

SEPTEMBER 10, 2011

CA Hiren D. Shah

KANDIVALI CPE STUDY CIRCLE
OF WIRC OF ICAI

Preamble
Foreign Contribution ( Regulation) Act,2010
came into effect from May 1,2011

Foreign Contribution Regulation Rules, 2011
have come into force from May 1,2011

In exercise of the power conferred by section 48
of the FCRA, the Central Government makes
the rules Foreign Contribution Regulation Rules.


In Layman Understanding
Object
Any Foreign
Contribution
Foreign Hospitality
Illegitimate Foreign
Source or
With unknown source
Which will weaken
national
Security
Needs Close
Scrutiny by
Home Ministry being
Security Issues
Concern is
Threat to
Economy
This is all about FCRA..
FCRA Moves around.
Objects :
Foreign
Contribution
Foreign
Source
Foreign
Hospitality
Why FCRA Regulation????
As per website of Ministry of Home Affairs,
purpose of FCRA is to facilitate receipt of
foreign contribution for genuine purposes,
without compromising national security
concerns.
Focus of FCRA has shifted to internal security
It is doubtful that destructive elements will use
FCRA route to fund their supporters in India


Why FCRA Regulation????

Aimed at regulating the acceptance and utilization
of foreign contributions and acceptance of
foreign hospitality by certain individuals or
associations or companies

To Prevent mis-utilisation of the foreign
contribution received by the Associations
FCRA Applicability
FCRA 2010 extends to whole of India and also
applies to citizens of India outside India and
associates/ branches and subsidiaries outside
India of Companies or bodies registered or
incorporated in India

The Act is applicable to any citizen of India
whether he is in India or outside India.
However Act is not applicable to a foreigner
while outside India
Applies to Citizen of India or Entity Registered in India
FCRA Override FEMA or other
General Acts
Since the Act is a special Act, its provisions will
prevail over provisions of FEMA. Thus even if
there is permission for certain transactions ( like
donation, gift etc..) under FEMA, restrictions
under FCRA will be applicable if the transaction
is covered under provisions of the FCRA
Who Administrate FCRA??
Ministry of Home Affairs, FCRA wing/Foreign
Division, Government of India administrate
FCRA

Where to Apply & How to Apply??
The Department has taken initiative of e-
governance.
Application for registration and permission can
be downloaded from the website i.e.
http://mha.nic.in/fcra.htm
Returns to be filed under the FCRA can be filed
online
Some Key Feature of FCRA
The concept of permanent registration has been done
away
a five-year registration is provided so that dormant
organizations do not continue
All existing registered organizations are deemed to be on
a five year validity from the date of enforceability of the
Act
Organizations of a political nature cannot receive
foreign funds
A person granted prior permission to receive foreign
contribution shall utilize it for the purposes for which it
has been received. It cannot be used for speculative
business;
Organization cannot use more than 50 per cent of its
received for administration purposes.


Some Key Feature of FCRA..Contd..
A procedure for suspension and cancellation of
registration has also been prescribed
A statutory role provided for the banking sector
in regulation
Time limits have been provided for
accountability on the part of officials
A provision has been made for Compounding
Offence
Some Key Feature of FCRA..Contd..
No person who receives foreign contribution as
per provisions of this Act shall transfer to other
person unless that person is also authorized to
receive foreign contribution as per rules made
by the Central Government
NGO and individuals will have to submit their
accounts in time failing which actions would be
taken against them


Important Provisions of FCRA
Transfer of Foreign Contribution to other
Registered or Unregistered person
Foreign Contribution received can be transferred
to other registered or unregistered person with
permission of Central Government. Application
should be made in form FC-10
Transfer up to 10% of foreign contribution can
be made even to person who has not been
granted registration or prior permission, with
approval of Central Government
Such transfer should be reported in forms FC-6
and FC-10 by the transferor and the recipient
Changes in the 2010 Act Vis--vis 1976 Act
Scholarship/ stipend kept out of provisions of
FCRA
Foreign contribution received from relative is
now outside FCRA
Only subsidiaries of foreign companies will be
covered within the definition of foreign
source( presently, all companies with
shareholding exceeding 50% are covered in the
definition)
Electronics media brought within list of persons
who cannot accept foreign collaboration
Changes in the 2010 Act Vis--vis 1976 Act
Provisions of the repealed FCRA 1976 have
been retained, the FCRA 2010 is an
improvement over the repealed Act as more
stringent provisions have been made in order to
prevent mis-utilisation of the foreign
contribution received by the association

Provisions have been made for suspension as
well as cancellation of registration granted for
violation of the provisions of the Act.
Changes in the 2010 Act Vis--vis 1976 Act
Interest received on foreign contribution will
also fall within the meaning of foreign
contribution
Provision made to permit transfer of foreign
contribution to other person
Restriction to utilize foreign contribution for
administrative purpose to 50%
Prohibition on use of foreign contribution for
speculative purposes


Changes in the 2010 Act Vis--vis 1976 Act
Time limit of 90 days for giving decision on
registration or prior permission to obtain foreign
contribution
Management of foreign contribution and assets
created out of such contribution of persons whose
certificates have been cancelled
Disposal of assets created out of foreign contribution
if the person becomes defunct or ceases to exist
Revision by Central Government of orders passed by
it
Penalty for making false statement, declaration or
delivering false account

Unsolved Problems
No lower limit for applicability of FCRA
provisions ( even small donations attracts FCRA
provisions)
Liberalization announced under FEMA are not
extended under FCRA
Gifts are permitted under FEMA, but gifts
falling under FCRA will be still governed by
provisions of FCRA
FCRA will override FEMA and other Allied
Laws

Definition of Foreign Contribution
Means the donation, delivery or transfer made by any
foreign source
Includes :
Article, not given to a person as a gift for personal use, if
the market value, in India, of such exceeds Rs 1,000/-
Any Currency, whether Indian or foreign
Any securities defined under Section 2(h) of the Securities
Contracts (regulation) Act,1956
Any foreign securities as defined in Section2(o) of the
Foreign Exchange Management Act,1999
This excludes earning from foreign client by an NGO/
association in lieu of goods sold or services rendered by it
as this is a transaction of commercial nature
Meaning of Security under Securities Contracts
(Regulation) Act,1956
Securities include
(i). Shares, Scripts, Stocks, Bonds, debentures,
debenture stock or other marketable securities
of a like nature in or of any incorporated
company or other body corporate
(ii). Derivatives
(iii). Units or any other instruments issued by
any collective investment scheme to the
investors in such schemes
(iv). Security Receipt issued by Securitization
Company
Meaning of Security under Securities
Contracts (Regulation) Act,1956
Units or other instruments issued to investors
under any mutual funds scheme
Any certificate or instrument issued to an
investor by any issuer being a special purpose
distintict entity, which possesses any debt or
receivable, including mortgage debt, as the case
may be
Government securities
Such other instruments as may be declared by
the Central Government to be securities
Rights or interest in securities

Meaning of Foreign Security under Foreign
Exchange Management Act
Foreign Security means any security in the
form of shares, stocks, bonds, debentures or any
other instrument denominated or expressed in
foreign currency
It includes securities expressed in foreign
currency, but where redemption or any form of
return such as interest or dividend is payable in
Indian currency
Who cannot accept foreign Contribution
No foreign contribution shall be accepted by any
Candidate for election
Correspondent, columnist, cartoonist, editor,
owner, printer or publisher of a registered
newspaper
Judge, Government Servant or employee of
any corporation or any other body controlled
or owned by the Government
Member of any legislature
Political party or office-bearer thereof,

Who cannot accept foreign Contribution
Organization of a political nature as may be
specified by Central Government
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
any other electronic form as defined U/s 2 of
the Information Technology Act,2000
Correspondent or columnist, cartoonist,
editor, owner of the association or company
Who cannot accept foreign contribution
on behalf of other person
No person, resident in India, and no citizen of
India resident outside India, shall accept any
foreign contribution, or acquire or agree to
acquire any currency from a foreign source, on
behalf of any political party, or any person
referred under FCRA
Prohibited Organization to accept
foreign contribution

Organization with fictitious or benami accounts,
have indulged in conversation directly or
indirectly, created communal tension, supported
sedition or have diverted funds earlier would be
barred from receiving foreign contributions

Exception to foreign contribution
Contribution made by citizen of India living in
another country ( i.e. Non Resident Indian),
from his personal savings, through the normal
banking channels is not treated as foreign
contribution. However, while accepting any
donations from such NRI, it is advisable to
obtain his passport details to ascertain that
he/she is an Indian passport holder.
Not to be Considered as Foreign Contribution
Gift or Presentation made to Indian delegation
accepted in accordance with the rules made by
the Central Government
From relative
By way of remittance received in the ordinary
course of business through any official channel,
post office, or any authorized person in FEMA
By way of scholarship, stipend or any payment
of like nature
Not to be Considered as Foreign Contribution
Foreign Contribution accepted:
By way of salary, wages or other remuneration due
from any foreign source or by way of payment in the
ordinary course of business transacted in India by
such foreign source
By way of payment, in the course of international
trade or commerce, or in the ordinary course of
business transacted outside India
As an agent of foreign source in relation to any
transaction made by such foreign source with the
Central Government or State Government
Who cannot deliver any currency to
other person..
No person, resident in India, shall deliver any
currency, whether Indian or foreign, which ahs
been accepted from any foreign source, to any
person if he knows or has reasonable cause to
believe that such other person intends, or is
likely, to deliver such currency to any political
party or any person as defined under FCRA
Public Disclosure of receipt
If foreign contribution received in a year
exceeds Rs 1 crore, summary of receipts and
utilization shall be kept in public domain for the
year and one year thereafter. Central
Government will also display the data on its
website for information of general public
Foreign Source.
Includes:
Foreign Government, International agency (
but not UN or its agencies, World Bank, IMF
etc..) list of agencies exempted on the
website http://mha.nic.in/fcra/intro/FCRA-
exempted AgenciesUN.pdf
Foreign Company
Multi-national corporation
Company where more than 50% capital is
held by foreigner or foreign company, foreign
trust, foreign citizen etc..

Interesting FAQs
Whether donations by PIO cardholder or PIO who
holds passports or registered OCI or dual Citizen
would be considered foreign source?

Yes, because under all these three categories are foreign
nationals and hold passports of the country of their
nationality


Foreign nationality is the Important criteria
Interesting FAQs
Can foreign Contribution be received in
Rupees?

Yes. Any amount received from foreign
source in rupees or foreign currency is
construed as foreign contribution under
law. Such transactions even in rupees terms
is considered foreign contribution.


Would donations by PIO / OCI
considered as foreign Source
The donations by Persons of Indian Origin
(PIO) Card holder or Persons of Indian Origin
(PIO) who hold other countrys passports or
registered Overseas Citizens of India (OCI)
would be considered foreign source
Meaning of Speculation activities
Investment including investment in mutual
funds or in shares linked to market force as
regards to appreciation or depreciation of the
original investment

Speculative Activities.
Any activity or investment that has an element
of risk of appreciation or depreciation of the
original investment, linked to market forces,
including investment in mutual funds or in
shares
Participation in any 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 organization or association
Debt based secured investment shall not be
treated as speculative Investment
Intimation about Investment in
Speculative Activities
Intimation or Information about speculative
activities of any organization shall be furnished
to Secretary to Government of India, Ministry
of Home Affairs, New Delhi by registered post
Administrative Expenses..
Salaries, wages, travel expenses or any
remuneration realized by the Members of the
executive Committee or Governing Council of
the person

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 administration expenses.
Administrative Expenses.Contd..
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
All expenses related to consumables like
electricity and water charges, telephone charges,
postal charges, repairs to premises from where
the organization or Association is functioning,
stationery and printing charges, transport
charges by the Members of the Executive
Committee or Governing Council and
expenditure on office equipment
Administrative Expenses.Contd..
Cost of accounting for and administering funds
Expenses towards running and maintenance of
vehicles
Cost of writing and filing reports
Legal and professional charges
Rent of premises, repairs to premises and
expenses on other utilities
Expenses directly related to the stated objective of
the
Welfare oriented organization shall be excluded

Registration for Acceptance of Foreign Contribution
Any Association ( except political nature) having
a definite cultural, economic, educational,
religious or social Programme can accept foreign
contribution
Prior Permission vis--vis Registration
Prior Permission is for specific Donor and
Specific Project
Registration is for General Donor and
Association object
Registration
On line Application
Hard Copy to be sent within 30 days of
submitting Online Application
If the application is rejected, further application
can be made only after six months
Application can not be made within 6 months
after submitting application for prior permission
for same project
Registration shall be granted within 90 days. If
not granted, reasons will be communicated
within 90 days unless protected under RTI


Validity of Registration
Registration is granted for a period of 5 years.

It can be renewed by making application by
applying six month before expiry of registration
If the application for renewal is not made, the
registration will lapse at the end of 5 years. In
such case, fresh application has to be made
Application for renewal shall be made in Form
FC-5 with fees of Rs 500/-.


Suspension or Cancellation of Registration
Central Government can suspend registration for 180
days by order in writing.
During this period, foreign contribution cannot be
accepted or utilized or can be accepted or utilized only as
per terms and conditions specified by Central
Government
Reason should be given and principles of natural justice
has to be followed. Such action cannot be arbitrary
If such order of suspension is passed, up to 25% of
unutilized amount can be spent with prior approval of
Central Government for declared aims and objects.
Balance amount can be spent only after suspension is
revoked
No appeal is provided against the order of suspension, but writ petition can be filed
Suspension or Cancellation of Registration
Central Government can suspend registration for 180
days by order in writing.
During this period, foreign contribution cannot be
accepted or utilized or can be accepted or utilized only as
per terms and conditions specified by Central
Government
Reason should be given and principles of natural justice
has to be followed. Such action cannot be arbitrary
If such order of suspension is passed, up to 25% of
unutilized amount can be spent with prior approval of
Central Government for declared aims and objects.
Balance amount can be spent only after suspension is
revoked
No appeal is provided against the order of suspension, but writ petition can be filed
Prior Permission vis--vis Registration
Prior Permission Registration
Prior Permission is for Specific
Donor and Specific Project
Registration is for all types of Donation
within the object of the Association and
for any Donor
Prior Permission is one time Registration shall be granted for 5 years
Prior Permission do not registration Registration includes Prior Permission
No reasons for denial shall be
communicated
Reasons for denial shall be
communicated unless protected under
RTI
Application shall be made in Form
FC 4 electronically
Application shall be made in Form FC
3 electronically
Prescribed Fees Rs 1000/-

Prescribed Fees Rs. 2,000/-
Policy for Permission or registration is that Organization in existence for 3 years
and have spent at least 6 lakhs over its activities excluding Admn expenses
Adjudication
If adverse order is passed by Competent
authority, application on plain paper for revision
can be made to Secretary, Ministry of Home
Affairs, Government of India, New Delhi. The
prescribed fee shall be RS 1,000/-.
Appeal against the order of refusing registration
or permission lies with High Court


Important Provisions of FCRA
Bank Account
Foreign Contribution should be received only in
the branch of Bank as specified in the
application for grant of registration certificate
Held in State v. M Kurian 2011 AIR SCW 3540, it
was held that if permission is obtained to
receive foreign contribution in a designated
account, depositing the same in other account is
an offence. It was held that breach of
undertaking given while submitting an
application is an offence.
For utilization of the funds, one or more banks
are permissible

Mandatory Reporting by Banks
The banks also have been brought under the
ambit of the act and every bank or
authorized person in foreign exchange shall
report to such authority prescribed amount
of foreign remittance and the source and
manner in which the foreign remittance was
received
Any organization receiving funds over Rs 10
lakh, the bank will immediately inform the
government to enable the agencies to
track the funds.
Why Immediate Intimation by
Banks
Government Estimates. 40,000 organizations
receiving foreign contribution in the country out
of which only 18,000 report the inflow of funds
and submit their accounts

Audit & Accounts
Separate set of accounts and records, exclusively
for the foreign contribution received and utilized
Every person who receives foreign contribution
shall submit a report, duly certified by a Chartered
Accountant in the prescribed form accompanied
by an Income and expenditure statement, receipt
and payment and balance sheet for every financial
year to the secretary to the Government of India,
Foreign contribution received by a candidate for
election shall be furnished in the prescribed form
within forty-five days from the date on which he is
duly nominated as a candidate for election
Description of Forms to be filed
Form No Description
FC- 1 Information to the Central Government of receipt of foreign contribution by way of gift
from relative
FC 2 Application for seeking prior permission of the Central Government to accept foreign
hospitality
FC 3 Application for registration U/S 11 of the FCRA for acceptance of foreign contribution
by an Association having definite cultural, economic, educational, religious or social
programme
FC -4 Application for prior permission U/S 11(2) of FCRA for the acceptance of foreign
contribution by an Association having definite cultural, economic, educational, religious or
social programme
FC 5 Application for seeking of registration certificate U/S 13 of the FCRA ( To be
submitted within six month before the date of expiry of the certificate of registration
FC - 6 Account of Foreign Contribution for the year ending on the 31
st
March
FC - 7 Information about Foreign Contribution( Articles) Account
FC - 8 Intimation about foreign Contribution ( securities) Account
FC 9 Intimation to the Central Govt. of Receipt of foreign contribution received by a candidate
for Election
FC -10 Application for seeking permission for transfer of foreign contribution to other registered/
unregistered persons
What Foreign Hospitality??
Means any offer not being 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 boarding,
lodging, transport or medical treatment. Thus
casual hospitality is not foreign hospitality
( e.g. offering meals or casual lift in vehicle)
Restriction on Acceptance of Foreign Hospitality
A member of Legislature, Office bearer of political
party, judge, Government servant or employee of
any corporation or any body owned or controlled
by Central Government cannot accept foreign
hospitality without prior permission of Central
Government
Such person shall apply in form FC-6 for prior
permission to accept foreign hospitality.
Application should be with administrative clearance
of concerned ministry and invitation letter from
host country. Application should be made
preferably two weeks prior to proposed date of
onward journey
Exception in case of urgent medical treatment
The only exception is in case of emergent medical aid
on account of sudden illness contacted during a visit
out of India. In such case, report within one month
from the date of receiving hospitality giving details of
hospitality received
In such case, intimation of foreign hospitality shall be
made within 60 days of such receipt giving prescribed
details, only if the value of such hospitality in
emergent medical aid is Rs 1 lacs or more
Interesting FAQs
Whether Donation given by Non-Resident
Indians (NRIs) is treated as foreign
contribution?
Contribution made by a citizen of India living in
another Country from his personal savings
through the normal banking channels, is not
treated as foreign contribution. However, while
accepting any donations from such NRI, it is
advisable to obtain his passport details to
ascertain that he/she is an Indian passport
holder.

Interesting FAQs
Whether donations by PIO cardholder or PIO who
holds passports or registered OCI or dual Citizen
would be considered foreign source?

Yes, because under all these three categories are foreign
nationals and hold passports of the country of their
nationality

Can foreign Contribution be received in Rupees?

Yes. Any amount received from foreign source
in rupees or foreign currency is construed as
foreign contribution under law. Such transactions
even in rupees terms is considered foreign
contribution.

Interesting FAQs
What is the procedure for change of designated
Bank Account?

For Change of the bank account, an application
in prescribed form mentioning the details of the
old account and the proposed new bank account
along with justification for change may be
submitted to Ministry of Home Affairs along
with copy of resolution of the executive
committee for such change.
Interesting FAQs
What is the procedure for seeking change in the
name /address of the association ?

For seeking change in the name / address of the
association, one should use the prescribed form
available on Ministry of Home Affairs

website http://mha.nic.in/fore.htm
Interesting FAQs
Whether foreigners can be appointed as Executive Committee members?
Foreign nationals are generally discouraged from being appointed as
member of Executive Committee by an association. However, Foreign
nationals, fulfilling the following conditions, may be appointed as
Executive Committee members, after obtaining prior permission of the
Central Government:
(i). The foreigner is married to an Indian citizen;
(ii). The foreigner has been living and working in India for at
least five years
(iii). The foreigner has made available his/her specialized
knowledge, especially in the medical and health related field on a
voluntary basis in India, in the past
(iv). The foreigner is part of the Board of Trustees/ Executive
Committee in terms of the provisions in an inter-governmental
agreement;
(v). The foreigner is a part of the Board of Trustee/ Executive
Committee in an ex-officio capacity representing a multilateral
body which is exempted from the definition of foreign source. The
need for such an appointment should, however, be adequately
justified


Can NGO use the foreign contributions for Investment
in Mutual Funds and other speculative investments
Investment cannot be made into Mutual fund or
any speculative activities. Speculative activity is
defined in Rule 4 of FCRP 2011 which is
summaries as under:
Any activity or investment with the element
of risk of appreciation or depreciation
Participation in any scheme which promises
high returns
Debt based secured Investment

Can the fee paid by the foreign
delegates/participants fees termed
as foreign contribution
Foreign delegates/participants paying
delegate/participation Fees in foreign currency for
participation in a conference/ seminar which is
utilized for the purpose of meeting the expenditure
of hosting the conference/seminar and is not
treated as foreign contribution and as such no
permission under FCRA is required
Can Capital assets purchased in the
name of the Office bearer
Every asset purchased with foreign contribution
should be acquired and possessed in the name of
the association since association has a separate
legal entity distinct from its members
What are Opportunity for CA??
Assist for obtaining application for prior permission or
registration
Certificate for Accounts for foreign contribution for the
year on 31
st
March. ( i.e. Brought forward foreign
contribution, receipt of foreign contribution, balance of
unutilized foreign contribution at the end of the year
Certificate for Accounts for foreign contribution in
kind for the year on 31
st
March. ( i.e. Brought forward
foreign contribution, receipt of foreign contribution,
balance of unutilized foreign contribution at the end of
the year
Assisting banks to file annual return in the prescribed
form as regards to foreign contribution received