Section II

Foreign Contribution (FC) ‒ Definition & Clarification

Section II

Question 8

What is foreign contribution?

Answer: As defined in clause (1)(h) of Section 2 of FCRA, 2010, ‘foreign contribution’ means the donation, delivery or transfer made by any foreign source, ─

(i)        of any article, not being an article given to a person[1] as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum[2] as may be specified from time to time by the Central Government by rules made by it in this behalf;

(ii)       of any currency, whether Indian or foreign;

(iii)      of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956[3] and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999[4].

Explanation 1. — A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution within the meaning of this clause.

Explanation 2.— The interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of section 17 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.

Explanation 3.— Any amount received, by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent of a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.

Please note that the definition ‘foreign contribution’ envisages contribution in 3 forms ‒ ‘article’, ‘currency’ and ‘security’ and through 3 different modes ‒ ‘donation’ or ‘delivery’ or ‘transfer’ and, it must emanate from a ‘foreign source’ to be treated as ‘foreign contribution’.  In other words, a contribution will be ‘foreign contribution’ only if it is from a foreign source.  What constitutes foreign source has been explained in reply to Question No. 33.

 

[1] In terms of FCRA, 2010 “person” includes—(i) an individual; (ii) a Hindu undivided family; (iii) an association; and (iv) a company registered under section 25 of the Companies Act, 1956 (now Section 8 of the Companies Act, 2013.)

[2] The sum was specified as “rupees twenty five thousand” (Rs.25,000/-) vide Foreign Contribution (Regulation) Amendment Rules, 2012 [G.S.R. 292 (E) dated 12th April, 2012].  The words ‘rupees twenty five-thousand’ was substituted by the words “one lakh rupees” (Rs. 1,00,000/-) by Foreign Contribution (Regulation) (Second Amendment) Rules, 2019 [G.S.R. 659 (E) dated 16th September, 2019].

[3] As per clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, “securities” include—(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme;(ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities.

[4] In terms of clause (o) of Section 2 of the Foreign Exchange Management Act, 1999, “foreign security” means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividends is payable in Indian currency.

 

Question 9

Could foreign contribution be received in Indian Rupee?

Answer: Yes.  Any amount received from a foreign source, whether in Indian Rupee or in foreign currency is construed as foreign contribution (FC).  The source that is making the contribution is the deciding factor, neither the currency in which the contribution is made nor the bank through which the currency is remitted. If the source is foreign, the donation/remittance either in INR or in foreign currency will be treated as foreign contribution.

Question 10

Whether donation given by Non-Resident Indians (NRIs) holding valid Indian Passport, i.e., Indian citizenship, is treated as foreign contribution?

Answer: No. Contributions made by a citizen of India living in another country, i.e., a Non-Resident Indian holding valid Indian passport, from his personal earnings/savings is not treated as foreign contribution.  However, while accepting any donation from such NRI, it is advisable to obtain his passport details to ascertain that he/she is an Indian passport holder.

Question 11

Whether donation given by an individual of Indian origin and having foreign nationality, i.e., PIO/OCI, is treated as foreign contribution?

Answer: Yes.  Donation from an Indian who has acquired foreign citizenship is treated as foreign contribution.   This will also apply to the holders of Person of India Origin (PIO) card as well as Overseas Citizen of India (OCI)[5] card as they are foreign citizens with certain other privileges.

 

[5] In terms of MHA Gazette Notification (F. No. 26011/01/2014-IC.I) dated 09/01/2015, all the existing PIO cardholders shall be deemed to be OCI cardholders w.e.f. the date of the Notification.

Question 12

Whether any contribution, which originated from a foreign source and has been received indirectly by a recipient to whom FCRA, 2010 applies, will be treated as foreign contribution?

Answer: Yes.  In terms of Explanation 1 under the definition of ‘foreign contribution’ vide Section 2(1)(h) of FCRA, 2010, a donation, delivery or transfer of any article, currency or foreign security by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution. For example, an Indian citizen visiting abroad received some contribution from a foreign source.  Thereafter, he passes on the contribution to an Association in India.  The contribution received by the Association will be treated as foreign contribution although it did not receive the same directly from the foreign source. However, the first recipient, i.e., the Indian citizen who accepted the contribution while abroad, should keep in mind the provisions of Section 3 and Section 9 of the Act before accepting such foreign contribution. 

Question 13

Will interest or any other income earned from foreign contribution be considered foreign contribution?

Answer: Yes.  In terms of Explanation 2 under the definition of ‘foreign contribution’ vide Section 2(1)(h) of FCRA, 2010, the interest accrued on the foreign contribution deposited in any Bank or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution.  In other words, the interest accrued on the foreign contribution in the Bank is treated as foreign contribution and if an organisation puts any of its funds from its foreign contribution in a fixed deposit account with a Bank, the interest earned thereon would also be treated as foreign contribution. Similarly, if an organisation creates/purchases an asset with foreign contribution, say, a training centre or a photocopier, and derives any income from those assets, the income so generated will be treated as foreign contribution.  In both the cases, the income, which is treated as foreign contribution, has to be accounted for in the mandatory annual return.

Question 14

Whether earnings from foreign client(s) by a person in lieu of goods sold or services rendered by it are treated as foreign contribution?

Answer: No. As clarified at Explanation 3 under the definition of ‘foreign contribution’ vide Section 2(1)(h) of FCRA, 2010, any amount received, by any person from any foreign source in India—(i) by way of fee (including fees charged by an  educational institution in India from foreign student) or (ii) towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce, whether within India or outside India or (iii) any contribution received from an agent of a foreign source towards such fee or cost — shall be excluded from the definition of foreign contribution.    Simply put, foreign contribution excludes earnings from foreign client(s) by a person in lieu of goods sold or services rendered by him because such transactions are normal business activities of commercial nature.

Question 15

Whether infusion of foreign share capital in a company registered under section 25 of the Companies Act, 1956/section 8 of the Companies Act, 2013 attracts the provisions of FCRA, 2010 and treated as foreign contribution?

Answer: The provisions of FCRA, 2010 and FCRR, 2011 are silent in this regard.  However, it was clarified by MHA long back in its FAQs (http://fcraonline.nic.in/) that infusion of foreign share capital in a company registered under section 25 of the Companies Act, 1956/Section 8 of the Companies Act, 2013 is treated as foreign contribution and thus attracts the provisions of FCRA, 2010. The logic behind this was that foreign contribution is a non-commercial transaction without a profit motive. Companies registered under section 25 of the Companies Act, 1956/section 8 of the Companies Act, 2013 are those not-for-profit companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or any other useful object and have been granted a license by the Central Government recognizing them as such.  Such companies can be either public company or private company having a limited liability and are exempted from the requirement regarding minimum share capital.  Such companies must intend to apply its profits or other income if any, only in promoting its objects and must also prohibit payment of dividend to its members.  Investment in such a company has to be a non-commercial transaction without profit motive.  Therefore, infusion of foreign share capital in a company registered under section 25 of the Companies Act, 1956/section 8 of the Companies Act, 2013 should be treated as foreign contribution. It also followed from the clarification from MHA that prior permission under FCRA, 2010 should be obtained before incorporation of a new company under Section 8 of the Companies Act, 2013 for shares to be subscribed by a foreign national or foreign entity as subscriber(s) to the Memorandum of Association of a new section 8 company.

Note: MHA has removed this Q&A from its latest FAQs for reasons unknown and clarification from MHA may be sought to ascertain if there is a change in its policy.

Question 16

Whether foreign contribution can be made out of Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account by an Overseas Citizen of India (OCI) not holding Indian passport?

Answer: Permissible Debits to NRE Account includes: (a) Local disbursements, and (b) any other transaction if covered under general or special permission granted by the Reserve Bank. Permissible Debits to NRO Account includes all local payments in rupees subject to compliance with the relevant regulations made by the Reserve Bank. Contributions being a current account transaction, there is no restriction for such foreign contributions made out of Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account by an Overseas Citizen of India (OCI).

Question 17

Whether donation from an individual having dual citizenship of India and another country, say USA, would be treated as FC?

Answer: Overseas Citizens of India, i.e., OCI cardholders are foreign citizens holding passports of those foreign countries where they acquired their citizenship. Therefore, donations from any OCI cardholder are treated as foreign contribution. The Constitution of India does not allow dual citizenship, i.e., holding Indian citizenship and citizenship of another country simultaneously.  The Overseas Citizens of India (OCI) status granted by the Government of India to certain categories of persons who migrated from India and acquired citizenship of another country other than Pakistan and Bangladesh are often incorrectly described as ‘dual citizenship’.  OCI status does not confer citizenship of India to anyone and thus, does not amount to dual citizenship or dual nationality although OCI cardholders get some travel and residency privileges. Being an OCI is not the same as being a regular Indian citizen. ​

Question 18

An Indian living in the U.S.A., who has obtained Green Card there, sends donation in foreign currency through normal banking channels to an Association in India.  Whether such donation will be treated as FC?

Answer: No.  A Green Card holder in the USA is someone who has been granted authorization to live and work in the United States on a permanent basis.  As proof of that status, a person is granted a permanent resident card (commonly called a ‘Green Card’ because of its green colour) by US authorities. The Green Card does not give him/her the citizenship of USA.  Till such time he/she is granted U.S. citizenship through the process of Naturalisation, he/she retains the citizenship of his/her country.  Naturalization is the process by which U.S. citizenship is granted to a foreign citizen or national after he or she fulfils the requirements.  One can apply for U.S. citizenship through Naturalisation after he/she has been a permanent resident, i.e., a Green Card holder, for at least 5 years and meets all other eligibility requirements prescribed by US authorities.

In the instant case, the individual, who is a Green Card holder, has not yet been given US citizenship and he/she continues to be an Indian citizen, i.e., an Indian passport holder.  Therefore, the donation made by him/her will not be treated as foreign contribution.  It does not matter whether he/she sends the donation in foreign currency and/or through a foreign bank account.

Question 19

An Indian living in the U.S.A., who has obtained Green Card there, sends money to his/her parents in India in foreign currency through normal banking channels.  Whether any donation, out of those remittances, by the parents to an Association in India will be treated as FC?

Answer: No.  Since the family remittances are from an Indian citizen, it would not be treated as FC.  The parents may make use of the money received by them from their son/daughter according to their choice.

Question 20

An Indian who has acquired foreign nationality living in the USA, i.e., a citizen of USA and OCI cardholder, sends money to his/her parents in India in foreign currency through normal banking channels.  Whether any donation, out of those remittances, by the parents to an Association in India will be treated as FC?

Answer: Since such family remittances from relatives having foreign nationality, though FC, are allowed under FCRA, 2010, the parents may make use of the money received by them from their son/daughter according to their choice.   However, since the money received is FC and if the intention behind such remittances is to make donations to Associations, the provisions of Explanation 1 to Section 2(1)(h) of FCRA, 2010 would apply. It should be noted that in terms of Rule 6 of FCRR, 2011, any person receiving such FC in excess of Rs. 10 lakh or equivalent thereto in a financial year from any of his relatives shall inform the Central Government in the prescribed Form FC-1 within three months from the date of such receipt. It should also be noted that such reporting is required only when the remitter relative is a foreign citizen.

Question 21

When articles gifted for personal use do not amount to FC?

Answer: In terms of Rule 6A of FCRR, 2011 vide Foreign Contribution (Regulation) (Second Amendment) Rules, 2019, any article gifted by a foreign source to a person for his personal use whose market value in India on the date of such gift does not exceed Rs. 1,00,000/- (Rupees one lakh) shall not be a foreign contribution within the meaning of Section (2) (1)(h)(i) of FCRA, 2010.  Any such gift exceeding the value of Rs. 1,00,000/- shall be treated as FC and permission for accepting the same should be obtained from MHA.

Question 22

Will the fee paid by the foreign delegates/participants attending/participating in a conference/seminar etc. be treated as foreign contribution and thus require permission from FCRA angle?

Answer: No. In cases where “Delegate/Participation Fees” paid by foreign delegates/participants for participation in a conference/seminar are utilized for the purpose of meeting the expenditure of hosting the conference/seminar, acceptance of such fees by the organizers of the conference/seminar are not treated as foreign contribution and as such no permission under FCRA is required.  The “Delegate/Participation Fees” shall have to be deposited in domestic bank account because such receipt is not treated as FC.

Question 23

Some temples in India charge fixed fees for conducting various Puja ceremonies and receive fees/offerings from the devotees who are foreign citizens.  Whether such charges/fees/offerings are treated as FC?

Answer: No. The charges/fees/offerings etc. are received by the temples against certain specific services to their foreign clients (devotees). Therefore, such charges/fees/offerings etc. are not considered as foreign contribution.

 

Question 24

A foreign Foundation engages XYZ Company in India to conduct survey on agricultural/environmental data for dissemination amongst Indian farmers and pays XYZ Company its fee as service charges.  As a part of the service contract with the Foundation, XYZ Company sends SMS to farmers intimating about monsoon, soil condition etc. to help them without charging anything from the farmers. 

            Whether the fee received by XYZ Company from the Foundation as service charges will be treated as FC because of end utilisation of the data/information gathered on behalf of the Foundation or it will be exempt from the definition of FC as per Explanation 3 under Section 2(1)(h) of FCRA, 2010?

Answer: If XYZ Company is simply fulfilling its service contract, the service charges received by it from the foreign Foundation will not be treated as foreign contribution.  XYZ Company should be able to hold the position that it is performing a regular commercial activity in the ordinary course of its business and as per the contract, it has no charitable function.

Question 25

ABC Company incorporated in India in 2007 is primarily engaged in trading of solar-powered LEDs and compact fluorescents procured from its overseas manufacturing group company. ABC Company offers energy and lighting solutions that are affordable and energy-efficient. As ABC Company is trading in environmentally friendly solutions for lighting through solar energy, it has been offered grants from various foreign organisations to be utilized for providing “support to operations that accelerate sustainable distribution, for example training of brand activators” and “free distribution of solar lanterns in underprivileged and rural areas”. The proposed grants will include the cost of procurement and distribution of the solar lanterns and training of brand activators etc.  The distribution may be within India or outside India. Whether such grants from foreign organisations received by ABC Company be exempt from the definition of FC as per Explanation 3 under Section 2(1)(h) of FCRA, 2010?

Answer: In this case, ABC Company would not receive any amount from the foreign sources for its services in the ordinary course of its business/trade. The cost of procurement and distribution of solar lanterns and training of brand activators etc. are all covered by the grant.   In other words, ABC Company would be given grants by foreign sources to conduct activities, which are not its normal trading activity. Therefore, such grants cannot be excluded from the definition of FC as per Explanation 3 under Section 2(1)(h) of FCRA, 2010.  Further, since FCRA, 2010 does not envisage utilisation of FC for activities outside India, ABC Company should not distribute the solar lanterns etc. in other countries as the lanterns etc. would be received as FC in India.

 

Question 26

A foreign NGO is involved in charitable activities in India in healthcare facilities, e.g., providing aid to patients afflicted with HIV/AIDS/Polio.  The foreign NGO gives money to an Indian manufacturer of artificial limbs, viz., XYZ Company, to manufacture and supply those goods free of cost to another Indian FCRA registered NGO, viz., ABC Trust, which is involved in charitable distribution of artificial limbs to the patients/individuals suffering from polio.  Whether this will be exempt from the definition of FC as per Explanation 3 under Section 2(1)(h) of FCRA, 2010 or get covered as per Explanation 1 under Section 2(1)(h) of FCRA, 2010?

Answer: In this case, the cost of manufacture and supply of artificial limbs by XYZ Company to ABC Trust are all borne by the foreign NGO.  XYZ Company has no charitable role in the arrangements.  In other words, XYZ Company receives money from the foreign source for the cost of its goods and services in the ordinary course of its business.  Therefore, receipt of money by XYZ Company towards the manufacture and supply of artificial limbs is excluded from the definition of FC as per Explanation 3 under Section 2(1)(h) of FCRA, 2010.  As for ABC Trust, it is receiving FC in kind, i.e., artificial limbs, indirectly through XYZ Company which means that the receipt of artificial limbs by ABC Trust from the foreign NGO is covered under Explanation 1 under Section 2(1)(h) of FCRA, 2010.

Question 27

An individual (citizen of a foreign country) living in another country unfortunately dies there.  His/her nominee is an Indian citizen living in India.  The foreign insurance company honours the insurance claim of the nominee and pays the amount to the nominee. Will this amount to acceptance of foreign contribution?

Further, the deceased individual had some property in the foreign country and the nominee disposes of those properties and brings the money to India.  Will that money be treated as foreign contribution? Could the nominee utilise the amounts for making donations to any organisation?

Answer: The amount received from the foreign insurance company would not be treated as foreign contribution because the insurance company has simply fulfilled its contractual obligation towards the nominee of the insurance policy and it has not given away anything as charity or donation.  However, if there is a condition in the deceased person’s will that the money or a part thereof realised from the death claim is to be spent on some charitable/philanthropic activity, then that amount will be treated as foreign contribution. Sale proceeds from the property of the deceased would also not be treated as foreign contribution. However, the nominee may have to pay taxes on the amount realised as per Income Tax Act.  The nominee can utilise the money according to his/her choice.

Question 28

Whether receipt of money through Western Union or MoneyGram would be permissible as foreign contribution?

Answer: No.  Money Transfer Service Scheme (MTSS) is regulated by the Reserve Bank of India (RBI) under the provisions of the Foreign Exchange Management Act, 1999 (FEMA). MTSS is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India. No outward remittance from India is permissible under MTSS.  As per RBI’s Master Circulars in this regard, only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible. There is a cap of US$ 2500 per remittance and only 30 remittances can be received by a single individual beneficiary during a calendar year. Under MTSS, the remitters and the beneficiaries are individuals only. Donations/contributions to charitable institutions/trusts, trade related remittances, remittance towards purchase of property, investments or credit to NRE Accounts are not permissible under MTSS.  In view of the above, receipt of foreign contribution through money transfer companies/agencies like Western Union or MoneyGram is not permissible.

Question 29

Whether donations from Indian companies which operate in 2 or more countries are to be treated as foreign contribution?

Answer: No.The presence of an Indian company in several countries is not the deciding factor in such cases. According to the proviso[6] to Section 2(1)(j)(vi) of FCRA, 2010, an Indian company registered/incorporated under the Companies Act, 1956 or the Companies Act, 2013, notwithstanding its shareholding pattern, is not treated as foreign source and donations by such Indian companies would not be foreign contribution. Please see reply to Q. Nos. 40 to 42.

 

[6] The proviso to section 2(1)(j)(vi) was inserted by the Finance Act, 2016 and was further amended by Finance Act, 2018. Please refer to replies to Q. Nos. 40 to 42.

 

Question 30

The subsidiary of an Indian company is located abroad. Whether donations from the subsidiary are to be treated as foreign contribution?

Answer: If the subsidiary of the Indian company is registered/incorporated in India under the Companies Act, 1956 or the Companies Act, 2013, then its donations will not be treated as foreign contribution.

Question 31

Whether any subsidised or unsecured loan from a foreign source for charitable purposes may be treated as foreign contribution?

Answer:Yes.  A foreign loan, which is treated as commercial transaction, is governed by RBI guidelines for External Commercial Borrowings (ECB) under FEMA. Any loan from any source given without any security or at a subsidised rate ostensibly for a charitable or philanthropic purpose cannot be treated as normal and prudent commercial transaction.  Therefore, any subsidised or unsecured loan from a foreign lender may be construed as foreign contribution. As per the extant guidelines, NGOs are not eligible to avail of ECB unless they are engaged in micro finance activities.

Question 32

Whether the donation of any article given on lease by a foreign source without any consideration would be treated as FC?

Answer: Yes.

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