Section VII

Acceptance & Utilisation Of Foreign Contribution

Section VII

Question 121

From whom foreign contribution may be accepted?  Are there any banned organisations from whom FC should not be accepted?

Answer: Foreign contribution should be accepted only from legitimate sources and utilised only for those legitimate purposes for which such contribution is received.

A list of banned organisations is available on MHA’s website https://www.mha.gov.in/en/divisionofmha/counter-terrorism-and-counter-radicalization-division/Banned-Organizations

In this context, the following provisions of Section 11 (3) of FCRA, 2010 may please be noted carefully—

“Notwithstanding anything contained in this Act, the Central Government may, by notification in the Official Gazette, specify—

 

(i)  the person or class of persons who shall obtain its prior permission before accepting the foreign contribution; or

(ii)  the area or areas in which the foreign contribution shall be accepted and utilised with the prior permission of the Central Government; or

(iii) the purpose or purposes for which the foreign contribution shall be utilised with the prior permission of the Central Government; or

(iv)  the source or sources from which the foreign contribution shall be accepted with the prior permission of the Central Government.”

In view of the above, Associations are advised to regularly visit MHA’s website https://mha.gov.in/ to check whether any other organisation has been declared as a banned donor.

Question 122

Is it a fact that some donor organisations have been placed in ‘prior approval’ category and the banks do not allow credit of FC from such donors in the accounts of even FCRA registered organisations without the approval from MHA?

Answer: Yes.

Question 123

How would the FCRA registered organisations know whether the foreign donor is in ‘prior approval’ category or not? What should any organisation including the FCRA registered organisations do if they are to receive FC from any of the donors in ‘prior approval’ category?

Answer:The names of the donor organisations that are in ‘prior approval’ category are not available in public domain.  In the event of any fund flow to the bank A/c of any organisation including FCRA registered organisations from any of the donors in ‘prior approval’ category, the bank concerned will bring it to the notice of MHA so that funds are allowed to be credited to the A/c of the recipient organisation only after clearance from MHA (FCRA Wing).  Before such clearance is given, MHA (FCRA Wing) may make inquiries with the recipient organisation.

Question 124

Should an Association utilise foreign contribution for any purpose?

Answer:  No.  An Association granted registration or prior permission is required to carry out the activities, for which foreign contribution is received, in India only and the amount received as foreign contribution should not be utilised for purposes other than for which it is received.   Further, such Associations should adhere to the directives given in Section 8 of FCRA, 2010 which are reproduced below ‒

 

“8(1) Every person, who is registered and granted a certificate or given prior permission under this Act and receives any foreign contribution, ‒

 

            (a) shall utilise such contribution for the purposes for which the contribution has been received.

Provided that any foreign contribution or any income arising out of it shall not be used for speculative business;

Provided further that the Central Government shall, by rules, specify the activities or business which shall be construed as speculative business for the purpose of this section;

(b) shall not defray as far as possible such sum, not exceeding [1]twenty per cent of such contribution, received in a financial year, to meet administrative expenses;

Provided that administrative expenses exceeding [2]twenty per cent of such contribution may be defrayed with prior approval of the Central Government.

 

(2) The Central Government may prescribe the elements[3] which shall be included in the administrative expenses and the manner in which the administrative expenses referred to in sub-section (1) shall be calculated.”

 

[1] Section 8 (1) has been amended vide Foreign Contribution (Regulation) Amendment Act, 2020 dated 28th September, 2020.

[2] ibid.

[3] This has been prescribed in Rule 5 of FCRR, 2011.

Question 125

What are the permissible activities for which foreign contribution may be accepted and utilised by an Association? Is there any list of permissible activities?

Answer:  Section 11 of FCRA 2010 stipulates that the ‘person’ intending to receive foreign contribution should have a ‘definite cultural, economic, educational, religious or social programme’ to be eligible to have registration or prior permission under the Act.  In other words, the permissible activities should be within the broad parameter of a definite cultural, economic, educational, religious or social programme although what constitute such programmes has not been specified either in FCRA, 2010 or FCRR, 2011.  Further, in its application for registration or PP, an Association is required to indicate its ‘Nature’, i.e., whether its activities are religious or cultural or economic or educational or social. However, it is not necessary that an Association has to check only one box regarding its ‘nature’ of activities. Since the areas of activities under the broad parameter are intertwined, an Association may check all those boxes that may be classified as its ‘nature’ in accordance with its Memorandum of Association/Articles of Association/Trust Deed etc.  

Earlier, an illustrative list of permissible activities that may be carried out by Associations of different nature was available in MHA’s website.  The list is no longer available in the new website [http://fcraonline.nic.in].  The list is reproduced below to enable the Associations to form an idea about the activities that can be grouped under the broad parameter of a cultural, economic, educational, religious or social programme:

 

  1. Religious
  • Celebrations of religious functions/festivals etc.
  • Construction/repair/maintenance of places of worship, religious schools.
  • Education of priests and preachers; (dissemination of the message of goodwill etc. from their holy books).
  • Publication and distribution of religious books/ literature.
  • Maintenance of priests / preachers / other religious functionaries.
  • Any other activities related to the above.

 

  1. Educational
  • Construction and maintenance of school/college.
  • Construction and running of hostel for poor students.
  • Grant of stipend/scholarship/assistance in cash and kind to poor/deserving children.
  • Purchase and supply of educational material-books, notebooks etc.
  • Conducting adult literacy programmes.
  • Conducting Research.
  • Education/Schools for the mentally challenged.
  • Non-formal education projects/coaching classes.
  • Any other activities related to the above.

 

  1. Economic

Following activities (Not being commercial or profit-making activities)

  • Micro-finance projects, including setting up Banking co-operative and self-help groups.
  • Self-sustaining income generation projects/Schemes.
  • Agricultural activity.
  • Rural Development.
  • Animal husbandry projects.
  • Setting up and running handicraft centre/cottage and khadi industry/social forestry projects.
  • Vocational training, tailoring, motor repairs, computers etc.
  • Any other activities related to the above, not being commercial activities.

 

  1. Social
  • Construction/Running of Hospital/dispensary/clinic.
  • Construction of community halls etc.
  • Construction and Management of old age home.
  • Welfare of the aged widows.
  • Construction and Management of Orphanage.
  • Welfare of the orphans.
  • Construction and Management of dharamshala /shelter.
  • Holding of free medical/health/family welfare/immunization camps.
  • Supply of free medicine, and medical aids, including hearing aids, visual aids, family planning aids etc.
  • Provision of aids such as Tricycles, calipers etc. to the handicapped.
  • Treatment/Rehabilitation of drug addicts/Rehabilitation of persons suffering from leprosy.
  • Welfare/Empowerment of women.
  • Welfare of children.
  • Provision of free clothing/food/to the poor, needy and destitute.
  • Relief/Rehabilitation of victims of natural calamities.
  • Help to the victims of riots/other disturbances.
  • Digging of bore wells.
  • Sanitation including community toilets etc.
  • Awareness camp/Seminar/workshop/meeting/conference.
  • Providing free legal aid/Running legal aid centre.
  • Holding sports meet.
  • Awareness about Acquired Immune Deficiency Syndrome (AIDS)/Treatment and rehabilitation of persons affected by AIDS.
  • Welfare of the physically and mentally challenged.
  • Welfare of the Schedules Castes.
  • Welfare of the Scheduled Tribes.
  • Welfare of the Backward Classes.
  • Environmental programs.
  • Survey for Socio-economic and other welfare programs.
  • Preservation & maintenance of Wild Life.
  • Preservation of Natural Resources.
  • Awareness against social evils.
  • Rehabilitation of victims of heinous crimes.
  • Rehabilitation of beggars, bootleggers, child labour etc.
  • Creating awareness of Government schemes & Law to general public.
  • Any other activities related to the above.
  1. Cultural
  • Celebration of national events (Independence/Republic day/festivals.
  • Theatre/Films etc.
  • Maintenance of places of historical and cultural importance.
  • Preservation of ancient/tribal art forms.
  • Preservation & promotion of Cultural Heritage & Literature of India.
  • Cultural shows.
  • Any other activities related to the above.

Question 126

What are ‘administrative expenses’ as per FCRA, 2010/FCRR, 2011?

Answer:  As per Rule 5 of FCRR, 2011, ‘administrative expenses’, constitute the following ‒

“(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.”

Question 127

Please explain the types of expenses that should be included or excluded for calculating ‘administrative expenses’ of an Association. What does the ceiling of 20% on ‘administrative expenses’ prescribed under Section 8 of FCRA, 2010 imply?

Answer: The definition of ‘administrative expenses’, as given in Rule 5 of FCRR, 2011 is explicit in this regard.  However, confusions occur because of its interpretation by various persons.  The definition in rule 5 is based on traditional accounting heads.  ‘Administrative expenses’ is precisely defined in the Rule by clearly mentioning what the term constitutes. It includes various costs like salaries, rent, vehicles etc.  The confusion that arises is whether salaries, rent, vehicles etc incurred by an organisation while implementing its programme/projects are also included in the administrative expenses. The scope of Rule 5 is somewhat different from the general understanding of administrative expenditure especially when one takes into account the two provisos thereunder.  The two provisos provide exclusions from what all have been defined in Rule 5 as ‘Administrative expenses’ and Rule 5 should be read in conjunction with the exclusions provided in the two provisos.  Further, this rule applies only with reference to the FC received by an Association.

In the context of FCRR, administrative expenses can be categorized as –

  • Category 1: FC to be utilised towards management of the activities of the Association from where it is functioning, i.e., expenses, as per the items listed in Rule 5, relating to the core cost of the organisation even without any project or programme activity and,
  • Category 2: FC to be utilised towards the project/programme related activities of the Association.

Rule 5 of FCRR 2011 clearly provides the natural heads of expenses that shall be treated as administrative expenses in relation to the management of the core activities of the Association from where it is functioning with its FC receipt (Category 1). The cap of 20% on administrative expenses, as prescribed in Section 8(1)(b) of FCRA, 2010 is on Category 1, which means that up to 20% of the FC received in any FY by an Association can be spent towards expenses relating to the core cost of the organisation from where it is functioning, i.e., in its Headquarters or Head office, even without any project or programme.  In other words, 80% of the FC received in a particular FY should be spent on projects/programmes of the Association for which it received the FC, i.e., on its projects/programmes related activities or for its declared aims and objectives as per its MoA/Trust Deed. (Category 2).

Some persons erroneously think that all kinds of expenses defined in Rule 5 of FCRR, 2011 should be treated as administrative expenses without looking into the exclusions provided in the two provisos thereunder.  Because of this wrong notion, some organisations find it difficult to keep the administrative expenses within the prescribed ceiling of 20% of FC received in any FY especially due to the major expenses towards salaries, wages and various kinds of remunerations to the employees.

Rule 5(ii) of FCRR, 2011 prescribes that 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 should be treated as administrative expense. However, exclusions to this Rule have been provided in its two provisos.

The first proviso to Rule 5 of FCRR, 2011 implies that if an Association is primarily engaged in research or training, then salaries, fees, honorarium of trainers, data collectors, and data analysts, i.e., researchers shall be excluded while calculating administrative expenses from the viewpoint of Rule 5.  Research activity comprises analysis of field data and interpretation of the data to arrive at empirical findings and dissemination of the same through publications, seminars, training etc.

The second proviso to Rule 5 of FCRR, 2011 implies that for any welfare oriented organisation, expenses in relation to direct implementation of any activity/project/ programme in furtherance of its stated objectives shall be excluded while calculating administrative expenses from the viewpoint of Rule 5.

It should also be noted that not only the salaries and remuneration of the directly project/programme related employees but also all other costs such as, hiring of premises and all other incidental expenses on utilities etc. incurred directly for any project/programme office, are also not administrative expenses because those costs are borne only towards a project/programme and once such project/programme office is wound up, there would be no such expenses towards any project/programme.

It may so happen that an office bearer, director/member of the executive committee, trustee or an employee of the Association is also engaged in the projects/programme and a question arises how to remunerate the person for his/her services for the project. There are organisations where the trustees or members of executive committees take up some positions in the projects for their livelihood or are engaged in the project because of their expertise in the related field and they devote their time partly for the management of the core activities of the Association and partly towards the project/programme assigned to them.  In effect, they spend a part of their time exclusively towards project/programme related work. 

In such cases, the Memorandum & Articles or the Trust Deed of the Association should have enabling provision to pay some remuneration or honorarium or for reimbursement of expenses incurred by such persons towards their services for the organisation as also for its projects/programmes.  The job description in the engagement letter of such a person should be clear enough as to his/her role as the office bearer for management of the core activities of the Association even without any project/programme activity vis-à-vis his/her exclusive duties as a project employee towards any assigned project/programme.

For the purpose of calculating administrative expenses as per Rule 5 of FCRR, 2011, the engagement letter should specify that his/her salary can also be apportioned accordingly on the basis of his/her time spent on administration and project/programme. In other words, his/her total salary/remuneration would be borne partly by the Headquarters or Head office and be treated as ‘administrative expense’ and the remaining part of his/her salary/remuneration would come from the assigned project on the basis of time devoted to the project and treated as project expense. Since a question may arise as to his/her duty hours, i.e., how much time he/she should spend on his/her duties in the Headquarters and how much time he/she should devote to the project, the apportionment of his/her duty hours between the Headquarters and project may perhaps be indicated in the engagement letter. Another option could be that he/she may be paid a fixed salary for his/her duties in the Headquarters and a variable remuneration to be computed on hourly basis may be paid for his/her time for the project work. A foolproof, consistent and justifiable log/system of time management should be put in place to substantiate the salary/remuneration of the person. However, if any remuneration is paid out of domestic income/donation, there would not be any issue from FCRA angle as the Act is only about regulating acceptance and utilisation of FC.

The administrative expenses incurred out of FC should be in compliance with the approved budget & agreement between the foreign donor(s) and the Association. Any proposal for receipt of FC from a donor should contain basic outline indicating the name of the project/research activity, objectives of the project, projected outlays, i.e., cost involved, with budget break-ups including estimated budget towards administrative expenses. If there is any administrative expenses within the project grant received, that should be restricted to 20% and the remaining 80% should be on expenses related to project implementation.

Question 128

What is to be done if administrative expenses are higher than the prescribed ceiling?

Answer: Section 8(1)(b) of FCRA, 2010 prescribes that an Association should not incur, as far as possible, more than 20% of the FC received in a FY to meet administrative expenses. However, the proviso to this Section also states that administrative expenses exceeding 20% of such FC may be incurred with prior approval of the Central Government. It implies that wherever there is a possibility of incurring more than 20% of the FC received in a FY towards administrative expenses, prior approval of MHA should be taken. However, MHA has not provided any Form for submission of an application for this purpose. Therefore, application seeking prior approval from MHA has to be sent through e-mail. It may please be noted that there is a penalty for compounding the offence for violating Section 8 of the Act vide reply to Q.228.  The penalty is Rs. 1 lakh or 5% of such FC so defrayed beyond the permissible limit, whichever is higher. Such violation may also lead to cancellation of registration and prosecution. In this context, please note that the limit of 20% administrative expenses would apply on FC utilization with effect from 29/09/2020, i.e., the date on which the Foreign Contribution (Regulation) Amendment Act, 2020 came into force. Please refer to the replies to Q. 131 & Q. 159 in this regard.

Question 129

If an Association does not utilise 20% of the FC received in any FY on its administrative expenses in the same FY, can it carry forward the unutilised amount of FC towards utilisation on administrative expenses in the next FY?

Answer:  There is no provision in FCRA, 2010/FCRR, 2011 to carry forward such unutilised FC received in a FY towards utilisation on administrative expenses in the next FY. Therefore, the limit available in any FY will be lost if the Association does not utilise the same on administrative expenses in that year itself.

Question 130

If an Association does not receive any FC in any FY, how would it meet its administrative expenses in that FY when it can’t carry forward any FC received in the previous FY towards utilisation on administrative expenses in the next FY?

Answer:  There is no provision in FCRA, 2010/FCRR, 2011 in this regard. Therefore, the Association may have to meet its administrative expenses from its domestic/local donations/income, the way organisations without any FCRA registration or PP meet their administrative expenses.

Question 131

Does an Association need to maintain separate accounts for its administrative expenses and report the same as percentage of foreign contribution received in its annual return?

Answer: Neither FCRA, 2010 nor FCRR, 2011 specifically prescribe maintenance of separate accounts in respect of administrative expenses vis-à-vis the FC received by an Association.  In this context, the provisions of Section 19 of FCRA, 2010 and Rule 11 of FCRR, 2011 should be noted carefully:

Section 19 of FCRA, 2010:  Every person who has been granted a certificate or given prior approval under this Act shall maintain, in such form and manner as may be prescribed, ‒

(a) an account of any foreign contribution received by him; and

(b) a record as to the manner in which such contribution has been utilised by him.

Rule 11 of FCRR, 2011:  “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.”

Associations are required to indicate the amount of administrative expenses as provided in Rule 5, FCRR, 2011′ in the relevant box of the Form FC-4 for online submission of mandatory annual return.  The Form FC-4 also requires the Association concerned to indicate whether during the period under report it has made expenditure on administrative expenses exceeding 20% of the FC received.  Therefore, the books of account for FC should be maintained in such manner that an Association is in a position to clearly segregate the items of expenditure that constitute administrative expenses as per Rule 5 of FCRR, 2011 and incurred out of the FC received in a financial year for the purpose of reporting in the annual return.  Detailed records and supporting vouchers etc. should also be kept to indicate the administrative expenses as percentage of the foreign contribution received in the FY for the purposes of inspection by MHA, if necessary. This should be done by an Association in its own interest in order to prove compliance of the Act as MHA may direct an Association to furnish this information and related records during an enquiry or otherwise.

Question 132

Could an Association use the foreign contribution for investment in mutual funds or in shares and other speculative investments?

Answer:

No.   The proviso to Section 8(1)(a) clearly prescribes that any foreign contribution or any income derived therefrom shall not be used for speculative business.  Speculative activities have been defined in Rule 4 of FCRR, 2011 as under ‒

            “1 (a)   any activity or investment that has an element of risk of      appreciation or depreciation of the original investment, linked to marked forces, including investment in mutual funds or in shares;

               (b)     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.

            (2) A debt-based secure investment shall not be treated as   speculative investment.           

            (3)       Every Association shall maintain a separate register of investments.

            (4)       Every register of investments maintained under sub-rule (3) shall be submitted for audit.

Question 133

Could an Association use the foreign contribution for investment in any guaranteed return scheme?

Answer: Secure investments and fixed deposits in any Bank or Government approved financial institution which ensures a fixed return without any kind of risk/fluctuation is permissible.

Question 134

Could capital assets purchased with foreign contribution be acquired in the name of the office bearers of the Association?

Answer: No.  Every asset purchased with foreign contribution should be acquired and possessed in the name of the Association since an Association has a separate legal entity distinct from its members.

Question 135

Could an Association invest the FC received by it in profitable ventures and proceeds can be utilized for welfare activities?

Answer: No.  The Association should utilize such funds for the purpose or activities for which it is received.  The utilization should be in line with the objectives of the Association.  However, foreign contributions can be utilized for self-sustaining activities, not meant for commercial purposes.

Question 136

Whether a FCRA registered Association can use its FC asset as collateral for obtaining loan from a Bank?

Answer: No.  FCRA, 2010 and FCRR, 2011 do not envisage any situation for creating an encumbrance on any asset created out of FC.  Therefore, FC assets should not be used as collateral for any purpose.

Question 137

Is outward remittance of funds out of FC account permissible?

Answer: Generally, no.  However, if the FC is to be utilised for some transactions, e.g., importing of equipment from the manufacturer abroad, in connection with a project for which the FC is received, outward remittance of FC funds for the purpose of purchase of such equipment may be permissible. Similarly, if the FC is to be utilised in connection with a project for which the FC is received, for obtaining the services of some consultant/ researcher/expert located abroad, remittance from FC funds towards payment of consultancy/service fee to the person from whom the service is obtained may be permissible.

Question 138

Whether FC, interest earned thereon and income derived therefrom can be repatriated to the donor?

Answer: No.  FCRA, 2010 and FCRR, 2011 do not envisage any situation regarding repatriation of the FC, interest earned thereon or income derived therefrom and hence, such repatriation would not be permissible.  Therefore, no person should accept any FC where the donor intends to put such condition. 

Question 139

Could the FC be sent abroad for another project?

Answer: No.  FCRA, 2010 is meant for regulating the acceptance of FC for utilisation on a definite cultural, economic, educational, religious or social programme for the benefit of the society within the country. While there is no specific mention in FCRA, 2010 about utilising FC abroad, it can be construed from its various sections that FC is to be utilised for the aforesaid programmes within the country. In terms of Section 8(1)(a) of FCRA, 2010, FC shall have to be utilised for the purposes for which it is received.  Therefore, any FC cannot be utilised for any project outside the country. It has also been mentioned in MHA’s Charter (Annexure-IV) that Associations granted PP or Registration under FCRA are required to carry out the activities for which FC is received in India only and the amount should not be utilised for purposes other than for which it is received. Please note that the Form FC-4 for submission of Annual Return also requires the Association concerned to indicate whether during the period under report the Association has utilised any FC outside India.

It may be recalled that in 2015, many organisations expressed desire to support relief and rehabilitation work in Nepal for the victims of earthquake. Those Associations had to take approval of CBDT for tax exemption for funds applied by them outside India. Apart from seeking CBDT’s approval, the FCRA registered Associations had to seek approval from MHA also for exemption under Section 50 of FCRA, 2010 for utilising a part of their FC at Nepal. Both CBDT and MHA approved the applications from desirous Associations subject to a lot of stringent conditions.

Question 140

An Association received some FC for a particular project. The project got completed but, some amount of interest accrued on the FC received for that project remains available. Could the Association utilise that available interest towards its other activities?

Answer: Yes.  FCRA and FCRR do not state anywhere that the interest earned on the FC has to be utilised for the same purpose for which the said FC was originally received. FCRA and FCRR also do not put any restriction regarding utilisation of the interest earned on the FC deposits. FCRA simply states that the interest accrued on the FC deposited in the FCRA Account or any other income derived from the FC shall also be deemed to be FC. Further, the prescribed Form FC-4 under Rule 17 of FCRR for submitting Annual Return specifies that the interest or any other income earned out of such deposit should be shown against Column 2(i)(b) in the annual return (Form FC-4) during the year in which it is earned. MHA has also clarified in its FAQs that interest or any other income earned out of FC be should not be shown as fresh foreign contribution receipt. In other words, there is no restriction, whatsoever, regarding utilisation of the interest accrued on the FC received on some completed project towards any of the objectives of an organisation after completion of that project.  The only point to be borne in mind is that the said interest is also to be treated as FC and utilised for the lawful purposes of the organisation and accounted for in the mandatory Annual Return. Please see the answer to Q. 160 also.

Question 141

Could a FCRA registered Association use its FC towards reimbursement of expenditure it had to incur earlier on its declared activities?

Answer: Section 8(1)(a) of FCRA, 2010 stipulates that the FC should be utilised for the purposes for which the contribution is received.  Therefore, if an Association incurs some expenditure from its domestic funds on its declared activities or a FC project, it may use the FC received later for reimbursing the expenditure already incurred.   However, this principle should be applicable in case an Association implements a FC project by obtaining loan from a bank and repays the loan from the FC received later or in a situation where it has been compelled to continue with the FC project with its domestic funds because of delay in receipt of funds from the foreign donor.  While this may not be treated as mixing of local funds with FC, such a mechanism should not be a regular feature, resorted to in rare circumstances and avoided to the extent possible. It is advisable that while accepting such delayed contribution from a foreign source, the donor is requested to clearly indicate that the purpose of the donation is to reimburse the expenditure already incurred by the Association from its domestic funds or for repayment of the bank loan on the specific activity/project and the conditions, if any, for the donation.  Further, if the expenditure is met partially from domestic sources/funds and partially from FC, proper accounts, i.e., matching entries and relevant records, should be maintained to show as to how the expenditure on the activity/project was apportioned between local funds and foreign contribution and why the Association had to resort to such mechanism. 

Question 142

Could an Association which has been placed under PP category (but continues to hold registration) utilise the foreign contribution received earlier?

Answer: An Association registered under FCRA can be placed under PP category as a punitive measure.  Whether or not the Association can utilise the FC received earlier will depend on the order placing the Association in PP category.  If the order simply states that the Association cannot accept any foreign contribution, except with the prior permission of the Central Government, and does not put any restriction on utilisation of the FC received before it was placed under PP category, the Association can utilise such FC.​

Question 143

Is it necessary to issue a receipt for the FC received by an Association?

Answer:Associations must keep a record of all transactions and issue receipts in respect of all donations including FC received in cash/cheque/kind etc, duly indicating the details of the donors, their location and the purpose for which the donation has been received.  In the case of individual foreign donors, it is advisable to keep the details of their passports also. It is advisable that while accepting any contribution from a foreign source, the donor is requested to clearly indicate the purpose for which the FC is to be utilised and the conditions, if any, for the donation.  Wherever the purpose of receipt of the FC is not specified by the donor, the FC can be utilised only for the declared aims and objectives of the Association. 

Question 144

Whether FC should be accepted by Associations through payment gateway? What is SWIFT mode?

Answer:

In terms of Section 17(1) of FCRA, 2010 read with MHA’s Gazette Notification [S.O. 3479(E) dated 07/10/2020] and, Public Notice No. II/21022/23(35)/2019-FCRA-III dated 13/10/2020, every person who has been granted registration or prior permission must receive FC in its FCRA Account in the State Bank of India, New Delhi Main Branch, 11, Sansad Marg, New Delhi-110001 (SBI, NDMB).  This “FCRA account” of the Association in SBI, NDMB would act as the first exclusive port of receipt of foreign contribution in India. Further, as per the Standard Operating Procedure (SOP) issued by MHA on 20/11/2020, all such Associations shall receive FC in that FCRA Account in SBI, NDMB through SWIFT Mode. Since SWIFT mode is used for international money transfers, it implies that FC from overseas foreign donors can be received only in the FCRA Account in SBI, NDMB.

SWIFT is the acronym for Society for Worldwide Interbank Financial Telecommunications. Behind most international money and security transfers is the SWIFT system. SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions through a standardized system of codes.  SWIFT works by assigning each member institution a unique ID code that identifies not only the bank name but country, city, and branch. SWIFT does not hold any funds or securities, nor does it manage client accounts.  As per MHA’s directives, SWIFT mode is to be used for receiving FC from a foreign source from abroad in any Association’s FCRA Account in SBI, NDMB. Assume a customer of a Bank of America (BoA) branch in New York wants to send money (FC) to an Association in India which has FCRA Account in SBI, New Delhi Main Branch (NDMB).  The customer in New York can walk into his BoA branch with the Association’s SBI account number in NDMB (Branch Code: 00691) and SBI’s unique SWIFT code (SBININBB104) for NDMB. BoA will send a payment transfer SWIFT message to SBI, NDMB over the secure SWIFT network. Once SBI, NDMB receives the SWIFT message from BoA about the incoming payment, it will clear and credit the money to the Association’s FCRA Account after applying standard Forex conversion as permitted under FEMA guidelines and RBI instructions on the inflow of foreign currency. The Association will also be duly intimated by SBI, NDMB about receipt of the foreign remittance.

Since any foreign donor from abroad can remit money as donation to any FCRA Account in the SBI, NDMB through the SWIFT mode, an Association would not need to have any payment gateway for accepting such FC. Receiving foreign remittances towards donation/contribution through any other mode or a payment gateway of any other Bank or any ‘authorised person in foreign exchange’ or even any other branch of SBI will be a violation of the SOP to open and operate the “FCRA Account” with SBI, NDMB, as provided under Section 17(1) of FCRA, 2010.  Further, as against the modalities prescribed by MHA, any other payment gateway operator will first receive the foreign remittance and then transfer the same in INR to the Association’s FCRA Account in SBI, NDMB after applying its Forex conversion rate and conversion charges, which would not be appropriate and hence, violation of the aforesaid SOP. Since this would be a violation of Section 17 of FCRA, 2010, MHA may impose a penalty for receiving FC in any account other than the FCRA Account in SBI, NDMB. Please see the reply to Q. 228 for the quantum of penalty for compounding such offence. Form FC-4 for submission of Annual Return also requires the Association concerned to indicate whether during the period under report it has received any FC in an account other than the designated FCRA receipt Account in SBI, NDMB and if the answer is ‘yes’, clarification has to be provided. Whenever it comes to the knowledge of an Association that any non-FC donation has been sent to any of its FCRA Account, it should immediately request (in writing) the bank concerned not to credit the amount and to return the same to the remitter.

Note: Some other FC receipts from foreign sources in India, as mentioned in the FCRA Charter for Banks (Annexure-V) are also to be received/deposited in the FCRA Account in SBI, NDMB. Please refer to the answer to Q. 194 also.   

Question 145

Whether Associations may use a payment gateway for accepting domestic donations or for crowd funding, which are not treated as FC?  If yes, what are the precautions that should be taken by such associations?

Answer: Associations desirous of utilising the services of a payment gateway for receiving non-FC donations may use a payment gateway.   The bank providing the payment gateway should create a donation portal only for non-FC donations, which seeks all the information like name, nationality, address, passport details of individual donors for determining the identity and nationality of the person, and accept donations only from domestic sources.   An Indian national living abroad, i.e., an Indian passport holder, is not a ‘foreign source’, and he/she may send his/her donations to any Association in India to its domestic bank A/c in India through such payment gateway.  Such donation portal should also be able to advise the desirous foreign donors, if any, to make their donations through SWIFT mode to the FCRA Account in SBI, NDMB of the Association concerned.  The bank providing the payment gateway should be able to ensure that only non-FC donations are deposited in the domestic A/c of the Association.  Receiving FC in a domestic A/c would be a violation of Section 17 of FCRA, 2010 and MHA may impose a penalty. Please see the reply to Q. 228 for the quantum of penalty for compounding such offence.  Please note that the Form FC-4 for submission of Annual Return also requires the Association concerned to indicate whether during the period under report any domestic contribution has been credited in any FCRA Account. Further, if the answer is ‘yes’, brief details must be provided.

Question 146

FCRA registered Associations sometimes receive small amounts of voluntary donations from various foreign sources without any specific instructions regarding the manner in which the donations should be utilised. How the Associations should utilise such donations?

Answer: Small donations should be treated on par with other income/receipts of the Association and should be utilised for the purpose/programme of the Association. All such donations – whether in cash (INR or foreign currency) or local cheque/demand draft/ overseas bank transfer, from any foreigner/OCI cardholder/foreign source, even if that person/source is located in India – should be treated as FC; deposited in the FCRA Account in SBI, NDMB; utilised and accounted for accordingly.

Question 147

How to account for the donations, both in INR and foreign currency, received by FCRA registered Associations in their donation boxes?           

Answer: Many charitable organisations keep donation boxes at airports, hotels, cinema halls and such other public places. An organisation may receive donations in Indian as well as foreign currency through such boxes. Donations received in Indian currency may be considered as domestic contribution because such donations would most likely come from domestic sources. However, the donations received in foreign currency have a greater likelihood of being from foreign source. Therefore, it is advisable that such donations in foreign currency should be treated as receipt of foreign contribution from anonymous sources; deposited in the FCRA Account in SBI, NDMB and utilised on the declared aims and objectives of the organisation. Please refer to the Answer to the previous Question.

Question 148

Is there a limit on making payment in cash out of the FC?

Answer:Yes.  MHA had issued a Circular on 21.10.2014 advising Associations granted registration/PP that items of expenditure/payments of Rs.20,000/- or more from designated FC A/c or Utilisation Bank A/c(s) should be done by cheque/demand draft. It has also been stated therein that the records and accounts of Associations indulging in cash payments of Rs.20,000/- or more from designated FC A/c or Utilisation Bank A/c(s) are likely to require more intensive scrutiny by the Government.  Please note that as per FAQs in MHA’s website https://fcraonline.nic.in, cash expenses and withdrawal limit is Rs. 2000/-.

Question 149

Could an Association having registration or prior permission under FCRA, 2010 transfer the foreign contribution received by it to another person?

Answer: No.  Section 7 of FCRA, 2010, as amended by the Foreign Contribution (Regulation) Amendment Act, 2020, states: –

 No person who –

(a) is registered and granted a certificate or has obtained prior permission under this Act; and

(b) receives any foreign contribution,

shall transfer such foreign contribution to any other person.

Please note that the prohibition to transfer FC to any other ‘person’ is applicable with effect from 29/09/2020, i.e., the date on which the Foreign Contribution (Regulation) Amendment Act, 2020 came into force.  Further, since violation of Section 7 of FCRA, 2010 is an offence, MHA may impose a penalty of Rs. 1 lakh or 10% of such transferred FC, whichever is higher, and that the transfer of FC (inclusive of more than one instance of transfer, if any) shall be compoundable only once vide reply to Q. 228 for compounding the offence. Form FC-4 for submission of Annual Return requires the Association concerned to indicate the details of FC transferred to other persons/associations before 29/09/2020.  Form FC-4 also requires the Association concerned to indicate whether during the period under report it has transferred any FC to any FCRA registered and any non-FCRA registered association. Further, if the answer is ‘yes’, brief details must be provided.

Question 150

Whether an Association having registration or prior permission can give financial assistance as charity to individuals, Self-Help Groups (SHGs) and Community Based Organisations (CBOs)?

Answer: Section 8(1) of FCRA, 2010 prescribes that every person, who is having registration or PP under this Act and receives any foreign contribution, shall utilise such contribution for the purposes for which the contribution has been received. As per Section 11(1) of the Act acceptance of FC by the such Associations must be aligned with a ‘definite cultural, economic, educational, religious or social programme’. It, therefore, follows that if an Association having FCRA registration/PP receives FC for a definite purpose/programme for providing such direct financial assistance as charity without any consideration to any ‘person’, as defined in the Act, including individual beneficiaries, SHGs and CBOs, then it would be a permissible activity, as execution of the programme would tantamount to proper end utilisation of the FC received towards a definite programme. The concept of ‘end utilisation’ of the FC should be clearly borne in mind.  For example, if FC is utilised towards construction of a school building as per the purpose of the donation, then it is proper end utilisation of the FC.  It may be recalled that during the COVID 19 pandemic, a number of FCRA registered Associations utilised their FC for providing shelter, food, masks, sanitizers, blankets, clothes and other consumables to the needy and even the Government requested such Associations to aid and supplement the efforts of the Government and local administration to the situation created by the outbreak of COVID 19 virus.  Similarly, if FC is received for the purpose of giving direct assistance equitably to the needy individual beneficiaries, SHGs/CBOs without any consideration and utilised accordingly, then it should be treated as proper end utilisation of the FC.  Such assistance can be in the form of small cash to the needy and/or otherwise distressed due to some calamity or in kind e.g., providing clothes, other consumables, free board and lodging to poor students or destitute, providing school fees/ scholarships/school dresses/books/copies etc. to poor students, providing sewing machines etc., providing small cash assistance or utility items for setting up businesses to needy women SHGs/CBOs etc.  Further, the amount of FC, whether in cash or kind, being doled out to such needy beneficiaries should also be considered carefully and equitably because any large amount of such financial assistance to any particular group/beneficiary would be susceptible to scrutiny. There should also be proper record as to how the FC has been utilised for the purpose for which it was received and to support the basis upon which assistance is provided through such benevolence programme.

However, if the activity of providing such direct financial assistance or charity to individual beneficiaries/needy persons is not covered under the approved programme of an Association as per its MoA/Trust Deed etc. and is also not covered by the terms of the FC, then utilisation of the FC on such purposes would be treated as transfer of FC, which is not permissible.  

Question 151

Whether an Association registered under FCRA can give loans or advances, interest bearing or otherwise, and secured or otherwise, out of the FC received to SHGs and CBOs?

Answer:A loan or advance, interest bearing or otherwise, and secured or otherwise, would be recoverable and may be treated as ‘transfer’ of FC, which is not permissible.  However, if FC is received for providing such loans or undertaking micro finance activities approved by MHA while granting registration/PP, then there should be no objection to such activity.  In such case, the funds disbursed should be reflected in the balance sheet and shown as utilisation in the annual return and also as expenditure in the Income and Expenditure Account in the year of the disbursal. When such loans are recovered, the money should be considered as subsequent FC receipt and re-deposited in the FCRA A/c. Loans given out again and subsequently recovered should also be treated in the same manner.  It is advisable to maintain separate records of the disbursals and recovery of such loans/advances for effective control.

Question 152

Is it permissible for X, a FCRA registered Association to engage Y, another FCRA registered Association or any organisation not registered under FCRA, for executing a project and whether X can make payment to Y out of its FC?  Will such payment be treated as transfer of FC to Y?

Answer: Transfer of FC to any other ‘person’ is prohibited with effect from 29/09/2020, i.e., the date on which the Foreign Contribution (Regulation) Amendment Act, 2020 came into force. Therefore, FCRA registered Associations are not permitted to transfer FC, be it in cash or kind or securities, to any other ‘person’ for the latter’s activities.  All FCRA registered Associations must utilise the FC received by them on their own activities/programmes in accordance with the purpose for which the FC is received. This restriction would also be applicable in those cases where the payment is clothed as a service contract but the beneficiary of the service is not the FC transferor Association.  Wherever the FC transferor Association is not receiving the services for itself or for its own programme, such transfer would not be permissible.  Transfer of FC by a FCRA registered Association to any ‘person’ means giving away its FC to the other ‘person’ so that the latter can utilise the FC on its own legitimate activities/programmes, which is not permissible.

Payments out of FC in the ordinary course of business such as, payment of consultancy fees or payments for goods and services for the FC transferor organisation’s own utilisation/programme, are permissible because such payments are utilisation of FC and not to be treated as ‘transfer’ of FC as implied by the Act.  It should also be borne in mind that FC must be utilised for the purpose for which it is received.  The Act/Rules do not preclude awarding a work/service contract by a FCRA registered Association to another Association, whether FCRA registered or not. An organisation is free to implement its project either directly or through a contractor/vendor.  Supposing a FCRA registered organisation say ‘A’, engaged in the field of promotion of computer literacy and providing training to people of all ages, receives FC for promotion of computer literacy either through its own training centres or through other organisations who also undertake such activities. Before amendment to Section 7 of FCRA, 2010 vide Foreign Contribution (Regulation) Amendment Act, 2020 dated September 28, 2020, organisation ‘A’ was sub-granting or transferring a part of its FC to other FCRA registered organisations in the same field to conduct their activities which means that its FC utilisation was in accordance with the purpose for which it was received and the recipient organisations could utilise the FC so received from organisation ‘A’ on their own computer training centres.  Since sub-granting or transfer of FC to any other ‘person’ has been prohibited with effect from 29/09/2020, organisation ‘A’ is no longer permitted to sub-grant or transfer the FC received to any other organisation and it must terminate its existing/ ongoing arrangements/agreements with other organisations for transferring FC.

In the changed scenario, organisation ‘A’ desires to promote computer literacy, i.e., for the same purpose for which it receives FC, and wants to enter into some sort of service contract with a similar organisation, say ‘B’, to promote computer literacy through B’s computer training centre and pay some service charges to ‘B’.  Now, the question is, “will such payment of service charges/fee would also be treated as transfer of FC?”  In my view, such a service contract should not be treated as transfer of FC provided the terms & conditions of the service contract specifically mentions that ‘B’ (i) must run the programme as designed by ‘A’ under the total supervision and control of ‘A’; (ii) ‘B’ must show/advertise the programmes as that of ‘A’; (iii) under no circumstances ‘B’ can use its own name/brand for the programme being funded by ‘A’ and (iv) payment being made by ‘A’ to ‘B’ is towards the service being provided by ‘B’ to ‘A’ and subject to all applicable taxes.  However, it should be seen whether the aims and objectives of ‘B’, as codified in its MoA/Trust Deed, allows it take up such activities as a vendor/service provider.  Similarly, the MoA/Trust Deed of ‘A’ should also permit it to obtain the services of another organisation for getting any of its own programmes/projects executed. The purpose of the grant from the donor should also be specific in this regard so that ‘A’ can engage ‘B’ as a vendor/service provider for the programme for which it has received the FC.

It will be a similar situation where an organisation ‘X’ engages a builder ‘Y’ for constructing a school building and pays ‘Y’ from its FC funds. Here, ‘X’ engages ‘Y’ as a contractor/vendor for executing a project and the role of ‘Y’ is limited to executing the project as per the work order assigned by ‘X’ under the supervision and control of ‘X’.  Therefore, ‘X’ can engage ‘Y’ for executing a project on its behalf and payment to ‘Y’ out of its FC for executing the work contract is not treated as transfer.

In both the above examples, the service provider/vendor is being chosen because of their expertise in the related field. It is but natural that the builder cannot be engaged to run a computer literacy centre and a computer literacy centre cannot be engaged as a builder. Further, in both the cases, the service charge/fee to be received by the service provider/builder would not be treated as FC receipt and they should deposit such receipts in their domestic bank accounts.

The service contract/agreement between the two parties should be very carefully drawn up so that it is a foolproof one and that there is no doubt that the FC is being utilised/spent by an organisation towards its own programme as per the purpose of the foreign grant and that the FC is not being transferred to another organisation clandestinely through the service contract/ agreement.

The FCRA registered Associations who were collecting FC from foreign donors only to distribute the FC received to a number of FCRA registered Associations would not be able to continue with such activity.  They will have to directly work for the purpose for which they received the FC as per their aims and objectives and they would not be able to work as middlemen or aggregators for distribution of FC.  Henceforth, they will have to ask the foreign donors to directly send their donations to the FCRA Accounts in SBI, NDMB of the FCRA registered NGOs.

Question 153

What is a corpus fund? Whether donation from corpus fund created out of FC towards corpus funds of other charitable organisations attracts FCRA? Is there any restriction regarding utilisation of corpus fund and/or interest accrued thereon?

Answer: Generally, a corpus fund means the capital of an organisation- a permanent fund kept for the basic expenditures needed for an organisation’s survival when external donations dry out.  The income generated from corpus fund is treated as a part of the income of the charitable organisation along with other grants and incomes.  Corpus funds are created out of corpus donation. A donation will be treated as corpus donation only if it is supported by the written consent of the donor. In the absence of any written consent of the donor, a contribution cannot be transferred to the corpus fund. In other words, corpus donation/contribution is a voluntary donation/contribution received with a specific direction that it shall form part of the corpus of the recipient entity/institution. No further condition is prescribed in the Income Tax Act on utilization of corpus fund.  FCRA, 2010 neither mentions about corpus fund nor prescribes any condition or restriction on utilisation of corpus fund and interest thereon towards the aims and objectives of an Association. However, corpus funds created out of domestic donations and foreign donations should be maintained separately. If the corpus fund is created out of FC, then donation from such corpus fund towards corpus funds of other charitable organisations would not be permissible because such donations will be treated as ‘transfer’ of FC, which has been prohibited under the amended Section 7 of FCRA. 

Question 154

Could an Association transfer the small donations to its corpus fund?

Answer:  No.  Any donation received through charity boxes or otherwise will not be considered as corpus donation because a specific written direction from the donor is needed for treating any donation as corpus donation. Some organisations have the practice of treating small donations as corpus donations.  It is not correct to treat small donations as corpus donations because a corpus donation should always be supported by the written consent of the donor.

 

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