FOREIGN CONTRIBUTIONS

REGULATION ACT, 1976

SW 2.2.3 ADMINISTRATION OF HUMAN SERVICE

ORGANISATIONS

Aarya Mathew, Msw 2nd Sem

TO
Fr. Dr. Sabu P. Thomas SJ
 TOPICS COVERED
1. About FCRA
2. FCRA, 2020 Amendment
3. Pros and Cons
4. Implication
 INTRODUCTION
On 31st March 1976, FCRA was enacted to regulate the utilization of foreign
contributions/hospitality by individuals, associations to keep it consistent with the values of a
sovereign, democratic republic. The FCRA was enacted in 1976 to maintain strict control over
voluntary organisations and political associations that received foreign fundings. In 1984, an
amendment was made to the act requiring all the Non Governmental Organisations to register
themselves with the Home Ministry. In 2010, the act was repealed and a new act with strict
provisions was enacted.

BRIEF DESCRIPTION:
FCRA 2010 is a consolidating act passed by the Government of India in the year 2010. It seeks
to regulate foreign contributions or donations and hospitality (air travel, hotel accommodation
etc) to Indian organizations and individuals and to stop such contributions which might damage
the national interest. It is an act passed for regulating and prohibiting the acceptance and
utilization of foreign contribution or foreign hospitality by companies, associations or individuals
for such activities that could prove to be detrimental to the national interest and for matters
connected therewith or incidental thereto.
Since the Act is internal security legislation, despite being a law related to financial legislation, it
falls into the purview of the Home Ministry and not the Reserve Bank of India (RBI).

NEED FOR FCRA

The act aims at keeping a check on foreigners influencing the Indian electoral politics,
journalists, public servants etc. for wrong purposes or activities detrimental to the public interest.
Those violating the provisions of FCRA can be jailed for up to a term of 5 years.

SALIENT FEATURES
A brief introduction to the provisions of the FCRA 2010:
 ● A provision was made for the cancellation of registrations of NGOs if the Home Ministry
believes that the organisation is political and not neutral.
● The registration certificate granted to the NGOs under the 2010 act came with five-year
validity.
● A provision was inserted stating that the assets of the person who has become a defunct
need to be disposed of in a manner stated by the government.
● A separate account needs to be maintained by the organisations to deposit the Foreign
Contributions received and no other funds except for Foreign Contributions shall be
deposited in that account.
● Every bank would be obligated to report to the prescribed authority, the number of
foreign remittances received and other related details such as the source, manner of
receipt etc.

Who can accept Foreign Contribution?

● Organizations working for definite cultural, social, economic, educational or religious
programs, if and only if they are registered with the Home Ministry.
● Maintaining a separate account listing the donations received from foreigners, getting it
audited by a Chartered Accountant and submitting it to the Home Ministry, every year.

Who are debarred from receiving Foreign Contribution?

● A candidate contesting an election
● Cartoonist, editor, publishers of a registered newspaper
● Judge
● Government servants or employees of any corporation
● Member of any legislature
● Political parties

FOREIGN CONTRIBUTION (REGULATION) AMENDMENT BILL 2020

The foreign inflow has almost doubled in the last decade, however, as per the government, the
entities receiving the funds aren’t using it for the declared purpose. In FCRA 2020, only 20% of
the foreign funds can be used for administrative purposes while the limit was 50% in FCRA
2010. This might hamper the workings of several small NGOs that depend on such funds.
The new provisions aim to enhance transparency and accountability in the matter of foreign
funds inflow and utilisation. The bill also makes the Aadhar number mandatory for recipients
(passport or OCI card will be used as the identification document in case of foreigners).

Who is required to obtain permissions under the FCRA?

● Whenever any NGO either in the form of Trust, Society or Section 8 company is willing
to receive any kind of foreign contribution or donation, they are required to obtain FCRA
Registration under Section 6 (1) of Foreign Contribution (Regulation) Act, 2010.

To which organisation is the FCRA applicable?

● The FCRA applies to all associations, groups and NGOs which intend to receive foreign
donations. All such NGOs must register themselves under the FCRA. The registration is
initially valid for five years and it can be renewed subsequently if they comply with all
norms.

PROVISIONS OF FCRA 2020

The Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in Lok Sabha on
September 20, 2020. The Bill amends the Foreign Contribution (Regulation) Act, 2010. The
Act regulates the acceptance and utilisation of foreign contributions by individuals, associations
and companies. Foreign contribution is the donation or transfer of any currency, security or
article (of beyond a specified value) by a foreign source.

Prohibition to accept foreign contribution: Under the Act, certain persons are prohibited to
accept any foreign contribution. These include election candidates, editor or publisher of a
newspaper, judges, government servants, members of any legislature, and political parties,
among others. The Bill adds public servants (as defined under the Indian Penal Code) to this list.
Public servant includes any person who is in service or pay of the government or remunerated by
the government for the performance of any public duty.
Transfer of foreign contribution: Under the Act, foreign contribution cannot be transferred to
any other person unless such person is also registered to accept foreign contribution (or has
obtained prior permission under the Act to obtain foreign contribution). The Bill amends this to
prohibit the transfer of foreign contributions to any other person. The term ‘person’ under the
Act includes an individual, an association, or a registered company.

Aadhaar for registration: The Act states that a person may accept foreign contribution if they
have: (i) obtained a certificate of registration from central government, or (ii) not registered, but
obtained prior permission from the government to accept foreign contribution. Any person
seeking registration (or renewal of such registration) or prior permission for receiving the foreign
contribution must make an application to the central government in the prescribed manner. The
Bill adds that any person seeking prior permission, registration or renewal of registration must
provide the Aadhaar number of all its office bearers, directors or key functionaries, as an
identification document. In the case of a foreigner, they must provide a copy of the passport or
the Overseas Citizen of India card for identification.

FCRA account: Under the Act, a registered person must accept foreign contributions only in a
single branch of a scheduled bank specified by them. However, they may open more accounts in
other banks for utilisation of the contribution. The Bill amends this to state that foreign
contribution must be received only in an account designated by the bank as “FCRA account” in
such branch of the State Bank of India, New Delhi, as notified by the central government. No
funds other than the foreign contribution should be received or deposited in this account. The
person may open another FCRA account in any scheduled bank of their choice for keeping or
utilising the received contribution.

Restriction in the utilisation of foreign contribution: Under the Act, if a person accepting
foreign contribution is found guilty of violating any provisions of the Act or the Foreign
Contribution (Regulation) Act, 1976, the unutilised or unreceived foreign contribution may be
utilised or received, only with the prior approval of the central government. The Bill adds that
the government may also restrict the usage of unutilised foreign contributions for persons who
have been granted prior permission to receive such contributions. This may be done if, based on
a summary inquiry, and pending any further inquiry, the government believes that such person
has contravened provisions of the Act.

Renewal of license: Under the Act, every person who has been given a certificate of registration
must renew the certificate within six months of expiration. The Bill provides that the
government may conduct an inquiry before renewing the certificate to ensure that the person
making the application: (i) is not fictitious or benami, (ii) has not been prosecuted or convicted
for creating communal tension or indulging in activities aimed at religious conversion, and (iii)
has not been found guilty of diversion or misutilisation of funds, among others conditions.

Reduction in use of foreign contribution for administrative purposes: Under the Act, a
person who receives a foreign contribution must use it only for the purpose for which the
contribution is received. Further, they must not use more than 50% of the contribution for
meeting administrative expenses. The Bill reduces this limit to 20%.

Surrender of certificate: The Bill adds a provision allowing the central government to permit a
person to surrender their registration certificate. The government may do so if, post an inquiry, it
is satisfied that such person has not contravened any provisions of the Act, and the management
of its foreign contribution (and related assets) has been vested in an authority prescribed by the
government.

Suspension of registration: Under the Act, the government may suspend the registration of a
person for a period not exceeding 180 days. The Bill adds that such suspension may be extended
up to an additional 180 days.

PURPOSE FOR AMENDMENT:

● The annual inflow of foreign contribution has almost doubled between the years 2010
and 2019, but many recipients of foreign contribution have not utilised the same for the
purpose for which they were registered or granted prior permission under the FCRA
2010.
 ● Recently, the Union Home Ministry has suspended licenses of the six (NGOs) who were
alleged to have used foreign contributions for religious conversion.
● Many persons were not adhering to statutory compliances such as submission of annual
returns and maintenance of proper accounts.
● Such a situation could have adversely affected the internal security of the country.
● The new Bill aims to enhance transparency and accountability in the receipt and
utilisation of foreign contributions and facilitating the genuine non-governmental
organisations or Issues Involved

DOWNFALLS
● The Bill would impact the livelihoods of workers associated with the small Non-
Governmental Organisations (NGOs) and lead to the killing of the entire social sector as
caps on administrative expenses would make it impossible for even the bigger NGOs to
perform.
● It will severely impact collaborative research in critical fields in India as organisations
receiving foreign funds will no longer be able to transfer them to small NGOs working at
the grassroots level.
● The government aims to control the NGOs which engage in dubious activities. However,
by failing to recognise the diversity of NGOs, which include world-class organisations
that are recognised globally, will crush their competitiveness and creativity.
● It is also incompatible with international law. The United Nations Human Rights Council
resolution on protecting human rights defenders says that no law should criminalize or
delegitimize activities in defence of human rights on account of the origin of funding.
● The Bill also fails to comply with India’s international legal obligations and
constitutional provisions to respect and protect the rights to freedom of association,
expression, and freedom of assembly.
● The amendments also assume that NGOs that are receiving foreign funds are guilty
unless proven otherwise.
 “If you are getting foreign funding, you cannot work in partnership with anyone, you will now
not be able to give the money to an individual or another NGO or collaboration partner. All large
NGOs collaborate with smaller NGOs which are there at the grassroots level – they do not have
the capability of raising money or writing reports but do the real work. We support them to do
the real work and we raise funds and write reports and support them as an intermediary
organisation. So this would mean the end of the small NGOs,”

IMPLICATIONS (Sattva Consulting Blog, 2020)

1. What is the government’s rationale for these amendments?
The Minister of State for Home Affairs, Nityanand Rai in his statement in the Indian parliament
said that the amendments are intended to bring about “greater transparency” and are “not against
NGOs or an attack against a religion or community”. He further said that it will not stop foreign
contribution but is in the interest of nonprofits doing good work. Additionally, he mentioned that
it was meant to “stop misuse of foreign funds by some people” and was required for an
Atmanirbhar Bharat, and aimed to ensure that foreign funds are spent in the right direction.

2. What are some of the repercussions of this Amendment Act?

The amendments which are expected to cause the most concern are:
a) Transfer of foreign contribution
The blanket ban on the transfer of foreign contributions could impact collaborations in the
development ecosystem, especially for smaller, less visible grassroots organisations that may not
meet the criteria or be able to submit detailed proposals to get access to grants from funders
abroad. Equally, such grassroots organisations may not have the track record or meet the
eligibility criteria to obtain registration under the FCRA. Intermediary organisations provide the
necessary identification, monitoring, and capability building of the smaller nonprofits for them to
thrive.
b) Cap on administrative expenses to 20 per cent
This cap on expenses may hinder efforts on internal capability building, attracting relevant talent,
and focus on innovation for nonprofits. Expenses such as travel, rent, and hiring of talent come
under the ambit of administrative expenses, among others. Cap on these expenses may impact
the productivity of smaller nonprofits.
c) Requirement of Aadhaar and prohibition of public servants
The greater scrutiny (afforded by submission of Aadhaar numbers) of members of boards,
trustees, or other management/executive council members of nonprofits may curtail interest in
experts wanting to provide their expertise and advisory services to nonprofits. This may deprive
the sector of their knowledge, skills, and network which would be a significant loss for the
impact sector.
d) Suspension of account
Extended suspension of FCRA account may affect operations significantly, in case the FCRA-
registered organisation comes under government scrutiny, thereby impacting projects on the
ground.

3. For an FCRA-registered nonprofit, what are the ramifications of the 2020 amendments?
a) As an FCRA-registered nonprofit, if you have an acting ‘public servant’ on your governing
board, then you will be prohibited from receiving any foreign contribution.
b) Sub-grants from and to other FCRA-registered nonprofits will no longer be possible. Each
FCRA-registered nonprofit looking to collaborate on a project will have to enter into direct
transactions with the foreign contributor to receive funds. Service contracts for specific services
provided to an FCRA-registered entity are not impacted. There is the applicability of 18 per cent
GST and the receipt through the provision of such services must be within 20 per cent of the total
receipts for the service-providing nonprofit (Finance Act 2015).
c) Local branch/offices of international nonprofits or think tanks that were incorporated or
established in India to distribute funds locally from the foreign parent entity will no longer be
able to do so.
d) Nonprofits will have to take into account their administrative expenses and ensure that they do
not exceed 20 per cent of the foreign contribution received.
e) Nonprofits will have to ensure that they have the Aadhaar details of all members on their
governing board while applying for FCRA registration or while seeking renewal of their
registration.
f) Nonprofits will have to set up their designated FCRA bank account to receive foreign
contributions in specific branches of the State Bank of India in New Delhi, as notified by the
government. The funds can be moved to other bank accounts, however, for their utilisation.
g) Given that the FCRA registration expires after five years, FCRA holders will be subject to the
inquiry at the end of every five years if they wish to renew their registration, rather than a
simpler renewal process before the amendments.
h) Any nonprofit that would prefer to surrender their FCRA registration may do so, but any
assets that have been created using foreign contribution will be transferred to an authority
prescribed by the government. These assets may include any schools or institutions that may
have been set up using foreign contributions.
There is no clarity on how these changes will impact the existing funds collected for ongoing
projects.

4. For a non-FCRA-registered nonprofit, what are the ramifications of the amendments?

Earlier, non-FCRA registered nonprofits could receive a portion of FCRA funds from FCRA-
registered nonprofits, by taking prior permission from the government (up to 10 per cent of the
foreign contribution). This will no longer be possible. This could impact collaborations in the
development ecosystem. Service contracts for specific services provided to an FCRA-registered
entity are not impacted, with the applicability of 18 per cent GST. The receipt through the
provision of such services must be within 20 per cent of the total receipts for the service-
providing nonprofit (Finance Act 2015). If nonprofit wishes to apply for an FCRA registration, it
would be pertinent to keep in mind the necessary eligibility criteria and documentation required
such as Aadhaar, affidavits to be signed by the office bearers/chief functionary, the prohibition of
the presence of public servants on the board, and the more detailed scrutiny than the organisation
would come under after the amendments come into force.

5. As a service provider to FCRA-registered nonprofits, will this Act impact my services?

Any fees earned by a person instead of any services rendered by the person in the ordinary
course of business is exempted from the definition of foreign contribution and does not fall under
the ambit of the FCRA law.
The only ramification of these amendments may apply if the FCRA-registered nonprofit
considers the service fees as part of their administrative expenses, which may now be limited to
20 per cent of total foreign contribution. Depending on the nature of services rendered, the
nonprofit may characterise the service fees payable as ‘administrative expenses, if such services
relate to the management or running of operations of the client itself (as opposed to a specific
project). In such a case, the fees could be characterised as ‘professional charges’.

6. For a CSR client who can only support FCRA-registered nonprofit partners, what are
the implications of these amendments?
a) CSR funders will have to ensure either by diligence or by taking a warranty from the nonprofit
partners that they do not have any public servants on their governing board.
b) CSR funders will have to ensure their funds are not further distributed by the recipient entity
by incorporating necessary restrictions in the terms of engagement with the nonprofit partner.
c) CSR funders will also have to ensure that the 20 per cent cap on administrative expenses is
marked in the budget/purpose of utilisation shared by the nonprofit partners.
d) CSR funders will also need to be aware of the date of validity of the FCRA registration of
their nonprofit partners, to ensure that projects do not get stalled midway due to delay in process
of renewal of the FCRA certificate.

7. As a foreign contributor to Indian nonprofits, how will the amendments impact my

contributions?
a) Foreign contributors will have to ensure, either by diligence or by obtaining adequate
warranties from the recipient entities that such nonprofit partners do not have any public servants
on their governing board, which would make them ineligible to receive foreign contribution.
b) Foreign contributors will have to ensure their funds are not further distributed by the recipient
entity by incorporating necessary restrictions in the terms of the grant.
c) Foreign contributors will have to ensure that the 20 per cent cap on administrative expenses is
marked in the budget/purpose of utilisation shared by the recipients.
d) Foreign contributors will need to be cognisant of the validity of FCRA certification of their
recipient organisations.
e) Foreign contributors, in case of a collaboration, will need to enter into separate grant
agreements with each of their nonprofit partners rather than through one anchor FCRA-registered
nonprofit which would further sub-grant it to other nonprofits.
 References
The Hindu. (2021, May 9). FCRA amendments crippling our work, say NGOs. The
Hindu. https://www.thehindu.com/news/national/fcra-amendments-crippling-our-work-
say-ngos/article34521449.ece
Meritas Law Firm. (2020, October 5). Foreign Contribution (Regulation) Amendment
Act, 2020 - A Mixed Bag. Lexology. Retrieved September 23, 2021, from
https://www.lexology.com/library/detail.aspx?g=0d92afd5-6817-419f-a58d-
7597b5c68904
Ministry of Law and Justice. (2020, September 28). THE FOREIGN CONTRIBUTION
(REGULATION) AMENDMENT ACT, 2020 [An Act further to amend the Foreign
Contribution (Regulation) Act, 2010.]. Ministry of Law and Justice.
Sattva Consulting Blog. (2020, October 24). FAQs on the FCRA. The Times of India.
Retrieved September 23, 2021, from
https://timesofindia.indiatimes.com/blogs/author/sattva-consulting/
The Wire & Bhatnagar, G. V. (2020, September 22). Leading NGOs Believe FCRA
Changes Will 'Kill' Voluntary Sector. The Wire. Retrieved September 23, 2021, from
https://thewire.in/rights/fcra-amendment-ngo-sector-impact-grassroots-activism