an initiative of FMSF & CPA


Other Aspects of FC(R)A

Foreign Contribution

“ 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 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 as may be specified from time to time, by the Central Government by the 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 and includes any foreign security as defined in clause (o) of section 2 of` the Foreign Exchange Management Act, 1999.

The above definition of foreign funds is enlarged by FC (R) Act which provides the following explanations:

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.

Revolving Funds

The second or subsequent recipient is also required to possess FCRA registration or prior permission. Therefore, on strict interpretation of FCRA law, it is not possible to give revolving funds as loans to CBOs not possessing FCRA registration. Organisations should apply in Form FC-10 , now changed to Form FC-5, under Rule 24 for taking such permission to provide funds to CBOs. The funds disbursed for revolving funds and micro finance activities should be shown as utilisation in FC-4 and also as expenditure in the Income and Expenditure Account. When loans are recovered, the money should be re-deposited in the FCRA designated bank account and should be considered as foreign contribution received as subsequent recipient. When the loans are given out again, the same should be considered as utilisation and expenditure in the year of the disbursal. For control purposes, separate records of the disbursals or receipt of the revolving funds should be made.

For large organisation having projects in various parts of India it may be difficult to redeposit funds in the designated bank account. However, under the prevailing provisions of FCRA, it is advisable to receive all such recoveries in the designated bank account only.

Transfer of surplus of income over expenditure to general fund

It has been seen that, many NGOs transfer the surplus of income over expenditure to the general fund in the domestic books of account. A general fund being an unrestricted fund at the discretion of the organisation is at times confused to be a domestic fund. All funds created from foreign contribution should be reflected in FC books of account only. As a result, an organisation can have two general funds, one, created from foreign funds and the other from domestic funds. The same is true for the corpus and other funds also. It is reiterated that all foreign contribution balances or assets whether in shape of general fund, corpus fund or any other fund should be part of the FC books of accounts only.

Activities of NGOs in other countries

One of the senior NGOs leaders once remarked that “Foreign funds are like toothpaste coming out of the tube, once it is out, it is virtually impossible to put it back”. To do activities in other countries an NGO may have to transfer funds in foreign currency to another country. Such transfer, would be subject to Foreign Exchange Management Act. Further, it may be noted that even if an NGO is entitled to transfer funds to another country under Foreign Exchange Management Act, the NGO may be under a threat of loosing exemption under section 11 of Income Tax Act, 1961, because under section 11(1)(c), NGOs are not allowed to spend money outside India, unless, it helps in promoting international welfare in which India is interested. Further, according to the Charter for association granted registration under FCRA, an association should be conducting its activities in India only. Hence, in our opinion, it may not be possible for the NGOs to conduct activities outside India.

Treatment of small donations and grants

Many charitable organisations receive voluntary grants and donations in small amounts from various domestic and international sources. Normally small contributions do not come with any specific instructions regarding the manner in which they should be utilised. In that sense, they are discretionary and general in nature. Many organisations have practice of treating such small donations as corpus donations. However, irrespective of the amount involved, a corpus donation should always be supported by the written consent of the donor. Further, it is not advisable to treat small donations as corpus donations. Small grants or donations should be treated on par with other income of the organisation and accordingly should be utilised for the purposes of the organisation.

Mingling of small domestic contribution with foreign contribution

The organisation should distinguish between domestic and foreign contribution. Only foreign contribution should be received in the designated bank account. Possibility of mingling of domestic donation with foreign contribution is there because even funds from overseas in foreign currency may be domestic donation. For example, donation received from an NRI in foreign currency is not a foreign contribution if the NRI holds a valid Indian passport. On the other hand, donation received from foreigner in India in Indian rupees is a foreign contribution.

Therefore, an organisation should take great care and caution in segregating the foreign contribution and domestic contribution. Accordingly, only foreign contribution should be received in the designated bank account and reflected in the FC books of account.

Treatment of undisclosed/anonymous donations

Many organisations, at times, receive funds through direct credit in their bank account from various overseas sources where the donor’s identity may not be available. In such a case, the organisation should ask its bank to trace the source of donation i.e. identity of donor and origin of country. The details if obtained from the bank should be reported in Form FC-4 or else the organisation should report in Form FC-4 all such anonymous donations on the basis of bank advice.

Equity Contribution in Section 8 Companies

Any equity contribution in section 8 company shall be treated as foreign contribution. Because any investment in section 8 company cannot be made with profit motive therefore it cannot be treated as a commercial transaction.

Subsidised or Unsecured Loan from the donor

Any subsidised or unsecured loan from foreign source for charitable purposes shall be treated as a part of foreign contribution. Therefore, any loan received from a donor at subsidised rate or without security will not make it a commercial transaction. In other words, any kind of support or contribution embedded in a commercial transaction may render it the nature of foreign contribution.

Political person on the Board of an Organisation

FCRA does not prohibit the presence of political person on the board of any organisation. However, if full time political person become full time functionaries of organisation then it may create some conflict. Therefore, it is advisable that the political persons should be general members or board members without assuming any executive positions.