In this blog post, Yamini Sharma, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, critically analyses whether donations received in kind are considered as foreign contributions.
The flow of foreign contribution to India is regulated by the Foreign Contribution (Regulation) Act, 2010 (“FCRA”), the Foreign Contribution (Regulation) Rules, 2011 (“FCRR”) and other notification and orders, etc., issued by the Government from time to time. The Parliament enacted FCRA in order to consolidate the law regulating the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit the acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to national interest and for matters connected therewith or incidental thereto. It was enacted with the primary purpose of regulating the inflow of foreign contributions and ensuring that the received foreign contributions are not utilized for purposes other than those specified in the legislation.
Foreign Contribution has been defined as the donation, delivery or transfer made by any foreign source:
- 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 rules made by it in this behalf. (this amount has been specified as INR 25,000/- currently);
- Of any currency, whether Indian or foreign;
- 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.
A donation, delivery or transfer or 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 with the meaning of the definition of Foreign Contribution.
The interest accrued on the Foreign Contribution deposited in any bank referred to in sub-section (1) of Section 17 of FCRA or any other income derived from the Foreign Contribution or interest thereon shall also be deemed to be Foreign Contribution within the definition of Foreign Contribution.
Further, any amount received, by a 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 or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution.
The earlier definition of Foreign Contribution only included donation, delivery or transfer made by any foreign source. The scope of the definition was later expanded so as to include contribution(s) made by an organization out of Foreign Contribution received by it.
Money received on account of fees or payment towards cost in return for goods/services carried out in the ordinary course of business will not be considered as Foreign Contribution. Thus, donation received in kind by an organization which works with a cultural, social, religious, educational or economic objective, is considered as Foreign Contribution and an organization receiving such Foreign Contribution is required to follow the procedures as prescribed in FCRA and FCRR. Every organization which is registered or given prior permission to received Foreign Contribution is required to utilize such contribution only for the purposes for which it is received, and it shall not defray as far as possible such sum, not exceeding fifty percent of such contribution received in a financial year to meet its administrative expenses. However, it may be defrayed only with the prior approval of the Central Government.
An organization can receive Foreign Contribution only when it functions with a cultural, social, religious, educational or economic objective. For instance, an organization may receive Foreign Contribution for the welfare or rehabilitation of widows, orphans, beggars, child laborers, etc., environmental programs, construction of hospitals, clinics, place of worship, etc.
However, FCRA specifically provides that no Foreign Contribution can be received or accepted by:
- A candidate for election;
- A correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
- A Judge, Government servant or employee of any corporation or any other body controlled on owned by the Government;
- A member of legislature;
- A political party or office bearer thereof;
- An organization of a political nature as may be specified in subsection (l) of Section 5 of FCRA by the Central Government;
- An association or company engaged in the production or broadcast of audio news, audio visual news or current affairs programmes through any electronic mode.
Furthermore, FCRA does not allow any person either resident in India or citizen of India resident outside, to accept any Foreign Contribution or acquire or agree to acquire any Foreign Contribution on behalf of any political party.
Registration and Prior Permission Process
In order to be eligible to receive Foreign Contributions, an organization may either seek prior approval each time the organization is to receive contributions, or it may obtain a one-time long-term registration. FCRR provides for a detailed (i) Registration process; and (ii) Application process for prior permission.
For the grant of registration under FCRA, the organization should:
- Be registered under an existing statute like the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or Now Section 8 of Companies Act, 2013, etc.;
- Normally be in existence for at least three years and has undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilized. For this purpose, the Association should have spent at least INR 10, 00,000/- over the last three years on its aims and objects, excluding administrative expenditure. Statements of Income & Expenditure, duly audited by Chartered Accountant, for last three years are to be submitted to substantiate that it meets the financial parameter.
The organization must procure a certificate of Registration from the Central Government. An application for registration must be made online in this regard in ‘Form FC – 3’, along with the requisite documents and fees of INR 2000/-. The hard copy of the online application then must be submitted to the Central Government, within 30 (thirty) days of the submission of online application.
A Registration Certificate is valid for a period of 5 (five) years from the date of its issuance. An application for renewal of the Registration Certificate can also be made in ‘Form FC – 5’, 6 (six) months prior to the expiry of the Registration Certificate.
Application process for prior permission:
An organization not having a Registration Certificate is required to take prior approval before accepting Foreign Contributions. The application has to be made online in ‘Form FC – 4’, along with the requisite documents and fees of INR 1000/-. The hard copy of the online application then must be submitted to the Central Government, within 30 (thirty) days of the submission of online application.
An organization receiving Foreign Contributions is required to file annual returns online for each financial year. An organization permitted to accept Foreign Contribution, is required under law to maintain a separate set of accounts and records exclusively for the Foreign Contribution received and submitted an annual return, duly certified by a Chartered Accountant, giving details of the receipt and purpose-wise utilization of the Foreign Contribution. The return is to be submitted online, in prescribed ‘Form FC –4,’ duly accompanied with the balance sheet and statement of receipt and payment, which is certified by a Chartered Accountant.
Submissions of a ‘NIL’ return, in case there is no receipt or utilization of Foreign Contribution(s) during the calendar year, is mandatory. However, in such a case, a certificate from Chartered Accountant and audited statement of accounts is not required to be submitted.
Failure of an organization in filing annual returns can lead to Cancellation of registration of the organization or imposition of a penalty for late submission of return. In 2015, the Government of India had suspended the NGO ‘Greenpeace India’s’ license for 6 (six) months and barred it from receiving foreign funds. Greenpeace India violated FCRA by merging its foreign donations with domestic contributions. It had opened five accounts to utilize foreign donations without informing the relevant authorities. The organization had also faced a host of other penalties for which it has approached the court in the past.
- Foreign Contribution (Regulation) Act, 2010
- Foreign Contribution (Regulation) Rules, 2011
 Section 2(1)(h) of FCRA