Banking Article, Banking Finance 2022, Banking Finance May 2022

Foreign Contribution (Regulation)Amendment Act 2020,Guidelines and Bank Procedures

The Government of India notified FCRA 2020(Amendment) and it came into effect from 29th September 2020  and  has given strict enforcement and stringent penalties (including criminal consequences) for violations of the FCRA. Let us understand the rules for foreign contribution from its inception.

Foreign Contributions regulation  in India goes back to 1976, when the Foreign Contribution (Regulation) Act, 1976 was enacted to regulate the inflow of foreign funds  to voluntary organizations set up for various socio-economic, religious or cultural objects. While the 1976 Act loosely regulated foreign funding to such organizations, in 2010 it was repealed in favour of a wider and stricter law on foreign contributions in India. The Foreign Contribution (Regulation) Act, 2010 (FCRA), along with the Foreign Contribution (Regulation) Rules, 2011 (FCRR) repealed the Foreign Contribution (Regulation) Act, 1976. The FCRA permitted registered entities to receive foreign contribution, but subject to strict conditions and disclosure requirements.

The Foreign Contribution (Regulation) Act, 2010 (FCRA):

The Effective Date of The Foreign Contribution (Regulation) Act, 2010 and the Foreign Contribution (Regulation) Rules, 2011 are applicable from 1st May,2011. It replaces Foreign Contribution (Regulation) Act, 1976.

The Object  is to

  1. To regulate the acceptance and utilisation of foreign contribution (FC) or foreign hospitality (FH) by certain individuals or associations or companies.
  2. To prohibit acceptance and utilisation of FC or FH for any activities detrimental to the national interest and matters connected or incidental thereto.

Its applicability extends to  whole of India, and also applies to 

  1. Citizens of India who are outside India.
  2. Associate branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India.

Foreign Contribution means donation, delivery, or transfer made by any foreign source of:–

  1. Any article other than personal gifts of market value not exceeding such sum as may be specified by the Central Government.
  2. Any currency whether Indian or foreign.
  3. Any security including foreign security.

This will also cover:

  1. Contribution received from any person who has in turn received it from a foreign source
  2. Interest accrued on FC deposited in the bank

However, 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 business, trade or commerce, whether within India or outside India, shall be excluded from the definition of foreign contribution.

Foreign Sourceincludes

  1. Government of any foreign country or any agency of such government;
  2. Any international agency except United Nations or any of its specialised agencies, World Bank, International Monetary Fund or such other agency as the Central Government may, by notification in the Official Gazette, specify;
  3. Foreign company;
  4. Corporation, other than foreign company, incorporated outside India;
  5. A multinational corporation;
  6. A company where more than 50% of its share capital is held by a foreign government or citizens of a foreign country or foreign entity (includes company, corporations, trusts, societies or other associations of individuals registered in foreign country);
  7. A foreign trust or foreign foundation and includes trust or foundation mainly financed by a foreign country and;
  8. Citizen of a foreign country.
  9. Foreign Trade Union, Society, Club or Other Association.

Note: Amount received from a non-resident Indian citizen in foreign currency, would not be treated as foreign source.

Restrictions on Accepting FC

The person having a definite cultural, economic, educational, religious or social programme can accept FC, only if:

  1. It is registered with the Central Government under this Act or takes prior permission before receiving each contribution.
  2. It receives FC only through one designated bank account.
  3. Central Government is kept intimated as to the amount, source and manner in which FC was received and utilised.

 Prior Permission

  1. Application for prior approval to be made in Form FC 4.
  2. Prior approval to be donor specific, done specific and purpose specific.

Registration of the Association

  1. Application for registration shall be submitted electronically in Form FC 3. Duly signed hard copy of the same along with relevant documents is also to be submitted within 30 days.
  2. Registration granted shall be valid for 5 years from the date of its issue.
  3. Application for renewal to be made in Form FC 5, six months before the date of expiry of the certificate
  4. Act provides that registration may be granted, ordinarily within 90 days from the date of receipt of application, however practical experience is that the process takes much longer.
  5. The Ministry of Affairs has introduced a new facility “FCRA – Online” to facilitate associations to file their applications for registration and submit statutory forms online. Refer fcraonline.nic.in.

Accounts & Audit

Maintenance of accounts

  1. Accounts to be maintained on yearly basis from April to March.
  2. Every person receiving FC shall maintain an account of any FC received and its utilisation.
    1. Income & expenditure statement, receipt & payment account and balance sheet are to be prepared exclusively in respect of the FC received.
    2. Details in Form FC 7 to be maintained where FC relates to articles.
    3. Details in Form FC 8 to be maintained where FC relates to foreign security.

Designated bank account

  1. FCRA funds can be received and held only in the designated bank account.
  2. Besides the designated bank account, operational accounts in one or more banks may be opened for the limited purpose of utilising the foreign contribution. Such accounts are commonly referred to as field accounts. In such cases, intimation on plain paper shall be furnished to the Secretary, Ministry of Home Affairs.
  3. Designated or field accounts are strictly prohibited from receiving non-FC funds.
  4. Interest earned out of FC funds should be deposited in designated bank account.

Audit

  1. Income & Expenditure account, Receipts & Payment account and Balance Sheet, with report in Form FC 6 duly certified by a CA to be submitted to Home Ministry before 31st of December immediately following the end of financial year.
  2. Form FC 6 to give details of each contribution received, the source, manner of receipt, purpose of receipt and manner of utilisation.
  3. Even Nil report has to be submitted.

Total Ban on Acceptance of Foreign Contribution & Hospitality

 Ban relating to FC applies to

  1. Candidate for election;
  2. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
  3. Government servant, judge or employee of any Government corporation;
  4. Member of any Legislature;
  5. Political party or office-bearer thereof
  6. Organisation of political nature;
  7. Association or company engaged in production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode or form;
  8. Correspondent or columnist, cartoonist, editor, owner of the above association or company.

Ban does not apply to FC received by way of:

  1. Salary, wages or other remuneration, or
  2. Payment in ordinary course of international trade or commerce, or
  3. Payment received by an agent of a foreign source in relation to any transaction made by such foreign source with the State or Central Government, or
  4. Gift or presentation made to a member of any Indian Delegation, provided the same is in conformity with the rules framed by the Central Government in this regard, or
  5. Gift from relative. Gifts exceeding ₹ 1,00,000 per annum requires intimation to the Central Government in Form FC-1 within 30 days from date of receipt of such gift, or
  6. Any scholarship, stipend or any payment of like nature, or
  7. Remittance received in ordinary course of business through official channels.

 And Foreign Hospitality 

  1. Member of Legislature or office-bearer of political party or Government servant, judge or employee of any Government corporation, while visiting any foreign country shall not accept any foreign hospitality except with the prior permission of the Central Government in Form FC 2.
  2. Such permission is not necessary in case of medical emergency. However, even in case of such an emergency, the Central Government is required to be intimated within sixty days of receiving hospitality.
  3. Meaning of Foreign Hospitality – any offer, not being a purely casual one, made by a foreign source for providing a person with the costs of travel to any foreign country or territory or with free boarding, lodging, transport or medical treatment.

Restriction on Administrative Expenses

Every person, registered or having prior permission, shall not, as far as possible, incur administrative expenses in excess of 50% of the FC received in that financial year. Rule 5 lays down parameters as to what constitutes administrative expenses.

Speculative Activity

Foreign contribution or any income arising out of it shall not be used for speculative business. Rule 4 specifies the activities that will be treated as speculative in nature. For example investment in mutual funds is not permitted. However, debt based secure investment shall not be treated as speculative.

Transfer of FC to Other Registered or Unregistered Persons

  1. Transfer of FC funds to another person who is not registered or has not obtained prior permission to receive foreign contribution will not be permitted unless pre-approval of the Central Government is obtained. Application for such pre-approval is to be made in Form FC 10.
  2. In such case, the transferor may apply for permission to transfer not more than 10% of the total value of FC received.
  3. Transfer of FC funds is permitted if the transferee is a registered organisation or has obtained prior permission under section 11.

Inspection & Seizure

  1. The Central Government has been empowered, to inspect as well as seize the accounts and records if it has reason to believe that any provisions of this Act or any other law relating to foreign exchange has been contravened.
  2. Central Government may seize and/or confiscate any article, currency or security in relation to which any provision of this Act has been contravened.
  3. The seized records and accounts are to be released if no proceedings are initiated within six months from the date of seizure.

Penalty

Sr. No. Nature of Offence  Penalty  Additional Fine
1. False statement or representation or concealment of material facts for obtaining registration or prior permission Imprisonment up to 6 months and/or fine
2. Violating prohibitory orders in respect of any articles or currency or security Imprisonment up to 3 years and/or fine Additional fine equivalent to market value of article or the amount of currency or security in respect of which prohibitory order is passed.
3. Accepting or assisting in accepting FC in contravention of this Act Imprisonment up to 5 years and/or fine
4. Any other failure not specifically dealt with in the Act Imprisonment up to 1 year and/or fine
  • A person who has been convicted more than once for offence relating to acceptance or utilisation of FC is prohibited from accepting any FC for a period of 5 years.
  • Any person convicted of an FC offence relating to any article, currency or security would also be liable to fine up to 5 times the value of the article or currency or ₹ 1,000 whichever is more, if article or currency is not available for confiscation.
  • Compounding of certain offences is now possible.

Custody of FC when certificate of registration is cancelled

  • If certificate of registration is cancelled then unutilised FC lying in the designated bank account shall vest with concerned banking authority till Central Government issues further direction.
  • If person to whom the certificate is granted ceases to exist or becomes defunct then, the assets of such person shall be disposed of in accordance with the provisions of law for the time being in force under which the person was registered or incorporated.

FC in Excess of Rupees One Crore in a Financial Year

Any person in receipt of FC in excess of ₹ one crore in a financial year, shall maintain summary data of receipts and utilisation of FC pertaining to the year of receipt and the subsequent year in the public domain. The Central Government shall also display such summary data through its website.

The Foreign Contribution (Regulation) Amendment Act, 2020 

The Government has further amended the FCRA, to further regulate the laws on foreign contribution in India. The Foreign Contribution (Regulation) Amendment Act, 2020 has  been notified and has come into force on September 29 , 2020. Given the strict enforcement and stringent penalties (including criminal consequences) for violations of the FCRA, it is critical for not for profit organizations  to be aware of and clearly understand the ambit of and implications of the FCRA amendments brought about by the 2020 Amendments.

Now let us see the various Amendments:

-Inclusion of Public Servants, Judge, Government servant or employee of any Corporation or any other body  controlled or owned by the Government  in the list of individuals/entities prohibited from receiving foreign contribution

– 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.”.

– Reduction of cap on administrative expenses  spending reduced from 50% to 20%.

– The  Amendment provides that the Government may conduct a scrutiny of the organization at the time of the renewal of the registration.

– Every person who has been granted certificate or prior permission under section 12 shall receive foreign contribution only in an account designated as “FCRA Account” by the bank, which shall be opened by him for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi.

– The FCRA provides for criminal penalties for violations of its provisions which attracts a maximum penalty of imprisonment up to five years, along with monetary penalties which may go up to five times the value of the article or the currency. It also provides for a penalty for assisting or accepting foreign contribution in violation of the FCRA. The NGO/entity receiving the funds and its officers in charge can be prosecuted for such offences.

-The FCRA provides for criminal penalties for violations of its provisions which attracts a maximum penalty of imprisonment up to five years, along with monetary penalties which may go up to five times the value of the article or the currency. It also provides for a penalty for assisting or accepting foreign contribution in violation of the FCRA. The NGO/entity receiving the funds and its officers in charge can be prosecuted for such offences.

Guidelines  to be followed in Banks by FCRA Account Holders:

  1. Existing Account Holders of FCRA:

All the existing FCRA account holders who have valid FCRA registration certificate (as on date) given by Ministry of Home Affairs, shall open one more FCRA account in State Bank of India, New Delhi Main Branch(NDMB) 11, Sansad Marg, New Delhi-110001 before 31st March 2021, which is now extended to 31st June 2021. This account shall be used for purpose of receiving Foreign Contribution from the date of opening of this account. The existing  account of the client can continue, but will not be eligible to receive foreign currency from the date of opening of the account in SBI, New Delhi Main Branch or 31st June 2021, whichever is earlier.

  1. New Accounts for clients having valid FCRA Registration Certificate:

All the clients who are not maintaining FCRA accounts with any Bank but who have valid FCRA registration certificate (as on date) given by MHA, shall open one FCRA account with SBI, NDMR 11, Sansad Marg, New Delhi before 31st June 2021, for receipt of Foreign Contribution. After opening of this account, they may open another FCRA account with respective Bank for the purpose of keeping or utilizing the foreign contribution which has been received from his aforesaid FCRA account in SBI.After opening the FCRA accounts in SBI, the FCRA account in respective Bank should necessarily be linked with the SBI account and the payments should necessarily be received from that account only.

  1. Receipt of Foreign Contribution:
  2. i) Existing FCRA Account holders:

   Existing FCRA account holders may receive the foreign contribution in their designated FCRA account maintained with their Bankers, till the date he opens FCRA account in SBI New Delhi Main Branch or 30.06.2021, whichever is earlier.

  1. ii) Clients having valid FCRA Registration certificate but not maintaining FCRA account presently with the Bank:

   All such clients have to necessarily receive foreign contribution intheir  account with SBI. Thereafter they may transfer the same to FCRA account opened with their Bank.

  1. Other Guidelines:
  • Funds should not be transferred to the personal accounts of the Directors for the personal benefit, from the FCRA designated account.
  • Outward Foreign remittances are not allowed from all such accounts, as the foreign contribution are to be utilised within the territory of India.
  • Cash and Local funds credits are not allowed into designated FCRA accounts except from linked SBI FCRA account.
  • Funds should not be transferred from the designated FCRA account to any other accounts other than the purposes mentioned in their aims & objects.
  • Reporting to the specified authority should be done as per MHA public noticed dated 13.10.2020 or future instructions (if any) in this regard.

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