Foreign funding is the very basis for most Indian trusts, especially in the areas of social development, education, and health. Receiving contributions from abroad in India is not so simple because the legal system is quite complicated, especially by the provisions of the Foreign Contribution Regulation Act (FCRA).
This article describes the legal framework, eligibility, need for funds, and steps for obtaining foreign funding from trusts/organizations under FCRA.
Introduction
The basic law of foreign contribution in India is controlled by the Foreign Contribution (Regulation) Act, 2010 (FCRA) and the Foreign Contribution (Regulation) Rules, 2011.
The process for raising such funds is, however, subjected to very stringent regulations under the Foreign Contribution (Regulation) Act, 2010. This law seeks to regulate acceptance as well as utilization of foreign contributions in order to prevent activities adverse to national interest. Any organization seeking to gain from foreign donations, therefore must be aware of what the FCRA entails and should seek to follow those procedures.
About the Foreign Contribution (Regulation) Act, 2010
In fact the FCRA is an internal security legislation and it is hosted by the Home Ministry of India. First enacted in 1976 during emergency, it was repealed in 2010 when a slew of new measures was adopted for regulating foreign donations. In 2020, the act was again amended to give more authority and control by the government, over how NGOs receive foreign funding and use it.
As per Section 1(2) of FCRA, 2010 the provisions of the act shall apply to whole of India, citizen outside India, or outside branches of companies registered in India and intending to receive foreign donations and hospitality.
This act does not recognize “permanent” registration; it is subject to renewal. All associations registered before the FCRA were given a five-year validity period.
Purpose of this Legislation-FCRA
The purpose of the Act/Rules is to regulate and ensure that the receipt and utilisation of foreign contribution by institutions, Associations and other voluntary organizations and acceptance of foreign hospitality.
This act also keep check on the misuse of foreign funds which may be dangerous to the security or political integrity of the nation. According to the provisions of this act, a trust will receive foreign contributions only after making a registration for the same under FCRA and according to its laws and regulations.
Which trust may get the FCRA Registration?
To become eligible for registration in FCRA, a trust must-
- Be registered as a society, trust, or non-profit under an existing statute such as the Indian Trusts Act, 1882, Societies Registration Act or Section 8 Companies.
- Be in existence for at least three years and have undertaken reasonable activities for the benefit of society.
- Not having registration with the parent society under FCRA.
- Have spent a minimum of ₹15,00,000 on its objectives in the last three years.
Who are not eligible to get FCRA Registration
As provided in Section 3(1) of FCRA, 2010, the following categories are not eligible to get foreign contributions-
- The applicant under the FCRA cannot be an entity that is fictitious and cannot have been charged with nor is convicted for an act either directly or indirectly against any individual compelling or coercing him or her to convert from one religion to the other. Also, he cannot have or be charged with the commission of the offence of agitating or causing disharmony in society.
- He must not be associated with or likely to associate with spreading sedition.
- All election candidates, journalists, media broadcasters, judges, government employees, members of legislatures and political parties or their office-bearers, and political organizations are barred from receiving any contribution from foreigners as provided under the Act.
FCRA Registration & Prior Permission
- For registration under FCRA, the organization must have been in operation for at least 3 years, whereas for prior permission, no such minimum years of operations are needed.
- Apart from that, the organization shall also submit the proof of activities dealing with in its chosen field of operation.
- Statements of Income & Expenditure which are properly audited by a Chartered Accountant are also to be furnished for registration.
- A separate bank account should also be managed by the organization which is only for the use of foreign donations. This applies for registration and prior permission both.
Prior-Permission for receiving Donation
A newly established organization might not be able to register. Under the FCRA of 2010, such an organization may request prior authorization. Prior permission is granted for the purpose of carrying out certain activities/projects and receiving a specific sum from a specific donor.
Only on prior permission from the FCRA department, an association or organization can accept foreign contributions without registration.
Foreign contributions can be accepted with prior permission only in the following situations:
- Entities should be registered as Trusts, Societies, or Section 8 Companies.
- Trust should submit the commitment letter from the overseas donor stating the amount of contribution and the purpose of the donation.
FCRA online
The introduction of FCRA online services designed at setting up an easily accessible system to improve efficiency in the work, accountability, transparency and efficiency in the operations of the FCRA Wing.
Earlier, this facility was only for applications for the grant of registration and filing of annual returns relating to foreign contributions.
Presently, the FCRA On-line of the Ministry of Home Affairs (MHA) has the multiple facilities. Like Registration, Prior permission, Annual Return FC-6, status enquiry, FC-2 Form for Hospitality and uploading approval letters.
Reporting and Compliance for Registered Trust under FCRA
Trust, once it gets registered, must follow the various compliance requirements like-
- Opening a bank account in the State Bank of India, New Delhi, under the FCRA.
- Maintain detailed records and fill out annual returns of contributions utilized and received.
- Utilization of foreign contribution only for the purpose it was received.
Indian trusts have to remain vigilant and ensure that all applicable law adherences are complied with because the implications of not complying are very strict and penal, like heavy fines and court cases, and even cancellation of registration under the FCRA will follow.
Reasons for foreign funding to Indian Trust
Foreign funding remains one of the significant sources of finance for many trusts running their operations, especially in social, educational, healthcare, and environmental causes. Most commonly, it is utilized for a wide range of activities or projects that may have a very high chance of positively affecting society. For instance-
(i) Social Welfare Programs related to Healthcare, Education or Poverty alleviation.
(ii) Research and Development related to technology or support of new ideas.
(iii) Conservation of Environment from climate change or pollution and for sustainable development.
(iv) Infrastructural development includes schools, hospitals, training facilities, and housing.
Sources of Foreign Contribution for Trusts
There can be different sources of foreign contributions. However, attracting the sources requires a custom approach in every case. Some known sources of funding are as follows-
- Individual Donation – Interested individual with High net worth generally contribute to Indian trust to support their charitable cause.
- Grants From Foundations – These are Indian trusts that operate in some of the areas such as education, poverty and health that may receive the grants from other international philanthropic foundations.
- Crowdfunding Method – A Crowdfunding platform active at the global level allows us to contribute to various Indian trusts through groups of small donors globally. It is for a specific purpose or any such social project.
- Government Aid – Money through international cooperation or state support for aid, disaster or for supporting development work.
Monitoring of Receipt and Utilization of Contribution
One of the objectives of the Act is that the contribution received by an Association from abroad for a specific purpose shall not be diverted to any detrimental activity against national interest. Associations registered and those having prior permission under the Act are required to furnish audited annual returns within 9 months from the close of the financial year.
The accounts of the Association shall be certified by a Chartered Accountant that they have in accordance with the requirements of the Act. Any entity receiving the foreign contribution more than one crore rupees in a year, the Rule 13 of FCRA mandates to disclose the information.
FCRA Rules 2022 changes
- In July 2022, the MHA increased the number of compoundable offenses under the Act from seven to twelve when it made amendments in the FCRA regulations.
- Some of the other major changes included provisions for increasing the period for notifying the Government for opening bank accounts and provisions for close relatives that were exempted from the provisions of informing the Government of receipt of donations from abroad that were below Rs 10 lakh (earlier Rs 1 lakh).
Conclusion
Foreign funding is going to be an excellent vehicle for Indian trusts, which look forward to scaling up and expanding their scope and scale with bigger impactful projects, but what follows would, of course, involve appropriate legal compliance, say FCRA and strategic management of donor acquisition. If Indian trusts are able to gain the trust of foreign contributors through transparent project outcomes and honest operations, they can always access international resources.
The trusts may always raise and utilize foreign contributions for their missions based on the knowledge of the legality of raising funds, eligibility criteria, and compliance necessities.
Bibliography
- The Foreign Contribution (Regulation) Act of 2010 (Act No. 42 of 2010)
- The Foreign Contribution (Regulation) Rules, 2011
- The Societies Registration Act of 1860 (Act No. 21 of 1860)
- The Indian Trust Act of 1882 (Act No. 2 of 1882)
- https://fcraonline.nic.in/
- https://www.mha.gov.in/
