The Foreign Contribution Regulation Act (FCRA) 2010 regulates how NGOs in India can use foreign contributions. One key aspect is the management of FCRA accounts, which are subject to strict guidelines, including restrictions on cash withdrawals. While NGOs can use funds for their stated objectives, they must adhere to specific rules on fund utilisation, including avoiding cash withdrawals unless explicitly permitted.
The money in an FCRA account should be used under the specified purpose and can be utilised only through bank transfers or by cheques as per the registration of accounts. The Ministry of Home Affairs (MHA) additionally recommends that organisations should avoid using ATMs or debit cards that are connected to FCRA bank accounts. In case any organisation has this card, it should not be used for cash withdrawals or online payments as per MHA guidelines.
Cash Transactions Under FCRA Account
As per Section 40A(3)(a) of the Income Tax Act, any payment made in cash for expenditure exceeding ₹10,000 a day, other than an account payee check or an account payee bank draft, will not be allowed as a deduction.
He further said that the department of foreign funding rule enforcing FCRA-registered associations has set specific norms under which for any cash expenses and withdrawals, it should not exceed ₹2000 in a single day. However, this provision is expected to curb cash transactions by FCRA-registered entities, resulting in greater transparency yet more accountability. For example, should a fund not follow these guidelines, they may become subject to scrutiny and penalties from regulatory authorities.
Understanding FCRA Accounts
An FCRA (Foreign Contribution Regulation Act) bank account is a designated type of bank account in India that must be maintained by non-governmental organisations (NGOs) and entities for receiving money from foreign contributors. The MHA ministry controls this account as it is with respect to the Foreign Contribution Regulation Act, 2010, and FCRA registration is required for this purpose. It is basically a mechanism to ensure that the foreign contributions are used for bona fide charitable purposes and that there is no misappropriation of funds. To adapt on every front, the rules and policies of the FCRA account need to be clearly understood, as it will maintain compliance parameters for NGOs receiving funds from abroad. FCRA bank accounts are of three types:
Statutory Designated Account
It is to be opened in the State Bank of India, Main Branch, 11 Sansad Marg, New Delhi, exclusively for keeping or depositing the amount as per the Foreign Contribution (Regulation) Act 1996 and rules thereunder.
De Facto Designated Account
This is an account that can be opened with any Schedule bank to hold funds received on behalf of a Statutory Designated Account. This account is used for accounting and operational convenience within the limits set by the law.
FCRA Funds Utilisation Account
To manage and use the FCRA funds, an account can be opened in any scheduled bank. This account cannot be funded from any domestic funds.
Types of Transactions Allowed From FCRA Accounts
Using foreign contributions
As soon as an association receives any foreign contribution in its authorised FCRA bank account, it can also open another account known as the Utilisation Account for the utilisation of these seva. This utilisation account can be maintained with one or more banks. Though the association is allowed to move a certain amount of funds from its designated FCRA account into these utilisation accounts, receipt or deposit in any manner other than this cannot take place on these accounts. The utilisation accounts are only for the purpose of funds received into the country in foreign exchange, and they shall be used by the person receiving contributions to manage their activities within specified guidelines.
Redepositing unutilised funds
Redeposit the advanced amount (if withdrawn) in the case of an NGO/association. There must be both withdrawal entries, and the documentation of no expenditure needs to accompany them whenever they go re-deposit. The same mechanism is valid for refunds from cancelled services or tickets, and it allows the best way of keeping track of where money comes in and out.
Debiting funds
You can do debits if there is balance left in the account, with valid approval from the Ministry of Home Affairs (MHA).
Cash withdrawals
FCRA-registered associations are allowed to do a cash withdrawal subject to the limit of ₹2,000 per day;
Restrictions on Cash Withdrawals
The FCRA-registered associations are only allowed to withdraw ₹2,000 in cash per day based on the guidelines of the Foreign Contribution (Regulation) Act (FCRA) department. FCRA places these restrictions to reduce the need for cash exchanges and remain compliant with regulations, so they don’t attract law enforcement scrutiny. It also recommended all transactions should be made through ‘Account Payee’ Cheques and not cash.
Conclusion
In managing foreign contributions, the strict rules enforced by the Foreign Contribution (Regulation) Act,2010 make it more stringent to have transparency and accountability. To prevent mis-utilisation and misuse of funds, the FCRA restricts ‘cash’ withdrawal at ₹2000 /day and encourages payments strictly by ‘account payee’ checks towards their intended use before releasing it to NGOs. Barring a few exceptions, it is imperative that organisations follow these guidelines to the letter and establish an automated financial control system in order to continually demonstrate compliance with these regulations; this will ensure minimal regulatory action from the authorities and rightly divert foreign funds for lawful purposes.
Frequently Asked Questions
Can I withdraw cash directly from my FCRA account?
No, cash withdrawals from an FCRA (Foreign Contribution Regulation Act) account are generally not permitted. The FCRA regulations mandate that foreign contributions must be used for approved purposes only and through traceable means, ensuring transparency and accountability in the utilisation of foreign funds.
What are the permissible transactions from an FCRA account?
Permissible transactions from an FCRA account include bank transfers, electronic payments, and issuing checks for specific, approved activities as per FCRA guidelines. These transactions must align with the objectives outlined in the organisation’s FCRA registration, ensuring the funds are used for their intended charitable or social purposes.
Why are cash withdrawals restricted under FCRA regulations?
Cash withdrawals are restricted under FCRA regulations to prevent misuse of foreign funds and ensure transparency. By limiting cash transactions, the government can better monitor and regulate the flow of foreign contributions, minimising the risk of funds being diverted to unauthorised activities or purposes.
How can organisations disburse funds if cash withdrawals are not allowed?
Organisations can disburse funds from their FCRA account through bank transfers, electronic payments, or checks. These methods ensure a clear audit trail, enabling regulatory authorities to verify that the funds are used strictly for the approved activities and not for any unauthorised or illegal purposes.
What happens if an organisation violates FCRA regulations regarding cash withdrawals?
Violating FCRA regulations, including unauthorised cash withdrawals, can lead to severe penalties. The organisation may face fines, suspension of its FCRA registration, or even criminal charges. Continuous violations could result in the cancellation of the organisation's FCRA license, preventing them from receiving foreign contributions.
Are there any exceptions to the restriction on cash withdrawals from FCRA accounts?
Generally, there are no exceptions to the restriction on cash withdrawals from FCRA accounts. However, in rare cases, special permission may be granted by the Ministry of Home Affairs if the organisation can justify the necessity of a cash withdrawal for a specific, approved purpose within the FCRA guidelines.
