FCRA registration has two main types: prior permission and registration. Prior permission is for specific purposes, while registration is for general activities.

The Foreign Contribution (Regulation) Act (FCRA), 2010, governs how individuals and associations in India receive and utilize foreign contributions. This vital legislation ensures transparency and accountability in foreign funding, preventing its misuse for activities that could harm India’s national interests. Recently, the government has canceled more FCRA licenses of NGOs, marking a second wave of cancellations in a month, impacting their ability to receive and use foreign funds.

Introduction

The Foreign Contribution (Regulation) Act (FCRA), 2010, regulates the receipt and utilization of foreign contributions by individuals, associations, and companies in India. FCRA registration is a mandatory process for entities intending to receive foreign funds, ensuring that such contributions are not used against national interests.

Definition of Foreign Contribution

As per Section 2(1)(h) of the FCRA, 2010:

Foreign contribution includes donations, deliveries, or transfers made by any foreign source, which can be:

• Articles (except those given as personal gifts with a market value in India not exceeding a specified sum).
• Currency (Indian or foreign).
• Securities (as defined in the Securities Contracts (Regulation) Act, 1956), including foreign securities.
• Interest accrued on foreign contributions deposited in authorized banks or any other income derived from foreign contributions is also considered foreign contribution.
• Contributions received by an individual or entity from a foreign source for fees or costs related to business, trade, or commerce are excluded from this definition.

The term ‘person’ in FCRA includes individuals, Hindu undivided families, associations, and companies registered under Section 25 of the Companies Act, 19561.

Earnings from Foreign Clients

Earnings from foreign clients in exchange for goods sold or services rendered are not treated as foreign contributions. Such transactions are considered commercial in nature and fall outside the scope of FCRA.

Background

The Foreign Contribution (Regulation) Act (FCRA) was first enacted in 1976 and updated in 2010 to include new regulations governing foreign donations, with the primary purpose of ensuring that foreign contributions do not jeopardize national security.

Types of FCRA Registration

Under the FCRA, there are two primary types of registration:

1. Prior Permission Certificate (PPC): This is a temporary registration that is typically granted for one year. Organizations seeking to receive foreign contributions for specific projects or activities can apply for a PPC.
2. Permanent Registration Certificate (PRC): This is a long-term registration that is valid for five years. Organizations with a consistent track record of receiving and utilizing foreign contributions responsibly can apply for a PRC.

FCRA Registration Process

The FCRA registration process involves several steps, including:

1. Online Application: Organizations must create an account on the FCRA online portal and submit the relevant application form, along with supporting documents.
2. Verification and Scrutiny: The Ministry of Home Affairs (MHA) verifies the submitted documents and scrutinizes the organization’s background and objectives.
3. Inspection and Assessment: In some cases, the MHA may conduct an inspection of the organization’s premises and assess its activities.
4. Grant of Registration: If the MHA is satisfied with the organization’s compliance with the FCRA regulations, it will grant the PPC or PRC.

Significance of the Foreign Contribution (Regulation) Act (FCRA)

The FCRA plays a critical role in regulating foreign funding in India for several reasons:

1. Prevents Misuse of Foreign Funds: The act safeguards against the misuse of foreign funds for activities that may pose a threat to India’s national security, economic stability, or social harmony.
2. Promotes Transparency and Accountability: The FCRA mandates transparency in the receipt and utilization of foreign contributions, ensuring that funds are used for the intended purposes.
3. Facilitates Responsible Foreign Funding: The act creates a framework for responsible foreign funding, encouraging the inflow of funds for legitimate and beneficial activities.

 Scope and Objectives of the FCRA

The FCRA applies to all individuals and associations registered in India that receive or intend to receive foreign contributions. The act’s primary objectives are to:

1. Regulate the receipt and utilization of foreign contributions: Organizations must obtain FCRA prior permission or FCRA registration to receive foreign funds.
2. Ensure transparency and accountability: Organizations must maintain proper records of foreign contributions and their utilization.
3. Prevent misuse of foreign funds: Organizations must refrain from using foreign funds for activities that violate Indian laws or pose a threat to the country’s interests.

Eligibility for FCRA Registration

• The organization must have a governing body that is responsible for the overall management of the organization.
• The governing body must meet at least once a year.
• The organization must maintain proper accounts and records of its foreign contribution.
• The organization must submit annual reports to the Ministry of Home Affairs.

If the organization meets all of the eligibility criteria and requirements, it can apply for FCRA registration. The application can be made online or offline. The processing time for an FCRA registration application is usually 3 to 6 months.

Exemptions from FCRA Registration

The following are exempt from FCRA registration:

• The Government of India and any State Government: This includes their departments, ministries, and agencies.
• Statutory bodies: This includes bodies that are established by or under a Central Act or State Act.
• Institutions of higher education: This includes universities, colleges, and other institutions that are recognized by the University Grants Commission (UGC) or the All India Council for Technical Education (AICTE).
• Scientific and research institutions: This includes institutions that are recognized by the Department of Scientific and Industrial Research (DSIR) or the Indian Council of Medical Research (ICMR).
• Hospitals: This includes hospitals that are registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882.
• Charitable institutions: This includes institutions that are registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882.
• Individuals: Individuals are not required to register under FCRA, even if they receive foreign contributions. However, they must report the foreign contributions to the income tax authorities.
• Foreign contributions that are received for personal use: This includes contributions that are received for travel, education, or medical expenses.
• Foreign contributions that are received for a religious purpose: This includes contributions that are received for the construction or maintenance of a place of worship.
• Foreign contributions that are received for a humanitarian purpose: This includes contributions that are received for the relief of natural disasters or other emergencies.

Conditions for exemptions

The conditions for exemptions from FCRA registration vary depending on the type of entity seeking exemption. Here’s a breakdown of the conditions for some of the key exempt categories:

Government of India and State Governments

• • The foreign contribution must be received for a government purpose, such as defense, development, or welfare.
  • The foreign contribution must be received directly by the government or through an authorized channel.

Statutory Bodies

• • The statutory body must be established by or under a Central Act or State Act.
  • The statutory body must have the power to receive and administer funds.
  • The foreign contribution must be received for the purpose of carrying out the statutory body’s functions.

Institutions of Higher Education

• • The institution must be recognized by the University Grants Commission (UGC) or the All India Council for Technical Education (AICTE).
  • The foreign contribution must be received for the purpose of education, research, or development.
  • The institution must have a transparent and accountable mechanism for managing foreign contributions.

Scientific and Research Institutions

• • The institution must be recognized by the Department of Scientific and Industrial Research (DSIR) or the Indian Council of Medical Research (ICMR).
  • The foreign contribution must be received for the purpose of scientific research or development.
  • The institution must have a transparent and accountable mechanism for managing foreign contributions.

Hospitals

• • The hospital must be registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882.
  • The foreign contribution must be received for the purpose of providing medical care or services.
  • The hospital must have a transparent and accountable mechanism for managing foreign contributions.

Charitable Institutions

• • • The institution must be registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882.
    • The foreign contribution must be received for a charitable purpose, such as poverty alleviation, education, or healthcare.
    • The institution must have a transparent and accountable mechanism for managing foreign contributions.

Compliance Requirements for FCRA Registered Organizations

Compliance Requirements for FCRA Registered Organizations

• Maintenance of Records: Organizations must maintain proper records of all foreign contributions received and utilized.
• Submission of Annual Returns: Annual returns must be submitted to the MHA within six months of the financial year-end.
• Reporting of Changes: Any significant changes in registration details or activities must be reported to the MHA.

Penalties for Non-Compliance with FCRA

• Receiving Foreign Contributions Without Registration: Fine up to ₹2 lakh, and possible imprisonment for up to two years.
• Violating FCRA Regulations: Fine up to ₹5 lakh, and potential suspension or cancellation of registration.

Benefits of FCRA Registration

FCRA registration offers several benefits to eligible organizations:

1. Legality of Receiving Foreign Contributions: FCRA registration grants organizations the legal authority to receive foreign contributions, ensuring they comply with the Foreign Contribution (Regulation) Act, 2010.
2. Access to Global Funding Opportunities: FCRA registration opens up access to a wider pool of potential donors, including international organizations, foundations, and individuals, expanding the organization’s funding sources.
3. Enhanced Credibility and Recognition: FCRA registration enhances an organization’s credibility and reputation among domestic and international stakeholders, demonstrating transparency and adherence to regulatory guidelines.
4. Tax Exemptions and Benefits: FCRA-registered organizations may be eligible for tax exemptions and benefits under the Income Tax Act, 1961, reducing their financial burden and enhancing their ability to allocate resources towards their mission.
5. Improved Governance and Accountability: FCRA registration promotes stronger governance and accountability practices within the organization, as it mandates maintaining proper financial records, submitting annual reports, and adhering to regulatory requirements.
6. Networking and Collaboration Opportunities: FCRA registration can facilitate networking and collaboration opportunities with other FCRA-registered organizations, enabling knowledge sharing, resource pooling, and joint initiatives.
7. Access to Government Grants and Schemes: FCRA-registered organizations may be eligible to apply for government grants and schemes specifically designed for NGOs and non-profit organizations.
8. Enhanced Access to Expertise and Capacity Building: FCRA registration can open doors for organizations to access expertise and capacity-building opportunities through government programs, international organizations, and donor networks.
9. Positive Impact on Organizational Growth and Sustainability: The benefits of FCRA registration can positively impact an organization’s growth, sustainability, and ability to achieve its social impact goals.

Case Study: The Constitutional Validity of the 2020 Amendment to the Foreign Contribution (Regulation) Act, 2010 (FCRA)

Judgment Summary

In April 2022, the Supreme Court upheld the constitutional validity of the 2020 Amendment to the FCRA, which imposed stricter regulations on foreign contributions. This includes the prohibition of fund transfers to other entities, mandatory Aadhaar details for clearance, and the requirement to open an FCRA account in a specified bank branch.

Background

On April 8th, 2022, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar of the Supreme Court of India upheld the constitutional validity of the 2020 Amendment to the Foreign Contribution (Regulation) Act, 2010 (FCRA). The original FCRA was enacted in 2010 to regulate the acceptance and utilization of foreign contributions by non-governmental organisations (NGOs). The 2020 Amendment introduced stricter provisions concerning who could receive foreign contributions, how these contributions could be used, and whether they could be transferred to other entities.

The Challenge

In 2021, Noel Harper, the Chairperson of the Care & Share Charitable Trust based in Andhra Pradesh, along with trustees from three other NGOs, challenged the constitutionality of three specific provisions of the 2020 FCRA Amendment:

1. Section 7: Prohibition on transferring foreign contributions to other persons or organisations.
2. Section 12A: Requirement to furnish Aadhaar details for FCRA clearance.
3. Section 17(1) and 12(1A): Requirement to open an FCRA account in a specified branch of the State Bank of India.

Key Issues and Arguments

Section 7: Prohibition on Transferring Foreign Contributions

Petitioners’ Argument:

• The petitioners contended that Section 7 imposes an arbitrary blanket ban on the transfer of foreign contributions, adversely affecting smaller NGOs. These organisations often rely on transfers from larger entities due to their inability to meet stringent FCRA eligibility criteria for direct foreign contributions.
• They argued that this provision violated the Right Against Arbitrariness (Article 14), the Right to Freedom of Speech and Expression (Article 19(1)(a)), and the Right to Form Associations or Unions (Article 19(1)(c)).

Union’s Argument:

• The Union maintained that the Amendments did not prohibit NGOs from receiving foreign contributions but rather imposed necessary regulatory measures applicable nationwide.
• The restriction on transfers was designed to prevent misuse of funds, ensuring that contributions were used solely for permitted purposes, thereby safeguarding national integrity and sovereignty.

Court’s Ruling:

• The Supreme Court upheld Section 7, noting that it aimed to ensure that foreign contributions were utilized only for the purposes for which they were received.
• The Court applied the rational basis test, finding a clear rational nexus between the restriction and the FCRA’s objective. The Court held that the restriction was not arbitrary and did not violate Article 14.

Section 12A: Requirement to Furnish Aadhaar Details

Petitioners’ Argument:

• The petitioners argued that mandatory submission of Aadhaar details infringed upon their Right to Privacy, referencing the Supreme Court’s decision in K.S. Puttaswamy (AADHAAR) v. Union of India.

Union’s Argument:

• The Union justified the requirement based on past instances of misuse under the unamended FCRA, arguing that the measure was crucial for identifying and regulating NGOs.

Court’s Ruling:

• The Court read down Section 12A, allowing Indian nationals to use their passports as an alternative form of identification. It refrained from commenting on whether the Aadhaar requirement itself violated the Right to Privacy.

Sections 17(1) and 12(1A): Requirement to Open an FCRA Account in a Specified Bank Branch

Petitioners’ Argument:

• The petitioners claimed that the requirement to open an account at a specific branch in New Delhi was arbitrary, unreasonable, and imposed undue restrictions, violating Articles 14, 19, and 21.
• They argued that the previous provisions were sufficient for effective monitoring and that the new requirement was excessive and disproportionate.

Union’s Argument:

• The Union contended that this measure was necessary to enhance transparency and accountability, addressing difficulties in monitoring the increased inflow of foreign funds. The process could be completed online, negating the need for physical presence.

Court’s Ruling:

• The Supreme Court upheld Sections 17(1) and 12(1A), reasoning that the requirement was a one-time procedural task that facilitated better regulatory oversight without being arbitrary or irrational.

FAQ

Conclusion

The FCRA is a critical piece of legislation ensuring the responsible use of foreign contributions in India. Understanding its requirements, benefits, and compliance measures is essential for organizations seeking to utilize foreign funding effectively. Talk to our Vakilsearch experts today and learn more.

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