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The Foreign Contribution Act And Rules: An Overview

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Published on: February 13, 2012

The Foreign Contribution (Regulation) Act, 2010 and The Foreign Contribution (Regulation) Rules, 2011 have been enacted with respect from 1-5-2011. The old FCR Act and Rule, 1976 have been repealed.

The basic purpose of FCRA 2010 as mentioned in the preamble to the Act is

to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”

THE SCOPE OF FCRA EXPANDED

It is generally believed that both FCRA 2010 AND FCRA1976 cover only the Non-Profit Organisations (NPOs) and not others.

The new FCRA, 2010 has a much broader applicability; it is applicable to :

1.individuals,

2.Hindu Undivided Family (HUF),

3. Association

4. a section 25 company.

In the old Act, the term ‘person’ was not defined and generally the Act referred to the term ‘Association’. However, now it is very clear that FCRA applies to the above category of persons.


It is true that organisations having a definite cultural, economic, educational, religious or social programme are specifically covered. However, it also covers persons in sensitive government positions, political parties and persons associated with the news media. After all, the MAIN purpose of the Act is to regulate and prohibit acceptance and utilization of foreign contribution for any activities detrimental to national interest. As such the provisions of FCRA 2010 can be broadly classified in the following three categories :

(1) Prohibition on certain persons from accepting foreign contribution.

(2) Restriction on certain persons from accepting foreign hospitality.

(3) Regulating the acceptance of foreign contribution by persons having a definite cultural, economic, educational, religious or social programme. NPOs are covered under this category.

FCRA DOES NOT APPLY TO:

1. COMMERCIAL OR BUSINESS ORGANISATIONS

Movement of foreign funds in the normal course of commerce and business is outside the purview of FCRA. Therefore, business organisations are not covered by FCRA 2010 also. However, the provision of Foreign Exchange Management Act, 1999, which is a financial legislation, would be applicable.

2.PANCHAYAT HAS BEEN DEFINED AS LEGISLATURE

‘Panchayat’ has been included under the definition of ‘Legislature’ under section 2(1)(k). The implication of this change is that a member of a Panchayat cannot receive any foreign contribution. Secondly, NGOs who are working closely with Panchayat will have to be careful and ensure that their activities are not interpreted as of political nature.

3. FC FROM RELATIVES OR SCHOLARSHIP, STIPEND ETC.

The term ‘Relative’ has been defined for the first time giving it the same meaning as under section 2(41) of the Companies Act, 1956.

No permission is required to obtain foreign contribution from a relative under section 4 which is a relaxation. However, rule 6 provides that any gift from relatives above Rs. 1,00,000 in one year shall be intimated to the FCRA department in Form FC-1.

Similarily scholarship, stipend etc. received from foreign sources are excluded under section 4. This again is a relaxation over the old Act.

DEFINITION OF FOREIGN CONTRIBUTION

Foreign Contribution includes all kind of transfers from foreign sources.

The new act retains the older definition which includes any kind of transfer, delivery or donation of currency, article or securities. The notable change in the new act is that Foreign Contribution does not include commercial receipts. In other words, an NGO can receive consultancy or other commercial receipt from foreign sources even without having FC registrations. FC registered NGOs should receive such receipt in their domestic account and the commercial receipt are not required to be reported to the FCRA department.

Prohibition on certain persons from accepting foreign contribution :

The following persons are prohibited from accepting foreign contribution :

(a) Candidate for election;

(b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;

(c) Judge, government servant or employee of any entity controlled or owned by the government;

(d) Member of any Legislature;

(e) Political party or its office bearers;

(f) Organisations of a political nature as may be specified;

(g) Associations or company engaged in the production or broadcast of audio news or audiovisual news or current affairs programmes through any electronic mode or form or any other mode of mass communication;

(h) Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in (g) above.

However, foreign contribution can be accepted by the above-mentioned persons in the following specific situation :

(a) By way of remuneration for himself or for any group of persons working under him;

(b) By way of payment in the ordinary course of business transacted in or outside India or in the course of international trade or commerce;

(c) As agent of a foreign source in relation to any transaction made by such foreign source with the Central or State Government;

(d) By way of gift or presentation as a member of any Indian delegation. However, the gift or present should be accepted in accordance with the rules made by the Central Government;

(e) From his relative;

(f) By way of any scholarship, stipend or any payment of like nature.

(g) by way of remittance received in ordinary course of business transacted in India by such foreign source.

Under FCRA 1976, even gifts received by the above category of persons required previous permission of the Central Government, if the value of the gift exceeded Rs.8,000 per annum. Even where the value of the gift was less than Rs.8,000, the Central Government was required to be intimated about the details of the gift.

Mercifully, FCRA 2010 now gives specific exemption in respect of foreign contribution received from a relative as defined under the Companies Act, 1956.

REGISTRATION: GUIDELINES:

1. Application under section 11(1) to be made to the central government in form FC-3.

2. HARD COPY of online application duly signed by chief functionary of association with required documents to be sent to central government.

3. The above mentioned hard copy should reach the central government within 30 days of submitting online failing which request will have deemed to be ceased.

4. A new fresh online application can then be made only after 6 months.

5. Person seeking registration will have to open an exclusive bank account to receive such contribution.

6. Person may open various bank accounts in various bank for utilization of contribution once received but prior intimation to be given on plain paper to the SECRETARY , MINISTRY IF HOME AFFAIRS ,New delhi within 15 days on opening the account.

7. The online application to be made on formFC-4.

8. Application for grant of prior permission to be accompanied with a fee of Rs1000 only

9. Application for registration with a fee of Rs 2000 only

10. Fee is to be remitted by a demand draft on banker’s cheque in favour of “ PAY AND ACCOUNTS OFFICER, MINISTRY OF HOME AFFAIRS” payable at delhi

11. VALIDITY OF CERTIFICATE:

Registration will be valid for 5 yrs from date of issue.

12. RENEWAL OF REGISTTRATION CERTIFICATE:

(i) Person shall apply to central government in from FC-5 ,six months before the date of expiry.

(ii) If a multi-year project then the application is to be given 12 months before expiry.

(iii) Application for renewal is to be accompanied with a fee of Rs500 only.

(iv) If no application is made within requisite time and with fee. The registration id deemed to have ceased on expiry of 5 yrs.

(v) If person provides adequate grounds for late submission then the application may be accepted but not later than 4 months after expiry of registration.

(vi) A person can only transfer foreign contribution to other registered person by filling up the FC-10 form and taking prior permission of the central government under section 11 of the said act.

(vii) If the same has to be made to an unregistered person the application has to be countersigned by the district magistrate having jurisdiction in the place.

NOTE:

The Central Government can —

(a) prohibit any person or organisation not specified in section 3 of the FCRA act, from accepting foreign contribution.

(b) require any person not specified in section 11 of the said act, to give information about the amount of FC, source of FC and the manner in which the foreign contribution or hospitality. was utilized.

Provided that no such prohibition or requirement shall be made unless the Central

Government is satisfied that the acceptance of foreign contribution by such person or

class of persons, as the case may be, or the acceptance of foreign hospitality by such

person, is likely to affect prejudicially —

(i) the sovereignty and integrity of India; or

(ii) public interest; or

(iii) freedom or fairness of election to any Legislature; or

(iv) friendly relations with any foreign State; or

(v) harmony between religious, racial, social, linguistic or regional

groups, castes or communities.

13. Section 14 of the said act contains provisions where in the central government can cancel the certificate for the reasons mentioned below:

(a) the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or

(b) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or

(c) in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate.

(d) the holder of certificate has violated any of the provisions of this Act .

(e) if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for two consecutive years or has become defunct

NOTE:

No certificate can be cancelled by the government without:

1. giving proper right of hearing to the person concerned.

2. Any person whose certificate has been cancelled under this section shall not be

eligible for registration or grant of prior permission for a period of three years from the date of cancellation of such certificate

REPORTING BY BANKS OF RECEIPT OF FOREIGN CONTRIBUTION :

Every bank is entitled to give a report to the central government within 30 days of any transaction of receiving foreign contribution by any person who wasn’t granted any such certificate or prior permission as on the date of receiving such remittance.

COMPOUNDING OF OFFENCE:

An application for compounding of offence under section 41 may be made to the secretary , ministry of home affairs , new delhi with a fee of Rs 1000.

FORM NUMBER

DETAILS CONTAINED

FC-1

Intimation of foreign contribution in access of Rs 1 lakh from relative.

FC-2

Application for receiving foreign hospitality

FC-3 and FC-4

Online registration form for prior permission for receiving foreign contribution.

FC-5

Permission of registration before expiry of earlier permission.

FC-6

Person’s name with income and expenditure statement , for every financial year within 9 months of closure of the financial year starting on 1st april.

FC-7

If foreign contribution relates to articles only.

FC-8

If foreign contribution relates to foreign securities

NIL

If no foreign contribution is not received

FC-9

Foreign contribution if received by a candidate for election will give such information with 45 days of being nominated.

NOTE:

The accounting statements referred above are to be kept and preserved for a period of 6 yrs.

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