FOREIGN CONTRIBUTIONS

Foreign Contribution (Regulation) Act, 1976

Objective

An Act to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain persons or associations, with a view to ensuring that Parliamentary institutions, political associations and academic and other voluntary organisations as well as individuals working in important areas of national life may function in a manner consistent with the values of a sovereign democratic republic and for matters connected therewith or incidental thereto.

Applicability

Like FEMA, the FCRA has extra-territorial jurisdiction. It extends to the whole of India, as well as to:

(a) citizens of India outside India; and

(b) associates, branches or subsidiaries, outside India of companies or bodies corporate registered or incorporated in India.

Important Definitions

Foreign contribution

Essentially, it refers to donations in cash or kind. It also includes any foreign security as defined under FERA (Now, FEMA), as well as any currency, be it Indian or foreign. However, it does not include personal gifts whose market value in India on date of such gifts is Rs. 1,000/- or less.

It is further clarified that a donation, delivery or transfer of any article, currency or foreign security shall be deemed to be foreign contribution when received by any person from any foreign source, whether directly or indirectly, through one or more persons.

e.g. A Christian Missionary under whose umbrella a number of other missionaries are functioning. If such head missionary receives any donation and who turn transfers the amount to its sister missionary, then in such a circumstances, the transfer received by the sister missionary will be treated as foreign contribution and the FCRA shall apply accordingly.

Foreign Source

The definition is an inclusive one. It includes:

(i) Government of any foreign country or territory and agency of such Government,

(ii) any international agency not being the United Nations or any of its specialised agencies, the World Bank, International Monetary Fund or such other agency as Central Government may by notification in Official Gazette specify in this behalf,

(iii) a foreign company within the meaning of section 591 of the Companies Act, 1956 and also includes

(a) a company which is a subsidiary of a foreign company, and

(b) a multi-national corporation within the meaning of this Act,

(iv) A corporation not being a foreign company, incorporated in foreign country or territory,

(v) A multi national corporation within the meaning of this Act,

(vi) A company within the meaning of the Companies Act, 1956 if more than one half of the nominal value of its share capital is held, either singly or in the aggregate by one or more of the following, namely:­

(a) Government of foreign country or territory,

(b) Citizens of a foreign country or territory,

(c) corporations incorporated in a foreign country r territory,

(d) trusts, societies or other associations of individuals (whether incorporated or not) formed or registered in a foreign country or territory,

(vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory,

(viii) a foreign trust by whatever name called or a foreign foundation which is either in the nature of trust or is mainly financed by a foreign country or territory,

(ix) a society, club or other association of individuals formed or registered outside India,

(x) a citizen of foreign country,

but does not include any foreign institution which has been permitted by Central Government, by notification in Official Gazette, to carry on its activities in India.

Contribution given by Non-Resident Foreign Citizen of Indian Origin but of funds held in NRI and FCNR account maintained in India would also attract FCRA regulation and would be treated as "foreign source". Thus, we find that the definition of "foreign source" is very exhaustive. It not only includes foreign company per se (i.e. a company incorporated outside India having a place of business in India) but also covers subsidiary of such company (may be Indian subsidiary, too). It includes multi-national corporations as well. However, the United Nations, th€ World Bank, IMF, etc., are not covered by this definition

E.g: Donation from Hindustan Lever by an association would be a foreign contribution. Even a donation mad by a liaison/project office or a branch of a foreign company would be termed as a foreign contribution.

NRI who is an Indian citizen is not considered as a foreign source and hence donation received from NRI is not a foreign contribution even if it is in convertible foreign exchange. However, if he is a foreign citizen then the NRI will be considered as a foreign source.

Multi –National Corporations(MNC)

MNC has been defined to mean a corporation incorporated in a foreign country or territory if such corporation

(a) has a subsidiary or a branch or a place of business in two or more countries or territories

(b) carries on business, or otherwise operates, in two or more countries or territories.

 General Prohibition

Following categories of persons are prohibited from accepting any 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 Government corporation/undertaking,

(d) Member of any Legislature,

(e) Political party or office-bearer thereof.

Exemptions from General Prohibition

In following situations, persons specified supra may accept foreign contribution.­

(i) Salary, wages or other remuneration from any foreign source or payment in the ordinary course of business transacted in India by such foreign source; or

(ii) Payment in the ordinary course of business or in the course of international trade or commerce; or

(iii) Working in the capacity of an agent of a foreign source in relation to any transaction made by such foreign source with Government; or

(iv) Acceptance of gift or presentation as a member of any Indian delegation subject to the provisions of the Foreign Contribution (Acceptance or Retention of Gifts or Presentations) Regulations, 1978;

(v) Receipt of contribution from Relative: Prior approval of the Central Government is not required if the amount of contribution does not exceed, in value, Rupees eight thousand per annum and an intimation is given to the Central Government about the amount received, purpose and the manner in which the same is utilized. 'Relative' has the same meaning as it is assigned in the Companies Act, 1956.

(vi) Remittance received in the ordinary course of business, through any official channel, post office, or any authorised dealer in foreign exchange.

Note.- Central Government has reserved power to prohibit any person including exempted category as mentioned above from accepting foreign contribution if it finds reasonable causes to do so.

Permissible Foreign Contribution

Besides the exempted situations as discussed in paragraph supra above, certain other categories of persons are permitted to accept foreign contribution upon fulfillment of certain conditions/procedures and/or with prior approval of Central Government. An application for seeking prior permission to accept foreign contribution is to be made in Form FC-IA and for grant of registration in Form FC-8 respectively. An application (one copy only) for seeking prior permission or registration is to be sent by registered post to

The Secretary, Ministry of Home Affairs, Foreigners Division, Lok Nayak Bhavan, Khan Market, New Delhi – 110003.

Organisations of Political Nature

Organisation of political nature, not being a political party may accept any foreign contribution with prior permission of Central Government. Organisation of political nature not being a political party is defined to mean "organisation" notified as such by the Central Government in the Official Gazette, having regard to the activities the organisation or the ideology propagated by the organisation or the programme of the organisation or the association of the organisation with the activities of any political party.

Certain Association and Persons [Section 6J]

(i) Association having a definite cultural, economic, educational, religious or social programme can accept foreign contribution upon fulfillment of following conditions:

(a) such an association should register itself with Central Government in accordance with rules made under this Act; and

(b) such an association agrees to receive such foreign contributions only through designated branch of a bank as it may specify in its application for registration; and Intimation has to be given to Central Government with following details ­

(c) the amount of foreign contribution,

(d) the source of foreign contribution, and

(e) the manner of utilization.

Consequences of Default

In case of failure to comply with any of the conditions mentioned above, the Central Government may issue notification in the Official Gazette that the defaulting association would require its prior approval before accepting any further foreign contribution.

Unregistered Association

An association, which is not so registered, may accept any foreign contribution after obtaining prior permission of the Central Government and shall also give an intimation to the CG about the amount, the source, the purpose and the manner of utilization of such foreign contribution.

Designated Bank Account

An association granted prior permission or registration under the Act can receive the foreign contribution and subsequently utilize it using a single designated bank account, as intimated in the application form. Do not deposit any local funds in this bank account.

Time Limit for Disposal of Applications

An application for registration is normally disposed within six months. An application seeking prior permission is disposed within 90/120 days.

It is advisable to obtain a certificate, in the format incorporated at the end of the application form, from any of the competent authority mentioned therein viz., Any concerned - Collector of District; Department of the State Government; Ministry/ Department of the Government of India.

Filing of Returns

An association permitted to accept foreign contribution is required to submit an annual return, duly certified by a Chartered Accountant, giving details of the receipt and purpose­ wise utilization of the foreign contribution. The return is to be filed for every year (1st April to 31st March) within a period of four months from the closure of the year, i.e. by 31st July of each year.

The return is to be submitted, in duplicate, in Form FC-3. It is to be accompanied with the balance sheet and statement of receipt and payment, duly certified by a Chartered Accountant, also in duplicate

Time limit for Intimation

The time limit for intimation to Central Government of receipt of foreign contribution is four months after the closure of the year in case of both registered as well as unregistered association. The intimation should be in form FC-3 in duplicate and shall be sent to Secretary to the Government of India, Ministry of Home Affairs, New Delhi by registered post.

 Recipients of Scholarships, Stipend, etc.

Every citizen of India (whether in India or abroad) who is in receipt of any scholarships, stipend or any similar payment from any foreign source shall give intimation thereof to Central Government.

Intimation

Rule 4(c) provides that such intimation should be submitted in form FC-5 within 30 days of receipt of such scholarships, stipend or payment of like nature. However, if such citizen is residing outside India, then time limit for intimation is sixty days.

However, if any recurring payments are being received as discussed above, it shall be sufficient if the intimation referred above includes precise information as to the intervals at which, and the purpose of which, such recurring payments will be received.

Exemption from Intimation

Rule 5 provides exemption from such intimation in case the value of such scholarship, stipend or other payment does not exceed thirty six thousand rupees, in an academic year.

In calculating the value, - ­

(a) the amount received by citizen for purchase of books, clothing and equipment and for sight-seeing in a foreign country or territory shall be taken into account; but

(b) the amount spent in travel by air in economy class from India to a foreign country or territory and back to India from such foreign country or territory, and the amount spent by the foreign source in respect of such citizen towards tuition and other fees, shall not be taken into account.

Maintenace of Accounts

Rule 8 of the Foreign Contribution (Regulation) Rules, 1976, provides that a separate set of accounts and records shall be maintained exclusively for foreign contribution received and utilized.

Such accounts shall be maintained on an yearly basis from April to March. A certificate from a Chartered Accountant in Form FC-3 along with a balance sheet and statement of receipt and payment shall be submitted, in duplicate, to the Secretary to Government of India, Ministry of Home Affairs, New Delhi, within four months after the closure of the year (i.e. on or before 31st July, 2001).

Checklist

Checklist for ensuring proper submission of applications, under the provisions of the Foreign Contribution (Regulation) Act, 1976, for acceptance of foreign contribution

(1) Eligible category

An association with a definite cultural, economic, educational, religious or social programme.

(2) Types of permission

(i) Registration under Section 6(1)(a); and,

(ii) Prior permission under Section 6 (I A).

(3) Application form

(i) For grant of registration in form FC-8; and,

(ii) For grant of prior permission in form FC-IA.

(4) Essential requirements

(A) Bank Account

Open a separate bank account for the receipt and utilisation of foreign contribution in a bank of your choice and furnish particulars of the same at the appropriate place.

Note: Do not deposit any local funds, other than the essential initial deposit specified by the bank for opening an account, in this account.

(B) Documents

Remember to enclose copies of the following documents with your application:-

(i) Certified copy of registration certificate or Trust deed, as the case may be;

(ii) Details of activities during the last three years;

(iii) Copies of audited statement of accounts for the past three years (Asset and Liabilities, Receipt and Payment, Income and Expenditure);

(iv) Commitment letter from foreign donor specifying the amount of foreign contribution (only with prior permission application);

(v) Copy of project for which foreign contribution was solicited/is being offered (only with prior permission application);

(vi) If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Press Registrar that the publication is not a newspaper in terms of section 1 (1) of the said Act.

(5) Miscellaneous

Furnish information exactly in the manner asked for in the form, especially the names and addresses of the members of the Executive Committee/Governing Council, etc.

The forms can be downloaded from Ministry of Home Affairs Web Site at http://mha.nic.in/fcra/intro/forms.html

(6) CHARTERED ACCOUNTANTS/BANKS

(i) Chartered Accountants, before certifying the accounts of an association in form FC-3, must ensure that they have been prepared in accordance with the provisions of the Foreign Contribution (Regulation) Act, 1976 and the Rules framed there under.

No bank should credit any foreign contribution to the account of an association/organisation unless it produces documentary proof of having obtained registration/prior permission from the Central Government for the same. Crediting of foreign contribution by a bank to the account of an association/organisation that has not obtained registration or prior permission from the Central Government constitutes a violation and will render the defaulting bank liable for action by the Reserve Bank of India.