Foreign Contribution (Regulation) Act, 2010

1. Introduction

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

2. Applicability

It extends to whole of India, and also applies to

1. Citizens of India who are outside India.
2. Associate branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India.

3. Foreign Contribution

FC means donation, delivery, or transfer made by any foreign source of:–

1. Any article other than personal gifts of market value not exceeding such sum as may be specified by the Central Government.
2. Any currency whether Indian or foreign.
3. Any security including foreign security.

Notes: This will also cover:

1. Contribution received from any person who has in turn received it from a foreign source
2. Interest accrued on FC deposited in the bank

However, any amount received, by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of business, trade or commerce, whether within India or outside India, shall be excluded from the definition of foreign contribution.

3.1 Foreign Source

It includes:–

1. Government of any foreign country or any agency of such Government;
2. Any international agency except United Nations or any of its specialised agencies, World Bank, International Monetary Fund or such other agency as the Central Government may, by notification in the Official Gazette, specify;
3. Foreign company;
4. Corporation, other than foreign company, incorporated outside India;
5. A multinational corporation;
6. A company where more than 50% of its share capital is held by a foreign government or citizens of a foreign country or foreign entity (includes company, corporations, trusts, societies or other associations of individuals registered in foreign country);
7. A foreign trust or foreign foundation and includes trust or foundation mainly financed by a foreign country; and
8. Citizen of a foreign country.
9. Foreign Trade Union, Society, Club or Other Association.

Note: Amount received from a non-resident Indian citizen in foreign currency, would not be treated as foreign source.

Amendments made in Finance Act, 2018 for FCRA

The government has for the second time introduced amendment to the Foreign Contribution Regulation Act (FCRA) in the Finance Bill, paving the way for both the BJP and Congress to escape legal scrutiny for receiving foreign contribution since 1976, the year FCRA regulations were introduced.

In Part XIX of the list of amendments in the 2018 Finance Bill, the “Amendment to the Finance Act, 2016”, entry number 217, reads: “In Finance Act, 2016, in section 236, in the opening paragraph, for the words, figures and letter ‘the 26th September, 2010’, the words, figures and letter ‘the 5th August, 1976’ shall be substituted”. The FCRA Act, 1976, commenced on August 5, 1976. This was later repealed and replaced with FCRA, 2010.

The FCRA of 1976 defined a foreign company as one with over 50 per cent foreign ownership, thereby disallowing the companies owned by foreign nationals or Indian-origin people based abroad and with foreign citizenship to fund and influence political parties in India.

As per Section 29 B of Representation of the People Act 1951, any political party is prohibited from accepting donation from foreign sources. It states, “Provided that no political party shall be eligible to accept any contribution from any foreign source defined under clause (e) of section 2 of the Foreign Contribution (Regulation) Act, 1976 (49 of 1976).”

In 2016, the government for the first time used the Finance Bill to bring amendments to the FCRA, 2010 to change the definition of what constitutes a foreign company in such a way that key beneficiaries of UK-based Vedanta group — the BJP and Congress — would not face legal scrutiny for donations received from 2010 onward. However, both the political parties were allegedly receiving foreign funds for political activities from Vedanta from 2004 to 2012.

“The retrospective amendment in 2016 did not apply to donations prior to 2010 and the Association for Democratic Reforms (ADR) moved a contempt petition against the Ministry of Home Affairs (MHA) pointing out that the directives of the High Court against the two political parties which received foreign funds were not complied with,” an official said on condition of anonymity.

“After Foreign Direct Investment (FDI) norms were relaxed, there were anomalies regarding the definition of foreign companies under the FCRA which were not amended. After seeking legal opinion, it was decided to amend the 1976 Act in the 2018 finance Bill

4. Restrictions on Accepting FC

The person having a definite cultural, economic, educational, religious or social programme can accept FC, only if:

1. It is registered with the Central Government under this Act or takes prior permission before receiving each contribution.
2. It receives FC only through one designated bank account.
3. Central Government is kept intimated as to the amount, source and manner in which FC was received and utilised.

4.1 Prior Permission

1. Application for prior approval to be made online in Form FC 3 electronically only.
2. Prior approval to be donor specific, donee specific and purpose specific.

5. Restrictions on acceptance of foreign hospitality

No member of a Legislature or office-bearer of a political party or Judge or Government servant or employee of any corporation or any other body owned or controlled by the Government shall, while visiting any country or territory outside India, accept, except with the prior permission of the Central Government, any foreign hospitality:

Provided that it shall not be necessary to obtain any such permission for an emergent medical aid needed on account of sudden illness contracted during a visit outside India, but, where such foreign hospitality has been received, the person receiving such hospitality shall give, within one month from the date of receipt of such hospitality an intimation to the Central Government as to the receipt of such hospitality, and the source from which, and the manner in which, such hospitality was received by him.

6. Registration of the Association
   1. Application for registration shall be submitted electronically in Form FC 3. The applicant shall upload the signed or digitally signed application along with scanned documents as specified by the Central Government.
   2. Registration granted shall be valid for 5 years from the date of its issue.
   3. Application for renewal to be made in Form FC 3, six months before the date of expiry of the certificate.
   4. Act provides that registration may be granted, ordinarily within 90 days from the date of receipt of application, however practical experience is that the process takes much longer.
   5. The Ministry of Foreign Affairs has introduced a new facility “FCRA – Online” to facilitate associations to file their applications for registration and submit statutory forms online. Refer fcraonline.nic.in.
   6. Recent amendment to the Rules have made it compulsory to file all forms under FCRA electronically and the payment of fees has to be made online through the payment gateway, instead of the earlier requirements of filing hard copies and payment by demand draft or banker’s cheques.

7. Accounts & Audit

7.1 Maintenance of accounts

1. Accounts to be maintained on yearly basis from April to March.
2. Every person receiving FC shall maintain an account of any FC received and its utilisation.
   1. Income & expenditure statement, receipt & payment account and balance sheet are to be prepared exclusively in respect of the FC received.
   2. Details in Form FC 1 to be maintained where FC relates to articles and foreign securities.

7.2 Designated bank account

1. FCRA funds can be received and held only in the designated bank account.
2. Besides the designated bank account, operational accounts in one or more banks may be opened for the limited purpose of utilising the foreign contribution. Such accounts are commonly referred to as field accounts. In such cases, intimation in Form FC–6 shall be furnished electronically to the Secretary, Ministry of Home Affairs within 15 days.
3. Designated or field accounts are strictly prohibited from receiving non-FC funds.
4. Interest earned out of FC funds should be deposited in designated bank account.

7.3 Audit

1. Income & Expenditure account, Receipts & Payment account and Balance Sheet, with report in Form FC 4 duly certified by a CA to be submitted to Home Ministry before 31st of December immediately following the end of financial year.
2. Form FC 4 to give details of each contribution received, the source, manner of receipt, purpose of receipt and manner of utilisation.
3. Even Nil report has to be submitted. However, where no FC has been received or utilised during a financial year, only FC 4 is required to be submitted, without the need to enclose certificate from Chartered Accountant, income and expenditure statement, receipt and payment account or balance sheet.

8. Total Ban on acceptance of Foreign Contribution & Hospitality

8.1 Ban relating to FC applies to

1. Candidate for election;
2. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
3. Government servant, judge or employee of any Government corporation;
4. Member of any Legislature;
5. Political party or office-bearer thereof
6. Organisation of political nature;
7. Association or company engaged in production or broadcast of audio news or audio visual news or 
   current affairs programmes through any electronic mode or form;
8. Correspondent or columnist, cartoonist, editor, owner of the above association or company.

8.2 Ban does not apply to FC received by way of

1. Salary, wages or other remuneration, or
2. Payment in ordinary course of international trade or commerce, or
3. Payment received by an agent of a foreign source in relation to any transaction made by such foreign source with the State or Central Government, or
4. Gift or presentation made to a member of any Indian delegation, provided the same is in conformity with the rules framed by the Central Government in this regard, or
5. Gift from relative. Gifts exceeding ₹1,00,000 per annum requires intimation to the Central Government in Form FC-1 within 
   30 days from date of receipt of such gift, or
6. Any scholarship, stipend or any payment of like nature, or
7. Remittance received in ordinary course of business through official channels.

9. Restriction on Administrative Expenses

Every person, registered or having prior permission, shall not, as far as possible, incur administrative expenses in excess of 50% of the FC received in that financial year. Rule 5 lays 
down parameters as to what constitutes administrative expenses.

10. Speculative Activity

Foreign contribution or any income arising out of it shall not be used for speculative business. Rule 4 specifies the activities that will be treated as speculative in nature. For example investment in mutual funds is not permitted. However, debt based secure investment shall not be treated as speculative.

11. Transfer of FC to other Registered or Unregistered Persons

    1. Transfer of FC funds to another person who is not registered or has not obtained prior permission to receive foreign contribution will not be permitted unless pre-approval of the Central Government is obtained. Application for such pre-approval is to be made in Form FC 5.
    2. In such case, the transferor may apply for permission to transfer not more than 10% of the total value of FC received.
    3. Transfer of FC funds is permitted if the transferee is a registered organisation or has obtained prior permission under section 11.

12. Inspection & Seizure

    1. The Central Government has been empowered, to inspect as well as seize the accounts and records if it has reason to believe that any provisions of this Act or any other law relating to foreign exchange has been contravened.
    2. Central Government may seize and/or confiscate any article, currency or security in relation to which any provision of this Act has been contravened.
    3. The seized records and accounts are to be released if no proceedings are initiated within six months from the date of seizure.
13. Penalty

• A person who has been convicted more than once for offence relating to acceptance or utilisation of FC is prohibited from accepting any FC for a period of 5 years.
• Any person convicted of an FC offence relating to any article, currency or security would also be liable to fine up to 5 times the value of the article or currency or ₹1,000 whichever is more, if article or currency is not available for confiscation.
• Compounding of certain offences is now possible.

14. Declaration of receipts of foreign contribution

    1. Any person/organisation who has been granted a certificate of registration or prior permission shall place its audited financial statement of accounts on its official websites or on the FCRA website within nine months from the end of the relevant financial year.
    2. A person receiving foreign contribution shall place details of such foreign contribution received, on its official websites or on the FCRA website, within 15 days following the last date of quarter in which the funds have been received, giving details of donors, amount received and date of receipt.

15. Change of designated bank account, name, address, aim, objects or key members of the association

Any person/association who has been granted a certificate of registration or prior permission under section 11 of the Act shall intimate electronically online in Form FC 6, within 15 days of any change in its name, address, nature, aims, objects, registration with local/relevant authorities, if more than 50% of the original key members reported in the application for grant of registration/prior permission/renewal of registration.

16. All FCRA services online

In order to improve the existing services relating to FCRA, to speed up processing and disposal of cases and to bring transparency, Ministry of Home Affairs has brought all the FCRA Services online.

The followings new forms have been notified under the Foreign Contribution (Regulation) Amendments Rules, 2015: