Recent Amendments to India’s Foreign Contribution (Regulation) Act

The Foreign Contribution (Regulation) Act, 2010 (“FCRA”) is the cornerstone law that regulates how non-profits in India receive foreign funding. It is mandatory for all associations, groups and NGOs which intend to receive foreign donations, to register themselves under the FCRA. The registration is initially valid for five years and it can be renewed subsequently so long as such associations comply with all regulatory norms. Registered associations can receive foreign contribution for social, educational, religious, economic and cultural purposes.

Here we highlight key changes in the amended Act which came into effect on September 29, 2020 as well as the Foreign Contribution (Amendment) Rules, 2020. These are likely to impact how foundations and corporations make grants to Indian NGOs, in several important ways.

Key Amendments 

• • • Eligibility to receive foreign funding: Organisations must have existed for at least three years and spent Rupees fifteen lakhs in voluntary activities to be eligible to receive money from abroad. Moreover, office bearers of NGOs or organisations seeking registration under the FCRA must submit a specific commitment letter from the donor indicating the amount of foreign contribution and the purpose for which it was being given.
    • Prior Permission for contribution over Rupees one crore: If prior permission is sought for a sum of over Rupees one crore, the Ministry of Home Affairs may permit receipt of such foreign contribution in such instalments, as it may deem fit. However, the second and subsequent instalment shall be released only after submission of proof of utilization of at least seventy-five percent of the foreign contribution received in the previous instalment and after field inquiry of the utilization of foreign contribution.
    • Power of Central Government to require AADHAR numbers of all office bearers: The central government may require that any person who seeks prior permission or prior approval, makes application for grant of certificate or its renewal shall provide as an identification document, the AADHAR number of all its office bearers, or a copy of the Passport or Overseas Citizen of India Card, in case of a foreigner.
    • Re-granting and Sub-granting Disallowed: The amended law disallows re-granting or sub-granting between FCRA compliant organizations. This means that funders who currently use FCRA-registered non-profits as a re-granter to support other FCRA-registered Indian non-profits may no longer do so. Additionally, Indian non-profits who serve as lead implementers on a given project may no longer create sub-grant relationships with other non-profits using foreign funding.
    • Mandatory State Bank of India Accounts: Previously, non-profits receiving foreign funding under FCRA needed to create a bank account at any government-approved bank. Under the amended FCRA, all non-profits must create and solely use a new account with the State Bank of India at New Delhi. The respective branch of the State Bank of India at New Delhi is required to report the contribution and its intended use to the central government. Furnishing details of the FCRA Bank Account with State Bank of India, New Delhi Main Branch is now mandatory when applying to MHA for registration, prior permission or renewal of FCRA registration.
    • Administrative Expenses Capped at 20%: Earlier non-profits receiving foreign funding could utilize up to 50% of foreign funds in a given fiscal year on administrative expenses. Under the amended FCRA, administrative expenses are now capped at 20% of foreign funds received. However, what amounts to “administrative expenditure” remains unclear.
    • Forfeiture of FCRA Status: Under the new regulatory regime, there is now a means for NGOs to forfeit their FCRA registration. However, this has implications – assets previously created with foreign funds, such as a hospital or school, may need to be transferred to the appropriate government arm.

Going Forward

Foreign grant-makers and Indian associations or non-profits may want to consider taking the following steps:

• • • Consider revising grant agreements to ensure that the grantee is only spending 20% of the funds on administrative expenses. Note that the 20% cap is for all foreign funding received in a fiscal year, so the grantee must ensure that that either 20% of all grants they receive are dedicated to administrative expenses, or that the ultimate administrative expense percentage from multiple grants equates to 20% at the end of the year.
    • The amended FCRA will significantly impact the many U.S. grant-makers who utilize larger Indian non-profits to serve as project leads or re-distributors of foreign funding locally. It is imperative that grant-makers revisit and assess current granting relationships with Indian non-profits, including noting whether   there are any sub-granting or re-granting relationships.
    • Indian non-profits receiving foreign funding must create a State Bank of India account by March 31, 2021 and share necessary details with their grant-makers. These newly created accounts are likely to be heavily monitored and will likely be subject to more oversight of foreign funding than in the past.

Disclaimer: This memorandum is meant solely for informational purposes and not for the purpose of advertising or soliciting clients. Any use of the information provided herein is not intended to, and shall not, create a lawyer-client relationship