An analysis of India's FCRA Bill 2010

13 September 2010

Noshir Dadrawala, the Chief Executive at the Centre for Advancement of Philanthropy in Mumbai, India, has provided the following analysis of India's Foreign Contribution (Regulation) Bill 2010.

The Good, The Bad & The Ugly
- The FCRA Bill 2010

The Foreign Contribution (Regulation) Bill 2010 has recently been passed by both Houses of the Indian Parliament. It now merely awaits the assent of the President and a Gazette Notification to be enacted into Law. Let us examine the ‘Good’, the ‘Bad’ and the ‘Ugly’ aspects of this proposed legislation.

The Good

  • Charitable organizations will  be allowed to maintain multiple bank accounts for management and utilization  of FCRA funds provided only one bank account is maintained for receiving all  foreign contribution.
  • Both, ‘Registration’ and  ‘Prior Permission’ shall be granted or rejected within a period of 90 days  from the date of receipt of application. Currently this time frame is  stipulated only for applications for Prior Permission.
  • Presently foreign  contribution cannot be transferred to organizations which are not registered  nor have prior permission under FCRA. FCRA 2010 will now allow such transfer  with ‘Prior Approval’. However, the rules in this regard are yet to be  framed.

The Bad

  • Under FCRA 2010, ‘Foreign  Company’ is defined and under the definition given u/s 2(g), Indian companies  are not included. However, u/s 2(j) ‘foreign source’ includes an Indian  company if more than 50% of its equity is held by foreigners. This dichotomy  is confusing!
  • The definition of ‘foreign  contribution’ includes various types of foreign receipts. It does not  distinguish between commercial receipts and voluntary contributions. In fact,  Explanation 3 to section 2(h) excludes income from business, trade or  commerce. This section states that any fee or cost against business, trade or  commerce shall not be considered as foreign contribution. In other words, such  receipts can be treated as local income. However this provision is in conflict  with the amended section 2(15) of the Income Tax Act which prohibits trade or  business related receipts above Rs.10 lakhs. NGO are therefore urged to  exercise caution.
  • Section 3 specifies persons  who are ineligible to receive foreign contribution. To the existing list a few  more have been added. Of particular concern is the inclusion of, “Organization  of a political nature”. The term ‘Political Nature’ has not been defined.

The Ugly

  • Section 8 states that the  administrative expenses shall not exceed 50% and any expenditure of  administrative nature in excess of 50% shall be defrayed with prior approval  of the Central Government.
  • Registration under FCRA will  require renewal every 5 years! However, the Act has provided relief to all the  existing NGOs for the first 5 years from the date of enactment. In other  words, all existing NGOs will be required to renew their registration at the  end of the period of 5 years from the date of enactment of FCRA 2010.  According to Section 16 of the proposed Act, all NGOs should apply for renewal  of the certificate within 6 months prior to the expiry of the 5 years  period.
  • Sweeping powers have been  given to the authorities for rejecting applications for prior permission or  registration. Take for example, under Section 12, “the applicant should not  have been prosecuted or convicted for indulging in activities aimed at  conversion or creating communal tension”. Inclusion of the term ‘prosecuted’  is of tremendous concern since it implies that even if there is a false or  frivolous legal proceeding going on registration could be  denied.
  • Registration may be cancelled  for various reasons including lack of activity for a period of 2 years.  Currently NGOs have been enjoying the benefit of keeping their registered  status alive by simply filing ‘Nil’ returns despite not receiving or utilizing  foreign funds for many years.
  • Also, any organization whose  certificate has been cancelled / revoked shall not be eligible for  registration or prior permission for a period of 3 years from the date of  cancellation.
  • FCRA 2010 further provides  that after cancellation of registration certificate, all the foreign  contribution and assets thereof (created since the inception of the  organization) shall vest with such authority as may be prescribed. The  government authorities shall take charge of the foreign contribution and the  FC assets till the registration is restored.