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Foreign Contribution (Regulation) Amendment Act, 2020

23 Oct 2020

The Government has amended the regulatory regime governing foreign contributions with some far-reaching consequences for non-profit organisations such as the limitation on administrative expenses of NGOs, restriction on transferability of foreign contributions and suspension of registration during the pendency of an inquiry.

Background

The Foreign Contribution (Regulation) Act, 2010 (Act) regulates the receipt and utilisation of foreign donations to ensure that such contributions do not adversely affect internal security. In recent years, the registration of various not-for-profit organisations have been cancelled for violations of the Act such as misutilisation of foreign contribution, non-submission of mandatory annual returns and diversion of foreign funds for purposes other than those declared. In this backdrop, the Government of India decided to amend the Act and notified the Foreign Contribution (Regulation) Amendment Act, 2020 (FCRA Amendment Act) on 29 September 2020 with the objective of strengthening the compliance mechanism, enhancing transparency and accountability in the receipt and utilisation of foreign contribution and facilitating genuine non-governmental organisations or associations (NGOs) working for the welfare of society.

Here, we briefly discuss some of the key changes introduced by the FCRA Amendment Act.

Key Changes

  • Transfer of foreign contribution prohibited

    Previously, the Act permitted the transfer of foreign contributions to other persons eligible to receive foreign contributions under the Act, i.e. persons registered under the Act or persons with prior permission, or with the prior approval of the central government. The FCRA Amendment Act now prohibits such transfers.

    This prohibition could adversely impact the ability of smaller NGOs or social workers working at a grassroot level or in rural areas to collaborate with and receive foreign contributions through larger and better-networked organisations. Additionally, such restriction without a transition period could impact ongoing collaborations between these organisations and require them to work in isolation from each other.

  • Cap on administrative expenses lowered

    The FCRA Amendment Act reduces the percentage of foreign contributions that can be utilised to defray administrative expenses from the earlier cap of 50% to 20% of the foreign contribution received in a year.

    The Foreign Contribution (Regulation) Rules, 2011 set out a list of items categorised under the head of administrative expenses, including salary, travel expenses, costs associated with hiring personnel, overhead expenses like rent, electricity, water, cost of accounting and maintaining books, legal and professional charges, etc.

    While the objective of this amendment seems to be to ensure that a larger portion of the foreign contribution is used for the stated charitable purpose, the administrative expenses of an organisation may depend on various factors such as the size of the project, the intended reach of the project, number of personnel required, etc. and the reduced cap may therefore adversely impact the efficient functioning of various NGOs.

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