Foreign Contribution and Registered Societies: the FCRA 2010 Regime

Foreign money reaches Indian civil society through a narrow, closely watched gate. The Foreign Contribution (Regulation) Act, 2010 lets a genuine society receive foreign contribution only after approval, only into a single designated bank account, only for approved purposes, and only on condition of strict accounting and reporting. The 2020 amendments tightened every bolt, and later rule changes have added more, so a society that handles foreign funds carelessly risks its registration and worse.

1. The gateway: registration and prior permission

• Registration (Form FC-3A) suits an established society with a track record, commonly three years of activity and a threshold of programme spending; it is valid for five years.
• Prior permission (Form FC-3B) suits a newer society or a specific project, tied to a named donor and purpose.
• Purposes and places. Registration now specifies the approved purpose categories, cultural, economic, educational, religious and social, and, under the current rules, the States and purposes for which contribution may be used, with existing holders updating their particulars on the prescribed form.
• Key functionaries are scrutinised: the office bearers and those in control of management must be fit, and changes are reportable.

Figure 1: The foreign contribution gateway

2. The core discipline

Figure 2: The four rules that trip societies up

• One account. All foreign contribution must be received in the designated FCRA account at the State Bank of India, New Delhi Main Branch; no domestic money may enter it, and utilisation accounts elsewhere receive funds only by transfer from it, not directly.
• No passing on. A recipient cannot transfer foreign contribution to any other person, which ended the old sub-granting model; the penalty is a fine measured against the amount transferred.
• The expense cap. Not more than 20 per cent of the contribution received in a year may be spent on administrative expenses, the balance going to the programme purposes.
• Separate books for foreign contribution, audited accounts, and the annual return in the prescribed form including a nil return where nothing was received.

3. Who may receive, and renewal

Figure 3: Three positions under the Act

• Absolute bars. The Act forbids foreign contribution to certain persons altogether, election candidates, judges, Government servants, members of the legislatures, and persons connected with registered media, among others.
• Permitted with approval. A registered society holding FCRA registration or prior permission may receive, within its approved purposes and the Act's conditions.
• Outside the Act. Gifts from relatives abroad fall outside the contribution regime up to the limits the rules fix, with intimation required above the threshold.
• Renewal of registration is for a further five years and must be applied for ahead of expiry; the current rules require the application in advance of the expiry date and set a minimum utilisation condition, and lapse or rejection stops fresh receipts until regularised.
• Suspension and cancellation follow breaches, with the funds and assets dealt with as the Act directs; the consequences are severe enough that compliance is a board-level responsibility.

4. Quick Revision

1. Confirm approval before accepting any foreign money.
2. Receive only in the designated SBI account.
3. Never transfer foreign contribution onward.
4. Hold administrative spending within the cap.
5. Renew ahead of expiry and file every return.

5. Frequently Asked Questions

Is money from a foreign company's Indian subsidiary foreign contribution?

Often yes, because the Act looks through the payer to the source of control. Contribution from a company incorporated in India can still be foreign contribution where the company is controlled by a foreign source within the Act's definition, for instance through majority foreign shareholding above the prescribed threshold. The consequence matters: money that is foreign contribution must travel through the FCRA account and obey the whole regime, while domestic money must not touch that account at all. Societies that take corporate funds, including corporate social responsibility grants, therefore characterise each donor before banking the cheque, and keep the two streams rigorously apart, since mixing them is itself a breach regardless of good faith.

What happens to a society's foreign funds if its registration is cancelled?

They stop being freely usable. On cancellation the Act restricts dealing with the unutilised foreign contribution and the assets created from it, which may be managed or vested as the authority directs pending resolution, and the society cannot receive fresh contribution. Cancellation also carries a waiting period before any fresh application, and the grounds that led to it, diversion, transfer, cap breaches, false returns, may bring their own penalties. The practical counsel is preventive: because the downside reaches the corpus and not merely the year's receipts, foreign contribution compliance is run as a standing system, with the designated account reconciled, the cap monitored and renewals diarised well ahead, rather than addressed when a notice arrives.

Can a society holding FCRA registration fund another society's project?

Not out of foreign contribution. The transfer bar means a recipient cannot pass foreign contribution to any other person, so the familiar model of a large society sub-granting to grassroots bodies no longer works for foreign funds; each implementing society must hold its own registration or prior permission and receive directly from the donor. A society may still engage another as a contractor to deliver services it itself carries out, paying for goods or services rather than granting funds, but the line is policed strictly and dressing a sub-grant as a service contract invites the same penalty as an open transfer. Domestic funds remain free of this bar, which is one more reason societies keep their foreign and domestic monies, and their accounting, entirely separate.

6. Related Topics and Provisions

• Tax treatment of registered societies
• Accounts and audit of societies
• Society, trust and section 8 company compared
• Registrar's powers under State laws
• RTI and registered societies
• Duties of office bearers