How NGOs get foreign funding under FCRA?

Foreign contributions are a major source of financial support for NGO activities in India.  Foreign funds are flowing in through private foundations, foreign governmental agencies, and individuals for charitable causes either in the form of donations or as project funding support. The process of receiving these grants has been subjected to law ever since the FCRA was drawn up in 1976 and amended from time to time. As a result, NGOs have to mandatorily register with FCRA for receiving foreign funds. The Foreign Contribution Regulation Act, 2010 (FCRA 2010) was enacted with a view “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.”

There are two ways in which an organization can obtain registration as per FCRA 2010:-

1. NGO has to apply through Form FC – 3A (application for Normal FCRA registration)
2. NGO has to apply for Prior permission through Form FC – 3B (Application for FCRA Prior Permission)

For normal registration the applicant must be registered under the Societies Registration Act, 1860,    or the Indian Trusts Act, 1882 or registered as Section 8 Company as per the Companies Act, 2013 or any such Act as may be required. The NGOs must have been in operation for three years and they must have spent a minimum of Rs. 10, 00,000 in the last 3 years towards achieving their objectives (Excludes administrative expenditure). An organization should not have an already registered parent society under FCRA. It must submit the copies of the financial statements of the last 3 years that are duly audited by qualified Chartered Accountants.  The NGO must not have foreign nationals on the board. Where the Indian recipient NGO and foreign donor organization have common members, the following conditions need to be met: – (i) The Chief Functionary of the Indian organization can’t be part of the donor organization. (ii)     At least 51% of the members/office-bearers of the governing body of the Indian recipient organization should not be employees/members of the foreign donor organization. In case of foreign donor is an individual then he cannot be the chief functionary of the donee organization. Also, atleast 51% office bearers/members of the governing body of the recipient organization should not be the family members and close relatives of such donor.

Furthermore, all the NGOs need to maintain an independent bank account purely for foreign transactions, and no other funds should be mixed up in the account. This is compulsory for both prior permission and normal registration. There are many regulatory restrictions on the usage of funds received. The operations in the account of foreign funds are closely monitored by the regulator. The money received should not be used for investment purposes. Transactions in cash for any purpose, transferring funds to other organizations, are subject to strict scrutiny and vigilance.  Spending more than 50% of foreign contributions or transferring the funds to unregistered organizations without prior permission from the Ministry of Home Affairs may create difficulties for the foreign funds’ recipient organization. It is mandatory for FCRA-registered organizations to submit annual returns as ‘NIL’ if they have not received any foreign contribution during that financial year. Returns also have to be filed even when the NGO has not utilized any of the foreign funds received during the financial year. Over the years, a large number of organisations have been banned because of their failure to submit annual returns and completed balance sheets at the end of the fiscal year. On July 24, 2018, the Union State Minister of Home Affairs in India, Kiren Rijiju announced that nearly 19,000 NGOs in the country have been banned from receiving foreign funds under the Foreign Contribution (Regulation) Act (FCRA) of the Government of India since the year, 2011.