Foreign+Contribution+(Regulation)+Act,+2010

8/12/2019 Foreign+Contribution+(Regulation)+Act,+2010

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Foreign Contribution(Regulation) Act, 2010

SEPTEMBER 10, 2011

CA Hiren D. Shah

KANDIVALI CPE STUDY CIRCLEOF WIRC OF ICAI


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Preamble

Foreign Contribution ( Regulation) Act,2010came into effect from May 1,2011

Foreign Contribution Regulation Rules, 2011have come into force from May 1,2011

In exercise of the power conferred by section 48of the FCRA, the Central Government makesthe rules Foreign Contribution Regulation Rules.


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In Layman Understanding

Object

Any ForeignContribution

Foreign Hospitality

Illegitimate Foreign

Source or

With unknown source

Which will weaken

national

SecurityNeeds Close

Scrutiny by

Home Ministry being

Security Issues

Concern is

Threat to

Economy

This is all about FCRA..


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FCRA Moves around.

Objects :

Foreign

Contribution

Foreign

Source

ForeignHospitality


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Why FCRA Regulation????

As per website of Ministry of Home Affairs,purpose of FCRA is to facilitate receipt offoreign contribution for genuine purposes,

without compromising national securityconcerns.

Focus of FCRA has shifted to internal security

It is doubtful that destructive elements will useFCRA route to fund their supporters in India


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Why FCRA Regulation????

Aimed at regulating the acceptance and utilizationof foreign contributions and acceptance of

foreign hospitality by certain individuals orassociations or companies

To Prevent mis-utilisation of the foreigncontribution received by the Associations


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FCRA Applicability

FCRA 2010 extends to whole of India and alsoapplies to citizens of India outside India andassociates/ branches and subsidiaries outsideIndia of Companies or bodies registered or

incorporated in India

The Act is applicable to any citizen of Indiawhether he is in India or outside India.However Act is not applicable to a foreignerwhile outside India

Applies to Citizen of India or Entity Registered in India


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FCRA Override FEMA or other

General Acts

Since the Act is a special Act, its provisions willprevail over provisions of FEMA. Thus even if

there is permission for certain transactions ( likedonation, gift etc..) under FEMA, restrictionsunder FCRA will be applicable if the transactionis covered under provisions of the FCRA


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Who Administrate FCRA??

Ministry of Home Affairs, FCRA wing/ForeignDivision, Government of India administrateFCRA


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Where to Apply & How to Apply??

The Department has taken initiative of e-governance.

Application for registration and permission can

be downloaded from the website i.e.http://mha.nic.in/fcra.htm

Returns to be filed under the FCRA can be filedonline
http://mha.nic.in/fcra.htmhttp://mha.nic.in/fcra.htm


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Some Key Feature of FCRA The concept of permanent registration has been done

away

a five-year registration is provided so that dormantorganizations do not continue

All existing registered organizations are deemed to be ona five year validity from the date of enforceability of the

Act Organizations of a political nature cannot receive

foreign funds

A person granted prior permission to receive foreign

contribution shall utilize it for the purposes for which ithas been received. It cannot be used for speculativebusiness;

Organization cannot use more than 50 per cent of its

received for administration purposes.


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Some Key Feature of FCRA..Contd..

A procedure for suspension and cancellation ofregistration has also been prescribed

A statutory role provided for the banking sector

in regulationTime limits have been provided for

accountability on the part of officials

A provision has been made for CompoundingOffence


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Some Key Feature of FCRA..Contd..

No person who receives foreign contribution asper provisions of this Act shall transfer to otherperson unless that person is also authorized to

receive foreign contribution as per rules madeby the Central Government

NGO and individuals will have to submit their

accounts in time failing which actions would betaken against them

I P i i f CRA


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Important Provisions of FCRA

Transfer of Foreign Contribution to other

Registered or Unregistered person Foreign Contribution received can be transferred

to other registered or unregistered person with

permission of Central Government. Application

should be made in form FC-10

Transfer up to 10% of foreign contribution can

be made even to person who has not been

granted registration or prior permission, withapproval of Central Government

Such transfer should be reported in forms FC-6

and FC-10 by the transferor and the recipient


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Changes in the 2010 Act Vis--vis 1976 Act

Scholarship/ stipend kept out of provisions of

FCRA Foreign contribution received from relative is

now outside FCRA

Only subsidiaries of foreign companies will becovered within the definition of foreignsource( presently, all companies withshareholding exceeding 50% are covered in the

definition) Electronics media brought within list of persons

who cannot accept foreign collaboration


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Provisions of the repealed FCRA 1976 have

been retained, the FCRA 2010 is animprovement over the repealed Act as morestringent provisions have been made in order to

prevent mis-utilisation of the foreigncontribution received by the association

Provisions have been made for suspension aswell as cancellation of registration granted forviolation of the provisions of the Act.


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Interest received on foreign contribution willalso fall within the meaning of foreigncontribution

Provision made to permit transfer of foreigncontribution to other person

Restriction to utilize foreign contribution foradministrative purpose to 50%

Prohibition on use of foreign contribution forspeculative purposes

Ch i h 2010 A Vi i 1976 A


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Time limit of 90 days for giving decision onregistration or prior permission to obtain foreigncontribution

Management of foreign contribution and assetscreated out of such contribution of persons whose

certificates have been cancelled

Disposal of assets created out of foreign contribution

if the person becomes defunct or ceases to exist

Revision by Central Government of orders passed byit

Penalty for making false statement, declaration or

delivering false account


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Unsolved Problems

No lower limit for applicability of FCRAprovisions ( even small donations attracts FCRAprovisions)

Liberalization announced under FEMA are notextended under FCRA

Gifts are permitted under FEMA, but giftsfalling under FCRA will be still governed by

provisions of FCRA

FCRA will override FEMA and other AlliedLaws


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Definition of Foreign Contribution

Means the donation, delivery or transfer made by any

foreign source Includes :

Article, not given to a person as a gift for personal use, if

the market value, in India, of such exceeds Rs 1,000/-

Any Currency, whether Indian or foreign

Any securities defined under Section 2(h) of the Securities

Contracts (regulation) Act,1956

Any foreign securities as defined in Section2(o) of the

Foreign Exchange Management Act,1999

This excludes earning from foreign client by an NGO/

association in lieu of goods sold or services rendered by it

as this is a transaction of commercial nature


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Meaning of Security under Securities Contracts

(Regulation) Act,1956

Securities include (i). Shares, Scripts, Stocks, Bonds, debentures,

debenture stock or other marketable securitiesof a like nature in or of any incorporated

company or other body corporate (ii). Derivatives

(iii). Units or any other instruments issued byany collective investment scheme to theinvestors in such schemes

(iv). Security Receipt issued by SecuritizationCompany


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Meaning of Security under Securities

Contracts (Regulation) Act,1956

Units or other instruments issued to investorsunder any mutual funds scheme

Any certificate or instrument issued to aninvestor by any issuer being a special purposedistintict entity, which possesses any debt orreceivable, including mortgage debt, as the casemay be

Government securities Such other instruments as may be declared by

the Central Government to be securities

Rights or interest in securities


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Meaning of Foreign Security under Foreign

Exchange Management Act

Foreign Security means any security in theform of shares, stocks, bonds, debentures or anyother instrument denominated or expressed in

foreign currency It includes securities expressed in foreign

currency, but where redemption or any form of

return such as interest or dividend is payable inIndian currency


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Who cannot accept foreign Contribution

No foreign contribution shall be accepted by any

Candidate for election

Correspondent, columnist, cartoonist, editor,owner, printer or publisher of a registered

newspaperJudge, Government Servant or employee of

any corporation or any other body controlled

or owned by the GovernmentMember of any legislature

Political party or office-bearer thereof,


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Who cannot accept foreign Contribution

Organization of a political nature as may be

specified by Central GovernmentAssociation or Company engaged in the

production or broadcast of audio news or

audio-visual news or current affairsprogrammes through any electronic mode, or

any other electronic form as defined U/s 2 of

the Information Technology Act,2000

Correspondent or columnist, cartoonist,

editor, owner of the association or company


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Who cannot accept foreign contribution

on behalf of other person

No person, resident in India, and no citizen ofIndia resident outside India, shall accept anyforeign contribution, or acquire or agree to

acquire any currency from a foreign source, onbehalf of any political party, or any personreferred under FCRA


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Prohibited Organization to accept

foreign contribution

Organization with fictitious or benami accounts,

have indulged in conversation directly or

indirectly, created communal tension, supportedsedition or have diverted funds earlier would be

barred from receiving foreign contributions

E ti t f i t ib ti


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Exception to foreign contribution

Contribution made by citizen of India living in

another country ( i.e. Non Resident Indian),from his personal savings, through the normalbanking channels is not treated as foreign

contribution. However, while accepting anydonations from such NRI, it is advisable toobtain his passport details to ascertain thathe/she is an Indian passport holder.


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Not to be Considered as Foreign Contribution

Gift or Presentation made to Indian delegation

accepted in accordance with the rules made bythe Central Government

From relative

By way of remittance received in the ordinarycourse of business through any official channel,post office, or any authorized person in FEMA

By way of scholarship, stipend or any paymentof like nature


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Not to be Considered as Foreign Contribution

Foreign Contribution accepted:

By way of salary, wages or other remuneration duefrom any foreign source or by way of payment in the

ordinary course of business transacted in India by

such foreign source

By way of payment, in the course of international

trade or commerce, or in the ordinary course of

business transacted outside India

As an agent of foreign source in relation to anytransaction made by such foreign source with the

Central Government or State Government


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Who cannot deliver any currency to

other person..

No person, resident in India, shall deliver anycurrency, whether Indian or foreign, which ahsbeen accepted from any foreign source, to any

person if he knows or has reasonable cause tobelieve that such other person intends, or islikely, to deliver such currency to any political

party or any person as defined under FCRA


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Public Disclosure of receipt

If foreign contribution received in a yearexceeds Rs 1 crore, summary of receipts andutilization shall be kept in public domain for the

year and one year thereafter. CentralGovernment will also display the data on itswebsite for information of general public


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Foreign Source.

Includes:

Foreign Government, International agency (but not UN or its agencies, World Bank, IMFetc..)list of agencies exempted on thewebsite http://mha.nic.in/fcra/intro/FCRA-exempted AgenciesUN.pdf

Foreign Company

Multi-national corporation

Company where more than 50% capital isheld by foreigner or foreign company, foreigntrust, foreign citizen etc..

I t ti FAQ
http://mha.nic.in/fcra/intro/FCRA-http://mha.nic.in/fcra/intro/FCRA-http://mha.nic.in/fcra/intro/FCRA-


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Interesting FAQs

Whether donations by PIO cardholder or PIO who

holds passports or registered OCI or dual Citizenwould be considered foreign source?

Yes, because under all these three categories are foreign

nationals and hold passports of the country of their

nationality

Foreign nationality is the Important criteria


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Interesting FAQs

Can foreign Contribution be received in

Rupees?

Yes. Any amount received from foreignsource in rupees or foreign currency is

construed as foreign contribution under

law. Such transactions even in rupees termsis considered foreign contribution.


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Would donations by PIO / OCI

considered as foreign Source

The donations by Persons of Indian Origin(PIO) Card holder or Persons of Indian Origin

(PIO) who hold other countrys passports orregistered Overseas Citizens of India (OCI)would be considered foreign source


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Meaning of Speculation activities

Investment including investment in mutualfunds or in shares linked to market force asregards to appreciation or depreciation of theoriginal investment


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Speculative Activities.

Any activity or investment that has an element

of risk of appreciation or depreciation of theoriginal investment, linked to market forces,including investment in mutual funds or inshares

Participation in any scheme that promises highreturns like investment in chits or land or similarassets not directly linked to the declared aims

and objectives of the organization or association Debt based secured investment shall not be

treated as speculative Investment


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Intimation about Investment in

Speculative Activities

Intimation or Information about speculativeactivities of any organization shall be furnishedto Secretary to Government of India, Ministry

of Home Affairs, New Delhi by registered post


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Administrative Expenses..

Salaries, wages, travel expenses or any

remuneration realized by the Members of theexecutive Committee or Governing Council ofthe person

The expenditure incurred on salaries orremuneration of personnel engaged intraining or for collection or analysis of fielddata of an association primarily engaged inresearch or training shall not be countedtowards administration expenses.

Administrative Expenses Contd


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Administrative Expenses.Contd..All expenses towards hiring of personnel for

management of the activities of the person and

salaries, wages or any kind of remuneration paid,including cost of travel, to such personnel

All expenses related to consumables like

electricity and water charges, telephone charges,postal charges, repairs to premises from wherethe organization or Association is functioning,stationery and printing charges, transport

charges by the Members of the ExecutiveCommittee or Governing Council andexpenditure on office equipment


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Administrative Expenses.Contd..

Cost of accounting for and administering funds

Expenses towards running and maintenance ofvehicles

Cost of writing and filing reports

Legal and professional charges

Rent of premises, repairs to premises andexpenses on other utilities

Expenses directly related to the stated objective ofthe

Welfare oriented organization shall be excluded


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Registration for Acceptance of Foreign Contribution

Any Association ( except political nature) havinga definite cultural, economic, educational,religious or social Programme can accept foreigncontribution

Prior Permission vis--vis Registration

Prior Permission is for specific Donor andSpecific Project

Registration is for General Donor andAssociation object

Registration


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Registration On line Application

Hard Copy to be sent within 30 days ofsubmitting Online Application

If the application is rejected, further application

can be made only after six monthsApplication can not be made within 6 months

after submitting application for prior permission

for same project Registration shall be granted within 90 days. If

not granted, reasons will be communicated

within 90 days unless protected under RTI

Validity of Registration


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Validity of Registration

Registration is granted for a period of 5 years.

It can be renewed by making application byapplying six month before expiry of registration

If the application for renewal is not made, theregistration will lapse at the end of 5 years. Insuch case, fresh application has to be made

Application for renewal shall be made in FormFC-5 with fees of Rs 500/-.

Suspension or Cancellation of Registration


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Central Government can suspend registration for 180days by order in writing.

During this period, foreign contribution cannot beaccepted or utilized or can be accepted or utilized only asper terms and conditions specified by CentralGovernment

Reason should be given and principles of natural justicehas to be followed. Such action cannot be arbitrary

If such order of suspension is passed, up to 25% of

unutilized amount can be spent with prior approval ofCentral Government for declared aims and objects.Balance amount can be spent only after suspension isrevoked

No appeal is provided against the order of suspension, but writ petition can be filed

Suspension or Cancellation of Registration


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Central Government can suspend registration for 180days by order in writing.

During this period, foreign contribution cannot beaccepted or utilized or can be accepted or utilized only asper terms and conditions specified by CentralGovernment

Reason should be given and principles of natural justicehas to be followed. Such action cannot be arbitrary

If such order of suspension is passed, up to 25% of

unutilized amount can be spent with prior approval ofCentral Government for declared aims and objects.Balance amount can be spent only after suspension isrevoked

No appeal is provided against the order of suspension, but writ petition can be filed

Prior Permission vis--vis Registration


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gPrior Permission Registration

Prior Permission is for Specific

Donor and Specific Project

Registration is for all types of Donation

within the object of the Association andfor any Donor

Prior Permission is one time Registration shall be granted for 5 years

Prior Permission do not registration Registration includes Prior Permission

No reasons for denial shall becommunicated

Reasons for denial shall becommunicated unless protected under

RTI

Application shall be made in Form

FC4 electronically

Application shall be made in Form FC

3 electronically

Prescribed Fees Rs 1000/- Prescribed Fees Rs. 2,000/-

Policy for Permission or registration is that Organization in existence for 3 years

and have spent at least 6 lakhs over its activities excluding Admn expenses

Adj di i


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Adjudication

If adverse order is passed by Competent

authority, application on plain paper for revisioncan be made to Secretary, Ministry of HomeAffairs, Government of India, New Delhi. The

prescribed fee shall be RS 1,000/-.Appeal against the order of refusing registration

or permission lies with High Court

Important Provisions of FCRA


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p

Bank Account

Foreign Contribution should be received only in

the branch of Bank as specified in the

application for grant of registration certificate

Held in State v. M Kurian 2011 AIR SCW 3540, it

was held that if permission is obtained toreceive foreign contribution in a designated

account, depositing the same in other account is

an offence. It was held that breach of

undertaking given while submitting anapplication is an offence.

For utilization of the funds, one or more banks

are permissible

Mandatory Reporting by Banks


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Mandatory Reporting by Banks

The banks also have been brought under the

ambit of the act and every bank orauthorized person in foreign exchange shall

report to such authority prescribed amount

of foreign remittance and the source andmanner in which the foreign remittance was

received

Any organization receiving funds over Rs 10

lakh, the bank will immediately inform the

government to enable the agencies to

track the funds.

Wh I di I i i b


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Why Immediate Intimation by

Banks

Government Estimates. 40,000 organizations

receiving foreign contribution in the country outof which only 18,000 report the inflow of funds

and submit their accounts

Audit & Accounts


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Audit & Accounts

Separate set of accounts and records, exclusivelyfor the foreign contribution received and utilized

Every person who receives foreign contributionshall submit a report, duly certified by a CharteredAccountant in the prescribed form accompanied

by an Income and expenditure statement, receiptand payment and balance sheet for every financialyear to the secretary to the Government of India,

Foreign contribution received by a candidate forelection shall be furnished in the prescribed formwithin forty-five days from the date on which he isduly nominated as a candidate for election

Description of Forms to be filedF N D i i


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Form No Description

FC- 1 Information to the Central Government of receipt of foreign contribution by way of gift

from relative

FC2 Application for seeking prior permission of the Central Government to accept foreign

hospitality

FC3 Application for registration U/S 11 of the FCRA for acceptance of foreign contribution

by an Association having definite cultural, economic, educational, religious or social

programme

FC -4 Application for prior permission U/S 11(2) of FCRA for the acceptance of foreign

contribution by an Association having definite cultural, economic, educational, religious orsocial programme

FC5 Application for seeking of registration certificate U/S 13 of the FCRA ( To be

submitted within six month before the date of expiry of the certificate of registration

FC - 6 Account of Foreign Contribution for the year ending on the 31stMarch

FC - 7 Information about Foreign Contribution( Articles) Account

FC - 8 Intimation about foreign Contribution ( securities) Account

FC9 Intimation to the Central Govt. of Receipt of foreign contribution received by a candidate

for Election

FC -10 Application for seeking permission for transfer of foreign contribution to other registered/unregistered persons

What Foreign Hospitality??


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What Foreign Hospitality??

Means any offer not being casual one, made in

cash or kind by a foreign source for providing aperson with the costs of travel to any foreigncountry or territory or with free boarding,

lodging, transport or medical treatment. Thuscasual hospitality is not foreign hospitality

( e.g. offering meals or casual lift in vehicle)

Restriction on Acceptance of Foreign Hospitality


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Restriction on Acceptance of Foreign Hospitality

A member of Legislature, Office bearer of politicalparty, judge, Government servant or employee ofany corporation or any body owned or controlledby Central Government cannot accept foreignhospitality without prior permission of Central

Government Such person shall apply in form FC-6 for prior

permission to accept foreign hospitality.Application should be with administrative clearanceof concerned ministry and invitation letter fromhost country. Application should be madepreferably two weeks prior to proposed date of

onward journey

E i i f di l


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Exception in case of urgent medical treatment

The only exception is in case of emergent medical aidon account of sudden illness contacted during a visitout of India. In such case, report within one monthfrom the date of receiving hospitality giving details of

hospitality received

In such case, intimation of foreign hospitality shall bemade within 60 days of such receipt giving prescribed

details, only if the value of such hospitality inemergent medical aid is Rs 1 lacs or more

Interesting FAQs


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Interesting FAQs

Whether Donation given by Non-ResidentIndians (NRIs) is treated as foreign

contribution?

Contribution made by a citizen of India living in

another Country from his personal savingsthrough the normal banking channels, is not

treated as foreign contribution. However, while

accepting any donations from such NRI, it is

advisable to obtain his passport details to

ascertain that he/she is an Indian passport

holder.

Interesting FAQs


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Interesting FAQs Whether donations by PIO cardholder or PIO who

holds passports or registered OCI or dual Citizen

would be considered foreign source?

Yes, because under all these three categories are foreignnationals and hold passports of the country of theirnationality

Can foreign Contribution be received in Rupees?

Yes. Any amount received from foreign source

in rupees or foreign currency is construed as foreign contribution under law. Such transactionseven in rupees terms is considered foreigncontribution.

Interesting FAQs


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Interesting FAQs

What is the procedure for change of designatedBank Account?

For Change of the bank account, an application

in prescribed form mentioning the details of the

old account and the proposed new bank account

along with justification for change may be

submitted to Ministry of Home Affairs alongwith copy of resolution of the executive

committee for such change.


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Interesting FAQs

What is the procedure for seeking change in thename /address of the association ?

For seeking change in the name / address of theassociation, one should use the prescribed form

available on Ministry of Home Affairs

website http://mha.nic.in/fore.htm

Interesting FAQs

Whether foreigners can be appointed as Executive Committee members


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Whether foreigners can be appointed as Executive Committee members

Foreign nationals are generally discouraged from being appointed asmember of Executive Committee by an association. However, Foreignnationals, fulfilling the following conditions, may be appointed asExecutive Committee members, after obtaining prior permission of theCentral Government:

(i). The foreigner is married to an Indian citizen;

(ii). The foreigner has been living and working in India for atleast five years

(iii). The foreigner has made available his/her specializedknowledge, especially in the medical and health related field on a

voluntary basis in India, in the past

(iv). The foreigner is part of the Board of Trustees/ Executive

Committee in terms of the provisions in an inter-governmentalagreement;

(v). The foreigner is a part of the Board of Trustee/ ExecutiveCommittee in an ex-officio capacity representing a multilateralbody which is exempted from the definition of foreign source. Th

need for such an appointment should, however, be adequatelyjustified

Can NGO use the foreign contributions for Investment


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Can NGO use the foreign contributions for Investment

in Mutual Funds and other speculative investments

Investment cannot be made into Mutual fund orany speculative activities. Speculative activity isdefined in Rule 4 of FCRP 2011 which issummaries as under:

Any activity or investment with the elementof risk of appreciation or depreciation

Participation in any scheme which promises

high returnsDebt based secured Investment

Can the fee paid by the foreign


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p y gdelegates/participants fees termed

as foreign contribution

Foreign delegates/participants paying

delegate/participation Fees in foreign currency for

participation in a conference/ seminar which isutilized for the purpose of meeting the expenditureof hosting the conference/seminar and is not

treated as foreign contribution and as such nopermission under FCRA is required

Can Capital assets purchased in the


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Can Capital assets purchased in the

name of the Office bearer

Every asset purchased with foreign contributionshould be acquired and possessed in the name of

the association since association has a separatelegal entity distinct from its members

What are Opportunity for CA??


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pp y

Assist for obtaining application for prior permission or

registration

Certificate for Accounts for foreign contribution for the

year on 31stMarch. ( i.e. Brought forward foreign

contribution, receipt of foreign contribution, balance of

unutilized foreign contribution at the end of the year Certificate for Accounts for foreign contribution in

kind for the year on 31stMarch. ( i.e. Brought forward

foreign contribution, receipt of foreign contribution,

balance of unutilized foreign contribution at the end of

the year

Assisting banks to file annual return in the prescribed

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