The Indian Ministry of Home Affairs passed the Foreign Contribution (Regulation) Amendment Act, 2020 (FCRAA), effective 29 September 2020, which furthers restrictions under the existing Foreign Contribution (Regulation) Act, 2010 (FCRA). Set forth below is a short summary of the key amendments.

1. 20% cap on administrative expenses. The percentage of foreign funds received during the fiscal year that may be used on administrative expenditures has been reduced from 50% to 20% (of the foreign contribution amount).1 The following are included in the category of administrative expenses:
   • Salaries and travel expenses for program director/project management staff
   • Salaries and travel expenses for executive committee members
   • Consumables (electricity, water, telephone, postal charges, stationery, etc.)
   • Cost of accounting for and administering funds
   • Expenses of maintaining and operating vehicles
   • Cost of writing and filing reports
   • Legal and professional charges2
   • Rent and repair of premises.
2. No sub granting of foreign funds. An organization receiving a foreign contribution is no longer permitted to transfer such funds to any other person (defined as an individual, association, or registered company), even one with FCRA registration.4 This means that Indian nonprofits who serve as a lead implementer on a given project may no longer create sub-grant relationships with other nonprofits using foreign funding. This was likely done to restrict organizations from acting as fundraisers and channeling funds to other organizations, as opposed to using the same directly for the purposes permitted under their registration under the FCRA. Thus, FCRA-registered organizations will have to innovate the ways in which they collaborate for social projects to re-align with this new restriction to ensure continued funding for the ongoing plans. Service contracts for specific services provided to an FCRA-registered entity are not impacted.
3. Funds must be received into SBI account. Previously, organizations receiving foreign funding under the FCRA were permitted to create a bank account at any government- approved bank. The new law requires foreign contributions to be received through an account designated as an “FCRA Account” at a specified State Bank of India (SBI) branch at New Delhi.5 This will centralize the inflow and routing of foreign contributions and facilitate the government’s monitoring of funds received. However, an organization may open another account in any other scheduled bank for the purpose of keeping or utilizing the foreign contribution which has been received from the FCRA Account. Thus, the utilization of funds currently in existing bank accounts is permitted but the new account at the SBI branch in New Delhi must be opened by 31 March 2021.
4. Information required for registration. Any organization seeking registration under FCRA (either prior permission or renewal) must provide identification information for key functionaries – i.e., unique identification number (“Aadhaar”) for Indian citizens or passport details for foreign individuals.⁷
5. Suspension in case of contravention. Under the prior law, an organization found guilty of violating the FCRA could not utilize its foreign funds without obtaining government approval. Under the new law, the Ministry of Home Affairs has the power to freeze an FCRA bank account if it has reason to believe that an organization has contravened the provision of the FCRAA, based on any information or report.⁸
6. Suspension of registration. When considering the cancellation of an organization’s certificate, the period of time that the Government can suspend the organization’s registration has been extended from 180 days to 360 days.⁹
7. Inquiry before renewal. While renewal of a certificate had generally been a matter of procedure in the past, the Ministry of Home Affairs is now authorized to conduct an inquiry to ensure that an organization has satisfied certain conditions before issuing the renewal.¹⁰
8. Changes to registration and prior permission requirements. Under the new Foreign Contribution (Regulation) (Amendment) Rules, 2020, a person seeking registration under FCRA 12(4)(b) must have been in existence for three years and have spent a minimum amount of rupees fifteen lakh on its core activities for the benefit of society during the last three financial years.¹¹ A person seeking prior permission now has additional requirements, particularly where the Indian recipient and foreign donor organizations have common members. In such a case, there are requirements prohibiting certain overlaps in membership of the two entities (chief functionary of recipient cannot be part of the foreign donor organization, 75% of the office bearers or members of recipient cannot be members or employees of the foreign donor, etc.).¹²

This law update is brought to you by Isaac & Jacob, an Indian Law Firm and the DSA Group. For more information about compliance requirements under the FCRA please contact Jeff Pankratz of the DSA Group at jpankratz@devsourcing.com

Disclaimer: This material is provided for informational purposes and does not constitute legal advice. Access or use of this information is not intended to create, and does not constitute, a lawyer-client relationship. No portion should be acted upon without first seeking legal counsel about your specific legal situation.

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¹ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 4 (amending section 8 of the FCRA).
² Legal and professional charges incurred by an organization as an administrative expense do not include amounts paid to lawyers or other professionals who are working to further the stated objectives of the organization or otherwise implementing projects for the organization.
³ Foreign Contribution (Regulation) Rules, 2011, Sec. 5.
⁴ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 3 (substituting a new section 7 in the FCRA).
⁵ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 6, 12 (amending sections 12 and 17 of the FCRA).
⁶ Ministry of Home Affairs notification no. S.O 3479 (E) dated 7 October 2020. fcraonline.nic.in/home/PDF_Doc/fc_notf_08102020.pdf
⁷ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 7 (insertion of section 12A into FCRA).
⁸ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 5 (amending section 11 of the FCRA).
⁹ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 8 (amending section 13 of the FCRA).
¹⁰ Foreign Contribution (Regulation) Amendment Act, 2020, Sec. 11 (amending section 16 of the FCRA).
¹¹ Foreign Contribution (Regulation) Amendment Rules, 2020, Sec. 6(i)(D).
¹²Foreign Contribution (Regulation) Amendment Rules, 2020, Sec. 6(iii)(C).