Introduction
Foreign Contribution (Regulation) Act, 2010 (FCRA) plays a crucial role in managing foreign donations for NGOs in India. Adhering to FCRA law ensures transparency and accountability in handling these contributions. This blog post provides a concise overview of the essential dos and don’ts to help your organization stay compliant with FCRA regulations.
What is FCRA?
FCRA is a legal framework in India designed to regulate foreign donations and ensure that foreign contributions are used for charitable and not-for-profit purposes. FCRA mandates registration and adherence to strict guidelines to prevent misuse and ensure that foreign funds are used in a manner consistent with the organization's objectives for which FCRA registration is obtained.
5 Crucial Dos for FCRA Compliance
Ensure Proper Registration and Renewal
Register your organization under FCRA to legally receive foreign contributions. Remember, FCRA registration is valid for five years. As per the provisions of FCRA act, application for renewal should be made within six months from the expiry date of FCRA registration to avoid any lapse in compliance.
It’s worth noting that the FCRA portal allows you to submit renewal applications up to one year in advance of the expiry date. To prevent any delays, it’s advisable to apply as early as possible, as the processing time can be lengthy.
Maintain Designated FCRA Bank Accounts and documentation
Open a designated FCRA bank account with the State Bank of India (SBI), Delhi Branch, for receiving foreign contributions . You can also maintain one additional FCRA account and multiple utilization accounts for fund management, but all incoming transactions must flow through the designated SBI account.
Ensure proper documentation. This includes maintaining records of the source and purpose of the funds, whether received from individuals or organizations.
Utilize Funds as Per Specified Purposes
Utilize foreign contributions strictly for the purposes mentioned in your FCRA application and in line with your objects. Ensure that all expenditures are aligned with the activities for which the funds were granted and are documented properly.
Cap on Administrative expenditure
Under FCRA guidelines, NGOs can allocate administrative expenses up to 20% of foreign contributions received in a financial year. For instance, from INR 10 crores received, up to INR 2 crores can be used for admin costs.
Administrative expenses are defined in Rule 5 of the FCRA Rules. It’s important to accurately allocate costs, such as staff salaries, based on the proportion of time spent on program activities versus administrative tasks to ensure compliance.
Timely Reporting and Record-Keeping
File the FCRA Annual Return (Form FC-4) within nine months of the end of the financial year, that is, by 31st December.
For example, the FCRA Annual return for FY 23-24 should be submitted before 31/12/2024.
Additionally, any changes such as name or address modifications, alterations in aims or objects, updates to bank details, changes in key members, etc must be communicated to the FCRA department using the appropriate forms within the prescribed time limits.
Maintain separate books of accounts for foreign contributions and ensure that all records are preserved for at least six years.
5 Critical Don’ts for FCRA Compliance
Avoid Acceptance and Usage during suspension/cancellation
Do not accept foreign contributions if your FCRA registration is suspended or canceled. It's crucial to resolve all compliance issues before resuming the receipt of funds. Additionally, any funds received while your registration was active should not be utilized during the period of suspension or cancellation.
Do Not Mix Funds
Do not combine foreign contributions with domestic funds or make payments from FCRA accounts for non-FCRA expenses/vice-versa.
Non-FCRA expenses are costs incurred by your organization that do not comply with the Foreign Contribution (Regulation) Act (FCRA) guidelines, such as domestic operational costs, program expenses unrelated to foreign contributions, and administrative costs not tied to FCRA activities.
Maintain clear separation of FCRA and Non-FCRA books.
No Unauthorized Transfers and no sub-grants
Avoid transferring foreign funds to unauthorized accounts or using them for purposes outside the scope of the FCRA registration. Transfers should only be made to authorized utilization accounts.
Additionally, the FCRA strictly prohibits the transfer of foreign contributions to other persons; sub-grants are not allowed.
Refrain from Cash Transactions and Speculative Investments
Do not withdraw or spend foreign funds in cash, and avoid using ATM or debit cards for transactions. All expenditures should be processed through proper banking channels.
Further, do not invest FC funds in Mutual Funds or other Speculative Investments
Avoid False Statements and Delays
Do not make false statements or delay mandatory filings and intimations required by FCRA regulations. Ensure timely and accurate reporting to prevent penalties and maintain compliance.
Need Expert Guidance!
Navigating FCRA compliance can be complex, and even minor errors can lead to significant consequences. To ensure your organization adheres to all FCRA regulations seamlessly, consider consulting with a subject matter expert.
At Aria, our team of compliance specialists is here to help you understand and implement FCRA guidelines effectively. From registration and renewals to financial management and reporting, Aria offers comprehensive consultancy services tailored to your needs. Contact us today to safeguard your organization’s foreign contributions and ensure full compliance with FCRA laws.
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