Law relating to Foreign Contribution Regulation: formula sheet

Key formulas

Foreign contribution

Foreign source + donation, delivery or transfer + (currency OR security OR an article that is not a personal-use gift and whose market value in India on the date of gift is not more than the notified sum)

Section 2(1)(h). All three parts must be present. For articles, follow the wording of clause (i): not a gift for personal use, and market value not more than the sum specified by the Central Government by rules.

Deemed foreign contribution

Pass-through receipts + interest + income from foreign contribution = foreign contribution

Explanations 1 and 2 to section 2(1)(h). Funds received from a foreign source through one or more persons are covered.

Exclusion

Fees or cost of goods/services in ordinary course of business, trade or commerce = NOT foreign contribution

Explanation 3. Includes fees charged by Indian educational institutions from foreign students and amounts from a foreign source's agent.

Indian company as foreign source

Share capital held by foreign holders > one-half (nominal value) = foreign source

Section 2(1)(j)(vi). Proviso: not a foreign source if the holding is within FEMA foreign investment limits.

Extent

Whole of India + citizens of India outside India + overseas associate branches or subsidiaries of Indian companies or bodies corporate

Section 1(2).

Persons barred by section 3(1)

Candidate, registered newspaper staff/owners, public servant or Government/ Government-controlled corporation employee, Legislature member, political party or office-bearer, organisation of a political nature, audio/audio-visual news or current affairs company and its staff

No foreign contribution can be accepted by these persons.

Section 3(1): who cannot accept

Candidate | newspaper personnel | public servant, Judge, Government servant, employee of Government-owned or controlled body | Legislature member | political party and office-bearer | political-nature organisation | audio or audio visual news or current affairs broadcaster and its key persons

Memorise clause by clause. Clauses (a) to (h) form the answer to the most common question.

Section 3(2): indirect acceptance

No acceptance, or acquisition of currency from a foreign source, on behalf of a political party or a section 3(1) person

Applies to a person resident in India and to an Indian citizen resident outside India.

Section 7: no transfer

Registered or permitted person who receives foreign contribution shall not transfer it to any other person

Both conditions apply: certificate or prior permission, and receipt of foreign contribution. Substituted w.e.f. 29-9-2020.

Section 9: further prohibition

Central Government may prohibit persons not in section 3, but only if satisfied of likely prejudice to a listed interest

Listed interests: sovereignty and integrity, public interest, fairness of elections, friendly relations with foreign States, communal and social harmony.

Section 38: repeat offenders

Second conviction under section 35 or 37 (acceptance or utilisation) → no acceptance for 5 years from the date of subsequent conviction

The five years run from the later conviction, not the first.

Who must apply (route)

Registration: continuing receipt, needs reasonable activity in chosen field | Prior permission: specific purpose or amount, needs reasonable project

Both are applied for under section 12(1) to the Central Government in the prescribed form, manner and fee.

Processing period

Ordinarily within 90 days of receipt of application (section 12(3))

If not granted in 90 days, the Government must communicate reasons to the applicant. The period is 'ordinarily', not a hard deadline.

Validity

Certificate: 5 years | Prior permission: specific purpose or specific amount (section 12(6))

Prior permission has no fixed term of years.

Renewal timing

Apply within 6 months before expiry of the certificate (section 16(1))

Renewal certificate is also for 5 years; ordinarily decided within 90 days (section 16(3)).

FCRA Account

Open FCRA Account (section 17) and give its details in the application (section 12(1A))

Receipt is only in the FCRA Account at the specified State Bank of India branch, New Delhi. Only foreign contribution may go into it.

Suspension bar

Not eligible if certificate is suspended and suspension continues on date of application (second proviso to section 12(3))

The bar applies while the suspension continues on the date of applying.

Reasons for refusal

Refusal order must record reasons and give a copy to the applicant (section 12(5))

Reasons need not be communicated where the Right to Information Act, 2005 imposes no obligation to give such information.

Cancellation consequence

After cancellation under section 14, ineligible for registration or prior permission for 3 years (section 14(3))

Cancellation needs a reasonable opportunity of being heard (section 14(2)).

Where to receive foreign contribution

Receipt only in the "FCRA Account" at the specified SBI branch, New Delhi (section 17(1))

Applies to every person granted a certificate or prior permission under section 12.

Other accounts allowed

Another FCRA Account in any scheduled bank + one or more utilisation accounts in scheduled banks

Funds come only from the SBI New Delhi FCRA Account or the other FCRA Account. No funds other than foreign contribution may be received or deposited.

Administrative expense limit

Maximum administrative expenses = 20% × foreign contribution received in the financial year (section 8(1)(b))

More than 20% needs prior approval of the Central Government.

Purpose and speculation rule

Use for the purpose received; no use of contribution or its income for speculative business (section 8(1)(a))

Activities treated as speculative are specified by rules.

Bank reporting

Bank or authorised person reports amount, source and manner of remittance (section 17(2))

Done to the authority specified, in the prescribed form and manner.

Rule-making power

Section 48: Central Government may make rules by notification

Covers speculative business, elements of administrative expenses, and bank reporting under section 17(2).

Duty to maintain accounts (s.19)

Account of foreign contribution received + record of how it was utilised

Applies to every person with a certificate or prior approval. Form and manner are prescribed.

Receiving account (s.17)

Receive only in FCRA Account at the specified SBI branch, New Delhi; no other funds in it

A second FCRA Account in a scheduled bank may be opened for keeping or utilising funds received.

Audit trigger (s.20)

Failure to furnish intimation on time, or defective intimation, or reasonable cause to believe contravention after inspecting it

Auditor: Group A gazetted officer or other officer, authority or organisation authorised by the Central Government. Information is kept confidential.

Inspection (s.23)

Ground to suspect contravention, recorded in writing, then inspection of any account or record

Entry at a reasonable hour, after sunrise and before sunset.

Seizure (s.24)

Reasonable cause to believe contravention after inspection, then seize and produce before the court, authority or tribunal

Return the record if no proceeding is brought within six months of seizure.

Returns (s.44)

Prescribed authority furnishes returns and statements to the Central Government as prescribed

Time, form and manner are set by rules.

Compounding (s.41)

Before prosecution; not an offence punishable with imprisonment only; not within 3 years of an earlier compounding

Compounded before prosecution means no prosecution for that offence.

Suspension period (section 13(1))

Suspension = 180 days, or such further period not exceeding 180 days as specified in the order

Reasons must be recorded in writing. It is pending consideration of cancellation on a ground in section 14(1).

Effect of suspension (section 13(2))

No receipt of foreign contribution; use of funds in custody only in the prescribed manner with prior approval

Proviso: the Government may, on application, allow receipt on terms it specifies.

Grounds of cancellation (section 14(1))

(a) false or incorrect statement in application; (b) violation of terms and conditions of certificate; (c) public interest; (d) violation of the Act, rules or orders; (e) no reasonable activity for two consecutive years, or defunct

Remember the five grounds as: false statement, breach of conditions, public interest, breach of the Act, inactive or defunct.

Natural justice (section 14(2))

No cancellation without a reasonable opportunity of being heard

An order passed without hearing is vulnerable.

Bar after cancellation (section 14(3))

Ineligible for registration or prior permission for 3 years from date of cancellation

Counted from the date of cancellation.

Surrender (section 14A)

Permitted if no contravention and management vested in authority under section 15(1)

Inserted w.e.f. 29-9-2020.

Vesting (section 15)

Foreign contribution and assets created out of it vest in the prescribed authority

Applies on cancellation under section 14 or surrender under section 14A. Authority may manage activities in public interest and may use funds or dispose of assets if funds are inadequate. It must return them if the person is subsequently registered.

Disposal of assets (section 22)

Person ceases to exist or defunct: assets disposed per the law of registration or incorporation; if none, as notified by the Central Government

The notified authority acts in the manner and procedure prescribed.

Section 23 - Inspection

Ground to suspect contravention (reasons recorded in writing) → order authorising inspecting officer → entry after sunrise and before sunset

Applies to any political party, person, organisation or association. The officer is a Group A gazetted officer or other officer, authority or organisation the Government thinks fit.

Section 24 - Seizure of accounts or records

Inspection under section 23 + reasonable cause to believe contravention of the Act or of any other law relating to foreign exchange → seize account or record → produce before court, authority or tribunal

Return the record if no proceeding is brought within six months from the date of seizure.

Section 25 - Seizure of article, currency or security

Authorised gazetted officer + reason to believe contravention → seize article above specified value, or currency or security (Indian or foreign)

No prior inspection is needed. The test is 'reason to believe'.

Section 41 - Compounding

Offence not punishable with imprisonment only + before institution of prosecution + application in prescribed form and fee → compounded by notified officer for notified sum

Not available for an offence committed within 3 years of an earlier compounding of a similar offence. An offence after 3 years is treated as a first offence.

Section 13 - Suspension

Reasons in writing + pending cancellation inquiry → suspend certificate for 180 days, extendable by up to a further 180 days

No foreign contribution may be received during suspension, unless the Government allows it on application. Existing foreign contribution is used only with prior approval.

Section 14 - Cancellation

Inquiry + ground in section 14(1) + reasonable opportunity of being heard → cancellation; bar of 3 years on registration or prior permission

Grounds include false statement, breach of conditions, breach of the Act, public interest, and no reasonable activity for two consecutive years or becoming defunct.

Quick revision

• FCRA regulates acceptance and use of foreign contribution so it does not harm national interest.
• Section 12: apply to the Central Government in the prescribed form and manner with the fee.
• An applicant must open an FCRA Account and give its details in the application.
• Central Government may ordinarily decide within ninety days; if it does not grant in that time, it must communicate reasons.
• A certificate is valid for five years; prior permission is for the specific purpose or amount.
• Suspension continuing on the date of application makes a person ineligible to apply.
• Section 8: use contribution only for the purpose received; no speculative business.
• Administrative expenses are capped at 20 per cent of contribution received in a financial year; more needs prior Central Government approval.
• Section 14: certificate may be cancelled for false statements, breach of conditions, public interest, violation of the Act, or two years of no reasonable activity or becoming defunct.
• Cancellation needs a reasonable opportunity of being heard; the person is barred from registration or prior permission for three years.
• Section 38: after a repeat conviction under Section 35 or 37 relating to acceptance or use, no foreign contribution for five years from the later conviction.
• Section 9 lets the Central Government prohibit, or require permission or intimation, only if prejudice to listed interests is likely.

Common mistakes

• Treating every foreign receipt as foreign contribution. Fix: Check whether the amount is a fee or the price of goods or services in the ordinary course of business. If so, it is excluded.
• Treating an Indian company as never being a foreign source. Fix: Remember section 2(1)(j)(vi): an Indian company with more than one-half nominal share capital held by foreign holders is a foreign source, subject to the FEMA limit proviso.
• Leaving out clauses of section 3(1), especially audio news broadcasters and their key persons. Fix: Learn all eight clauses (a) to (h) as a list and write them in order.
• Saying an NGO may transfer foreign contribution to another NGO if both are registered. Fix: Section 7 now bars transfer to any other person by a registered or permitted person. State that plainly.
• Saying prior permission is valid for five years. Fix: Remember section 12(6): the certificate is valid for five years, while prior permission is valid only for the specific purpose or specific amount.
• Treating the 90-day period as a deadline after which the application is deemed granted. Fix: Write that the Government may ordinarily decide within 90 days, and if it does not, it must communicate reasons. There is no deemed grant in the text.
• Stating the administrative expense limit as 50%. Fix: Write twenty per cent. It was substituted for fifty per cent with effect from 29-9-2020.
• Saying foreign contribution can be received directly in any scheduled bank account. Fix: Receipt is only in the FCRA Account at the specified SBI branch, New Delhi. Other scheduled bank accounts are for keeping or utilising money transferred from it.
• Saying section 19 requires only an account of receipts. Fix: Write both: an account of foreign contribution received and a record of how it was utilised.
• Treating inspection, audit and seizure as the same power. Fix: Link each to its trigger: audit to intimation defaults (s.20), inspection to recorded suspicion (s.23), seizure to belief after inspection (s.24).

Exam tips

• Learn the section 2(1)(h) three-part test and the three explanations; they are asked most often.
• For foreign source, remember the Indian company limb and its FEMA proviso, plus the UN and World Bank carve-out.
• In case studies, name the sub-clause you apply and end with a clear conclusion.
• Link definitions to section 3(1): a receipt that is foreign contribution may still be barred for that receiver.
• Write section 1(2) on scope when the question mentions citizens or branches outside India.
• Write section 3(1) as a numbered or bulleted list. Examiners look for each category.
• In case problems, cite the clause, for example section 3(1)(c) or section 3(1)(e), not just section 3.
• For transfer questions, name section 7 and state both conditions: registered or permitted, and received foreign contribution.