CS Professional · CSR and Social Governance

Foreign Funding to Non-Corporate Entities: formula sheet

Full chapter guide

Key formulas

Extent and application (s. 1(2)): Whole of India + citizens of India outside India + associate branches or subsidiaries outside India of Indian-registered companies or bodies corporate; Learn all three limbs. The last two are what make the Act extra-territorial.
Commencement (s. 1(3)): Comes into force on the date the Central Government notifies; different dates may be set for different provisions; Notified date for the Act: 1 May 2011.
Foreign contribution (s. 2(1)(h)): Donation, delivery or transfer by a foreign source of (i) an article above the specified value, not a personal gift, (ii) any currency, or (iii) any security; All three need a foreign source. Currency has no minimum value.
Explanations to foreign contribution: Pass-through via others = included; interest and income from it = included; fee or cost for goods or services in ordinary course of business = excluded; Excluded fees include fees from foreign students of Indian educational institutions.
Foreign source: Indian company test: More than one-half of nominal share capital held by foreign holders = foreign source, unless within FEMA foreign investment limits; Holding is counted singly or in the aggregate. Exactly one-half does not meet the test.
Foreign hospitality (s. 2(1)(i)): Offer, not purely casual, in cash or kind by a foreign source for travel costs to a foreign country, or free boarding, lodging, transport or medical treatment; Separate from foreign contribution.
Other terms: Foreign company includes a subsidiary of a foreign company and a multi-national corporation; MNC = incorporated abroad with a subsidiary, branch or place of business, or operations, in two or more countries or territories; Association means individuals with an office in India, registered or not.
Section 3(1) absolute bar: Listed person (candidate, newspaper staff, public servant/Judge/Government servant, legislator, political party, political-nature organisation, news broadcaster) → no foreign contribution may be accepted; The bar applies by status. The Central Government may, by order under section 50, exempt a person from the Act's provisions in the general public interest. This power does not extend to a political party or a candidate for election.
Section 9 proviso: five grounds: Prohibition or requirement only if acceptance is likely to affect prejudicially: (i) sovereignty and integrity of India; (ii) public interest; (iii) freedom or fairness of election to any Legislature; (iv) friendly relations with any foreign State; (v) harmony between religious, racial, social, linguistic or regional groups, castes or communities; The Central Government must be satisfied on at least one ground. For foreign hospitality, the test is acceptance of hospitality by the person.
Section 9 powers (a) to (e): (a) prohibit acceptance; (b) prior permission for foreign hospitality; (c) intimation of contribution received and its use; (d) prior permission for section 11(1) persons; (e) intimation of foreign hospitality; Clause (a) covers persons not specified in section 3. Clause (c) covers persons not specified in section 11. Clause (d) covers persons specified in section 11(1). Clauses (b) and (e) cover persons not specified in section 6.
Section 3(2) conduit rule: 3(2)(a): no person resident in India, and no Indian citizen resident outside India, shall accept foreign contribution, or acquire or agree to acquire currency from a foreign source, on behalf of a political party or a section 3(1) person. 3(2)(b): no person resident in India shall deliver currency accepted from a foreign source to any person if he knows or has reasonable cause to believe that the person intends, or is likely, to deliver it to a political party or a section 3(1) person. 3(2)(c): no Indian citizen resident outside India shall deliver such currency directly to a political party or a section 3(1) person, or to any other person if he knows or has reasonable cause to believe that the person intends, or is likely, to deliver it to them.; 3(2)(a) covers residents in India and Indian citizens abroad. 3(2)(b) covers only residents in India. 3(2)(c) covers only Indian citizens resident outside India.
Section 38 repeat offender bar: Second conviction under section 35 or 37 (acceptance or utilisation offences) → no foreign contribution for 5 years from the date of the subsequent conviction; Applies to a person convicted again of the same kind of offence.
Section 50 exemption: Central Government may exempt any person, association or organisation (not a political party) or individual (not a candidate for election) by order, in the general public interest, with conditions; The order can be revoked or modified as often as needed.
Section 7 bar: Registered or prior-permission holder + receives foreign contribution → shall not transfer it to any other person; Both limbs (a) and (b) must be met for the section to apply. The substituted section applies from 29-9-2020.
Registration vs prior permission (section 11): Registration = certificate for a person with a definite programme; prior permission = for an unregistered person, for a specific purpose and specific source; Section 7 covers both categories. It does not cover a person who has neither.
Validity (section 12(6)): Certificate: five years. Prior permission: specific purpose or specific amount; Section 11(2) describes prior permission as valid for the specific purpose and the specific source.
Account rule (section 17(1)): Receive only in an FCRA Account at the specified State Bank of India branch, New Delhi; no other funds in that account; Utilisation accounts in scheduled banks are allowed. Moving money among the holder's own accounts is not a transfer to another person.
Processing time (section 12(3)): Ordinarily within 90 days of receiving the application; If not granted in 90 days, the Government must communicate reasons to the applicant.
Extent and application (Section 1): Whole of India + citizens of India outside India + associate branches or subsidiaries outside India of Indian companies or bodies corporate; Do not say the Act applies only to entities inside India.
Receipt only through FCRA Account (Section 17(1)): Certificate or prior permission under Section 12 → receive foreign contribution only in the designated FCRA Account at the notified SBI branch, New Delhi; Applies to a person granted a certificate or prior permission under Section 12.
Other accounts (Section 17(1) provisos): Another FCRA Account in a scheduled bank + one or more utilisation accounts in scheduled banks; no funds other than foreign contribution; These are for keeping or using funds received in the SBI FCRA Account. No mixing with local funds.
Bank reporting (Section 17(2)): Prescribed amount, source and manner of receipt, other particulars → report to specified authority; Done by the SBI branch, the scheduled bank branch or the authorised person in foreign exchange.
Central Government powers (Section 9): Prohibit, or require prior permission or intimation, only if satisfied of prejudice to sovereignty and integrity, public interest, fair elections, friendly relations with foreign State, or communal harmony; The satisfaction condition is the exam point.
Pass-through bar (Section 3(3)): Money received on behalf of a Section 9 person or class → deliver only to the person for whom it was received; Do not hand it to anyone else, or to someone likely to pass it on to another.
Vesting on cancellation or surrender (Section 15): Foreign contribution and assets created out of it → vest in prescribed authority; returned if the person is later registered; Applies to cancellation under Section 14 or surrender under Section 14A.

Quick revision

FCRA 2010 extends to the whole of India. It also applies to citizens of India outside India and to overseas branches or subsidiaries of Indian companies and bodies corporate.
The Act came into force on 1 May 2011 by notification.
Section 3(1) bars foreign contribution to candidates for election, public servants, judges, government and government-body employees, legislators and political parties.
Section 3(1) also bars certain newspaper persons and persons in audio or audio-visual news and current affairs media.
Section 3(2) bars accepting foreign contribution on behalf of a political party or a section 3(1) person.
Section 9 lets the Central Government prohibit or regulate only if it is satisfied of likely prejudice to the listed interests.
Section 7: a registered or permitted person who receives foreign contribution cannot transfer it to any other person.
Section 17: receive foreign contribution only in the FCRA Account at the specified State Bank of India branch in New Delhi.
Section 17: other FCRA accounts or utilisation accounts in scheduled banks are allowed. No funds other than foreign contribution may go into them.
Banks must report prescribed foreign remittance details, source and manner to the specified authority.
Section 38: a repeat convict under section 35 or 37 for acceptance or utilisation cannot accept foreign contribution for five years from the later conviction.
The 1976 Act was repealed by section 54, with savings for actions done under it.

Common mistakes

Saying the Act applies only inside India. Fix: Always add both limbs of application: citizens of India outside India, and overseas associate branches or subsidiaries of Indian-registered companies or bodies corporate.
Treating any donation from abroad as foreign contribution regardless of nature. Fix: Check whether the amount is a fee or cost for goods or services in the ordinary course of business. If so, it is excluded.
Treating the section 3 list as covering only political parties and candidates. Fix: Learn the list in groups: election and politics, media, public service and Judges, legislators, news broadcasters.
Saying section 9 covers persons already listed in section 3. Fix: Section 9(a) applies to persons not specified in section 3. Section 3 is the Act's own bar. Section 9 is a Government power to add.
Saying a registered NGO may sub-grant to another registered NGO. Fix: Use the substituted section 7 (from 29-9-2020). It says no transfer to any other person.
Applying section 7 only to registered persons. Fix: The section covers a person who is registered and granted a certificate or has obtained prior permission. Both categories are covered.
Saying any bank account can receive foreign contribution first. Fix: State that first receipt is only in the FCRA Account at the notified SBI branch, New Delhi. Scheduled banks are for keeping or using funds transferred from it.
Allowing local donations into the FCRA Account. Fix: Quote the proviso: no funds other than foreign contribution may be received or deposited in any such account.

Exam tips

Open every answer with the section 1 extent and application rule. Examiners reward the extra-territorial limbs.
Write the foreign contribution definition as three limbs, then add the three explanations. This is a ready scoring structure.
In case questions, show the one-half share capital calculation in numbers and mention the FEMA proviso.
Do not quote a rupee figure for article value. Say it is specified by rules.
Keep the definitions separate from prohibitions. If a question asks about both, use separate headings in your answer.
Write the section number with every point. Cases are provision, analysis, conclusion, so cite section 3(1) or 9 first.
Learn the section 3(1) list as grouped clauses. Examiners often change the facts to test one clause, such as a Government company employee or a news broadcaster.
List all five grounds of the section 9 proviso in full. Partial lists lose marks.