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Law regulating foreign contributions - An overview

By Shagun Jain        

The Foreign Contribution (Regulation) Act, 2010 (FCRA 2010) and the Foreign Contribution (Regulation) Rules, 2011 (FCR Rules) have been enacted with effect from 1st May, 2011, repealing the earlier Act and rules of 1976. The FCRA 2010 sets out what is permitted, restricted or prohibited with respect to acceptance and utilization of foreign contribution or foreign hospitality by certain individuals, associations and entities.      

What is ‘foreign contribution’?    

The term ‘foreign contribution’ is defined in Section 2(1)(h), FCRA 2010 to mean any donation, delivery or transfer of any article, or currency (whether Indian or foreign) or any security as defined in Section 2(h) of Securities Contracts (Regulation) Act, 1956 and Section 2(o) of the Foreign Exchange Management Act, 1999 from a ‘foreign source’. The term ‘foreign source’, includes a foreign government or its agency; foreign trust; foreign society or club; foreign citizen; foreign company; Indian companies wherein 50% of nominal capital is held by any of the foreign trust, society, club, citizen, or company; and any international agency (excluding United Nations, World Bank, the IMF, and agencies notified by the Central Government). As clarified in the explanation to clause 2(1)(h), foreign contribution may be received either directly, or indirectly from any other person, who in turn may have received it either directly or indirectly through one or more persons. In other words, foreign contribution routed through several intermediaries, will continue to be treated as those from foreign source if the original source is foreign. 

The FCRA 2010 does not apply in the following cases:
(a)    contribution from any foreign source towards  scholarships or stipends
(b)    receipts in the ordinary course of business, trade or commerce
(c)    consideration for goods or services
(d)   receipt of any foreign contribution by an individual from relatives 
(e)   receipt of gifts from any foreign source for personal use provided the market value of such gift does not exceed INR 25,000.

As per the FCR Rules, no approval is required in the event foreign contribution is received from a relative. However, in case the foreign contribution from a relative exceeds INR 1,00,000 in a financial year, the recipient is required to inform the Central Government within 30 days of receipt.      

Who can receive foreign contribution?    

Under FCRA 2010, only persons having a definite cultural, economic, educational, religious or social programme are eligible to receive foreign contribution, provided they are either registered with, or have obtained prior permission from the Central Government. For seeking registration, an association must be registered as a ‘trust’, ‘society’ or a ‘non-profit company’; should have been in existence for over three years and should have undertaken reasonable amount of activity in its chosen field for the benefit of society.    

An association that is not able to fulfill the aforesaid conditions for registration,  may apply for prior permission for receiving the foreign contribution and must be able to demonstrate that it has a reasonable project that benefits society and for which the contribution will be used. Permission is valid only for the specific amount, purpose and source in respect of which the application is made. The registration granted under FCRA 1976 used to be valid perpetually, unless specifically revoked. However, the registration granted under FCRA 2010 shall remain valid for a period of 5 years and can be renewed from time to time thereafter pursuant to further applications to be submitted 6 months before the date of expiry of the certificate of registration.      

FCRA 2010 provides that registration or prior permission may be granted within 90 days of an application in this regard at the absolute discretion of the government, though no penalty/consequence is provided if delayed beyond 90 days.  In case of rejection, reasons for the same should be communicated to the applicant.    

Restrictions on transfer of foreign contribution    

A registered person or a person who has obtained prior permission to receive foreign contribution for any specific purpose, is allowed to transfer a maximum of 10% of such foreign contribution, to other persons who are not registered or who have not obtained prior permission under FCRA 2010, only after obtaining the prior approval of the Central Government.    

Restrictions on utilization of foreign contribution    

Foreign contribution when received is required to be utilised for the purposes for which it has been received/permitted. The utilization of foreign contribution to defray the administrative expenses is permitted up to the extent of 50% of total foreign contributions received in a financial year. However, if more than 50% amount is proposed to be utilized for such expenses prior approval of Central Government shall be required.    

Provision for compounding of offences    

FCRA 2010 provides for ‘compounding of offences’ which was absent in FCRA 1976. However, the defaulter is required to approach the compounding authority before institution of prosecution. The Central Government has prescribed the categories of offences under FCRA 2010 that can be compounded and has also specified the amount of penalty and compounding fee payable for the same. Upon completion of the compounding proceedings, the defaulter is granted immunity from prosecution in respect of the offence compounded.      


FCRA 2010, on one hand, aims to resolve procedural hassles under FCRA 1976, and on the other it provides for stringent compliance requirements to be observed by the recipients of foreign contribution. While the provisions pertaining to transfer of foreign contribution and compounding of offences are welcome changes for the recipients of such contribution, restriction on utilization for administrative purposes shall aid in ensuring that the funds are utilized for the purpose for which they were received.

[The author is a Senior Associate, Corporate Practice, Lakshmikumaran & Sridharan, New Delhi]
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