The Foreign Contribution (Regulation)Act , 2010 (In force with Effect From 1st May 2011)

1
The Foreign Contribution (Regulation)Act ,
2010(In force with Effect From 1st May 2011)

• By CA. Vittal Rao Lokare

2
Introduction

• Trade/Business
• Quid-Pro-Quo
• ( Something for something)
• to control such trading transactions
• R B I Mumbai
• Controls and monitors
• Through
• Foreign Exchange Management Act, 1999 (FEMA)

• Charity
• No Quid-Pro-Quo
• (One sided/ unilateral gratuitous transactions)
  
• to regulate such charity transactions
• MHA, New Delhi (FC Section)
• Regulates and supervises
• Through
• Foreign Contribution (Regulation) Act

3
International Charity
FlowFor social development projectsDiagrammatic
representation
Donors Benefactors Abroad
Beneficiaries in India - community

• OOOOOO
• OOOOO
• OOOO
• OOO
• OO
• O

• Local Indian NPO

International NPO
OOOOOO OOOOO OOOO OOO OO O
(Bi-lateral co-operation agreement )
4
Other concepts

• Certificate v/s Report
• Certificate Fact
• Report Fact opinion

5
Other concepts contd.

• Cash system of accounting
• v/s
• Mercantile system (Accrual system)

6
Foreign Contribution(Regulation) Act

• The object is to regulate
• for any activities detrimental to the NATIONAL
  INTEREST.
• and matters connected therewith or
• Incidental thereto.

7
Foreign Contribution(Regulation) Act, 1976

• This Act came into existence in 1976.
• This also got Rules and Regulations.
• This Act got amended from time to time and major
  changes took place in December 1984
• FC(R)Act 1976 was abolished and new Act
  called FC(R)Act 2010 is brought into existence .

8

• This new Act called FC(R)Act, 2010 came in force
  with effect from 1st May 2011.
• This also got connected with Rules called
• Foreign Contribution(Regulation) Rules, 2011.
• to explain procedural aspects involved.

9
Foreign Contribution (Regulation)Act,2010

• There are 9 chapters in this Act.
• Chapter 1 deals with Title definitions.
• Chapter 2 Regulations of Foreign Contributions
  
• Foreign Hospitality
• Chapter 3 Registration.
• Chapter 4 Accounts, intimation,Audit
  disposal of assets etc..
• Chapter 5 Inspections, search seizure.

10
Foreign Contribution (Regulation)Act,2010
(contd.)

• Chapter 6 Adjudication- confiscation, articles,
  currency, security- procedures etc..
• Chapter 7 Appeals Revisions.
• Chapter 8 Offences Penalties
• Chapter 9 Miscellaneous
• ( calling for information, investigation,
  delegation of power, power to make Rules,
  power to remove difficulties, Repeal and
  savings.)

11
Foreign Contribution (Regulation)Act,2010

• Chapter 2 deal about Regulations of Foreign
  Contributions Foreign Hospitality .
• Section 7
• FC Can be received only if it is registered and
  granted a certificate.
• A person can transfer FC to any other person only
  if such other person is also registered and
  granted certificate OR has obtained the prior
  permission under FC(R) Act.

12
Foreign Contribution (Regulation)Act,2010

• Chapter 2 deal about Regulations of Foreign
  Contributions Foreign Hospitality .
• Section 8
• This section directs that the FC received should
  be utlised for the purpose for which such FC
  received.
• ( No mis-application/ No diversion of funds)
• The administrative expenses shall not exceed 50
  of such contribution
• (It should be less than 50)
• If exceeding 50, prior approval of Central
  Government is required.

13
Foreign Contribution (Regulation)Act,2010

• Chapter 3 deal about Registration.
• Section 11
• The existing registered organizations( Regular
  Prior-permission orgs.) get automatically covered
  under new Act in so far as Registration is
  concerned.
• The registration is valid for new ones under this
  Act for 5 years and also for the existing ones, 5
  years commencing from 1st May 2011.
• If FC is received by unregistered bodies, the
  unutilized or un received amount can not be
  utilized or received without prior approval of
  central government.

14
Foreign Contribution (Regulation)Act,2010

• Chapter 3 deal about Registration.
• Section 12
• When applied for registration, the central
  government may ordinarily register and grant
  certificate within 90 days (Three months)
• This registration is valid for 5 years.
• Prior permission shall be valid for the specific
  purpose or specific amount of FC proposed to be
  received.

15
Foreign Contribution (Regulation)Act,2010

• Chapter 3 deal about Registration.
• Section 14 Cancellation of certificate.
• After making an enquiry, the central government
  may cancel the certificate, if
• 1- making incorrect or false statement
• 2-violated any terms and conditions of the
  certificate or
• renewal
• 3- necessary in the public interest
• 4-has violated any provisions of this Act or
  Rules or order
• made.
• 5- not been engaged in any reasonable activities
  in its
• chosen field for the benefit of the society
  for two consecutive
• years or has become defunct.
• if certificate is cancelled, not eligible for
  registration or prior permission for 3 years from
  the date of cancellation of the certificate.

16
Foreign Contribution (Regulation)Act,2010

• Chapter 3 deal about Registration.
• Section 16 Renewal of certificate.
• Person who has been granted a certificate, shall
  have such certificate renewed within 6 months
  before the expiry of the period of the
  certificate.
• (in other words, apply for renewal after
  four half year)
• The central government will renew certificate
  within 90 days ( 3months) ordinarily from the
  date of receipt of application for renewal

17
Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 17 (Receipt of FC)
• The FC received shall be in a single account only
  as specified in the application for grant of
  certificate.
• It may open one or more accounts (in one or more
  banks) for utilizing the FC amounts.
• No funds other than FC shall be received or
  deposited in such account or accounts.
• Every bank shall report to MHA (or such authority
  as specified.)

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Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 18 (Intimation)
• To inform MHA New Delhi, in Form -FC 6
• as to the amount of FC received, the source and
  the manner in which FC was received, and the
  purpose for which, and the manner in which such
  FC was utilized.
• Those who receive FC money shall also submit a
  copy of bank statement which indicates FC
  receipts
• duly certified by the bank officer along with
  Form -FC6

19
Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 19 (Books of accounts)
• Those who receives FC amount, shall maintain
• An account of FC received and
• A record as to the manner in which such
  contribution has been utilized.

20
Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 20 (Audit by government)
• The Central Government may authorise gazetted
  officer of Group A rank under Central
  Government to audit any books of accounts of such
  person.
• Such officer has the right to enter in or upon
  any premises (at any reasonable hour) before
  sunset and after sunrise for the purpose of
  auditing the said books of accounts.
• In the following circumstances

21
Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 20 (Audit by government)
  ..Continued.
• In the following circumstances
• When failed to furnish any intimation within the
  time specified or
• Intimation so furnished is not in accordance with
  law.
• Any provisions of FC(R)Act has been contravened.

22
Foreign Contribution (Regulation)Act,2010

• Chapter 4
• (Accounts, Intimation,Audit and Disposal of
  assets, etc.)
• Section 22 (Disposal of FC assets)
• If the organization ceases to exist or
• If has become defunct
• Then
• All the assets shall be disposed off accordance
  with the law in which it was created
• If no law exists
• Then, the Central Government may by notification
  specify the all such assets shall be disposed off
  by such authority, in such manner and procedure
  as may be prescribed.
• 
  

23
Foreign contribution (Regulation) Act, 2010
Ends

• Foreign Contribution (Regulation) Rules, 2011
• begins

24
The Foreign Contribution (Regulation)Rules,2011
(In force with Effect From 1st May 2011)

• By CA. Vittal Rao Lokare

25
Foreign Contribution(Regulation) Rules, 2011

• Introduction
• These Rules prescribe the procedures to be
• followed in implementation of the Act.
• Rule 1 2 give short title, commencement and
  various definitions.
• Rule 3 deals about guidelines for declaring an
  organization to be of a political nature, when
  not being a political party.
• Rule 4 defines what the speculative activities
  are.

26
Foreign Contribution(Regulation) Rules, 2011
(Contnd)

• Rule 5 deals about Administrative expenses.
• The following will be such expenses
• Salaries, wages, travel expenses or any
  remunerations of the executive committee or
  governing council.
• All expenses towards hiring of personnel for
  management of the activity (programmes) and
  salaries, wages, or any kind of remunerations
  paid including travel to such personnel
• Expenses like electricity and water, telephone,
  postage, repairs to premises( Admn office and
  field office) and expenses on office equipments.
• Cost of accounting and administering fund
• Expenses on running and maintenance of vehicles.
• Cost of writing and filing reports.
• Legal professional charges
• Rent of premises and expense on other utilities
• Contd

27
Foreign Contribution(Regulation) Rules, 2011
(Contnd)

• Rule 5 deals about Administrative expenses.
• The following will be exceptions for such
  expenses
• If an association is primarily engaged in
  Research and Training, the expenditure incurred
  on
• Salaries or remuneration of personnel engaged in
  training
• Salaries or remuneration of personnel engaged for
  collection.
• Salaries or remuneration of personnel engaged in
  analysis of field data.
• If an organizations objectives are welfare
  oriented,
• Salaries to doctors of hospitals
• Salaries to teachers of schools etc..

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Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 6 deals about receiving FC money from
  relatives.
• It states any person receiving FC money in excess
  of Rs. One lakh in a financial year from any of
  his relatives shall inform the Central Government
  in Form FC- 1 within 30 days from the date of
  receipt.
• Rule 9 deals about Registration or Prior
  permission to receive foreign contribution.
• Make application electronically on-line in Form
  FC-3
• Followed by hard copy of on-line application duly
  signed with the required documents.
• Hard copy to reach central government within 30
  days of on-line submission.( Failing which
  request ceases)

29
Foreign Contribution (Regulation)Rules,2011
Contnd.

• When lapsed, a fresh on-line application can be
  made only after 6 months.
• A separate bank account to be opened exclusively
  to receive FC money
• When one or more bank accounts are opened in one
  or more branches for the purpose of utilizing ,
  intimation o plain paper shall be furnished to
  MHA New Delhi, within 15 days of the opening of
  any account.
• Same Rules applies to person seeking
  prior-permission.
• No second application within a period of 6 months
  after submitting an application.
• Fee for prior-permission - Rs 1,000/-(Rs.one
  thousand only)
• Fee for general registration - Rs. 2,000/-(
  Rs.Two thousand only)
• Fees can be revised by Central Government

30
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 10 deals about validity of certificate
• It states that every certificate of registration
  is valid for a period of 5 years from the date of
  its issue.
• Rule 11 deals about maintenance of accounts
• They shall maintain a separate set of accounts
  and records, exclusively, for the foreign
  contributions received and utilized
• Rule 12 deals about Renewal of registration
  certificate
• This shall be liable to be renewed after the
  expiry of 5 years.
• Application in Form FC -5 to be made 6 months
  before the date of expiry
• When implementing an on going multi-year project,
  shall apply for renewal 12 months before the date
  of expiry of the certificate of registration.
• Application for renewal to be accompanied by a
  fee of Rs 500/-( Rs. Five hundred only)
• If failed to apply, shall be deemed to have
  ceased from the date of completion of the period
  of 5 years from the date of grant of
  registration.

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Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 12 contnd.
• If ceased, a fresh request for grant of
  registration may be made to the Central
  Government
• It should provide sufficient grounds, in writing
  explaining the reasons for not submitting , then
  the application may be accepted for consideration
  along with fee and such application should be
  within 4 months after the expiry of original
  certificate of registration.
• Rule 13 deals about FC Receipts exceeding Rs. 1
  Crore in a financial year.
• It shall place the summary data on the public
  domain on receipts and utilization of foreign
  contribution pertaining to the year and one year
  there after.
• Central Government shall also display or upload
  the summary data on is website for information of
  the general public

32
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 14 deals about utilization when
  registration gets suspended.
• With the prior approval of the Central Government
  upto 25 of the un-utilized amount may be spent
  for the declared aims and objects for which the
  FC was received.
• The remaining 75 of the un-utilized FC amount
  shall be utilized only after revocation of
  suspension of the certificate of registration.
• Rule 15 Deals about custody of FC amount whose
  certificate has been cancelled.
• The balance in FC bank account shall vest with
  the banking authority concerned till Central
  Government issues further direction.
• If the balance in bank account is transferred the
  same above rule will apply to the person to whom
  the fund has been transferred

33
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 16 deals about reporting of receipt of FC
  by banks
• Within 30 days, every bank shall send a report of
  any FC transaction(receipt of remittance) by any
  person who is required to obtain a certificate of
  registration or prior permission, but who has not
  been granted such certificate or prior permission
• Such report to contain certain required details.
• The bank shall also send a report ( to the
  Central Government) within 30 days from the date
  of such last transaction
• Receipt of FC in excess of Rs. 1 crore or
  equivalent in a single transaction Or
• In transaction within a duration of 30 days.
• Whether registered or not and such report shall
  give certain details.

34
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 17 deals about intimation of FC amount by
  the recipient.
• Submit a report in Form FC-6.
• To accompany financial statements for every
  financial year beginning on 1st day of April
• It should reach within 9 months of the closure of
  the financial year ( December)
• To be sent to the Secretary to the Government of
  India, Ministry of Home Affairs, New Delhi.
• Form FC-6 to reflect FC received in exclusive
  bank account and also to include the details of
  funds transferred to other bank accounts for
  utilization
• Form FC-7 to be used when foreign articles are
  received.
• Form FC-8 to be used when FC related to foreign
  securities.
• The above reports shall be duly certified by a
  Chartered Accountant.

35
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 17 contnd.
• Every Form FC-6 shall be accompanied by a copy of
  statement of account from the bank where
  exclusive foreign contribution account is
  maintained duly certified by the bank officer.
• The accounting statement shall be preserved for
  a period of six (6) years.
• Even if no Foreign Contribution is received
  during the financial year, a NIL report shall
  be furnished.
• Rule 24 deals about procedures to be followed
  for transferring FC amount to other registered
  or unregistered bodies.
• Form FC-10 to be used as an application to
  Central Government, when intending to transfer
  the FC amount

36
Foreign Contribution (Regulation)Rules,2011
Contnd.

• Rule 24 Contnd.
• The Central Government may permit the transfer
  who is registered or having prior permission when
  such recipient has not been proceeded against
  under any provisions of the Act.
• Such transfer of FC amount shall be reflected in
  the returns in Form FC-6 as well as in Form FC
  -10 by the transferor and the recipient.
• In case FC is proposed to be transferred to a
  unregistered body or having no prior permission,
  such concerned may apply for permission to
  transfer a part of FC, not exceeding 10 of total
  FC received. Such application shall be counter
  signed by the district magistrate having
  jurisdiction in the place where transferred fund
  utilized.
• The donor shall not transfer any FC amount until
  the Central Government has approved the transfer.
  
• 
  

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• Design of Book-keeping under
• New FC(R) Act 2010 and Rules 2011

38
OfERR
Local ( Non FC ) Section
Foreign Contrbution Section
One Approved Bank Account
General Account
Spirulina Account
Tailoring Account
Agriculture Account
Main Cash Book
Bank A/C
Bank A/C
Bank A/C
Bank A/C
Main Ledger
Cash Book
Cash Book
Cash Book
Cash Book
Utilisation Bank A/C
Utilisation Bank A/C
Utilisation Bank A/C
Utilisation Bank A/C
Ledger
Ledger
Ledger
Ledger
Bilateral Fund Cash Book
Bilateral Fund Cash Book
Bilateral Fund Cash Book
Core Fund Cash Book
Ledger
Ledger
Ledger
Ledger
Voucher File
Voucher File
Voucher File
Voucher File
Receipts Payment A/C
Receipts Payment A/C
Receipts Payment A/C
Receipts Payment A/C
Voucher File
Voucher File
Voucher File
Voucher File
Receipts Payments A/C. Balance Sheet to be
Submitted to Ministry of Home Affairs, Govt.
of India, New Delhi.
Consolidated Receipts Payment Account, Income
Expenditure Account Balance Sheet to be
Submitted to (1) General Body Members (2)
Registrar of Societies (3) Income Tax
Department.
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Important definitions

• Speculative activities-
• a. The following shall be treated as
  speculative activities
• i) Any activity or investment that has an
  element of risk of appreciation or
  depreciation of the original investment,
  linked to market forces, including investment in
  mutual funds or in shares.
• ii) Participation in any scheme that promises
  high returns like investments in chits or
  land or similar assets not directly
  linked to the declared aims and objects of the
  organisation or association.
• b. A debt-based secure investment shall
  not be treated as speculative investment

40
Important definitions (contd.)

• Foreign contribution
• means the donation, delivery or transfer made by
  any foreign source
• a) of any article(not being an article of
  personal gift).
• b) of any currency, whether Indian or Foreign
• c) of any security.
• Explanation
• i) received either directly or through
  one or more persons (indirectly)
• ii) interest on SB account and on
  fixed deposits shall also be deemed to be
  foreign contribution ( calf goes with cow)
• iii) amount received from a foreign
  student towards the cost of his education
  including fee is excluded from this definition

41
Important definitions (contd.)

• Foreign source- includes, -
• a) any foreign government
• b) any international agency ( excluding UNO,
  World Bank, IMF, or such other agency
  which Central Govt notifies)
• c) a foreign company
• d) a corporation incorporated in foreign
  country
• e) a multi- national corporation
• f) a company within the meaning of Companies
  Act ,1956 and more than 50 of its share
  capital is held by any foreign Govt/
  citizen/corporation/Trust/Society/foreign company
• g) a foreign trade union
• h) a foreign trust/foundation mainly financed
  by a foreign country
• i) a society/club/association/of individuals
  formed outside India
• j) a citizen of a foreign county

42
Thank You All

• Date 9th January, 2013 CA. Vittal Rao.
  Lokare.
• C.A. Institute, Bangalore.
  Bangalore.

43

• Resource person
• L. Vittal Rao. B.com., FCA.
• Chartered Accountant
• Jubilee Building
• 45, Museum Road
• Bangalore - 560 025
• Telephone [phone] (office)
• Mobile [phone]
  4291
• E-mail vittalvibha
  _at_ sify.com