What is ‘Foreign Contribution’ under Foreign Contribution Regulation Act (FCRA)?

Table of Contents

1. Foreign Contribution

2. Meaning of ‘security’

3. Public disclosure of receipt of foreign contribution on website

4. Foreign Source

5. Foreign company

6. Meaning of subsidiary

7. Persons who cannot accept, receive or deliver foreign contribution

8. Meaning of various words used in section 3(1)

9. Candidate for election

10. Person

11. Organisation of political nature cannot accept foreign contribution

12 Guidelines for declaration of an organisation to be of a political nature

Check out Taxmann's Foreign Contribution Regulation Law Manual which provides comprehensive coverage of Foreign Contribution Regulation Laws in India. It covers amended & updated text of the Foreign Contribution Regulation Laws, including FCRA, FCRR, Notifications issued under FCRA, Guidelines and Circulars, Case Laws Digest, etc.

1. Foreign Contribution

One major purpose of FCRA is to regulate foreign contribution received in India (mainly by NGOs).

Foreign contribution means donation, delivery or transfer made by any foreign source (directly or indirectly) of any article above certain specified value (the limit was ` 1,000 in 1976 Act), currency or foreign security [section 2(1)(h) of FCRA, 2010].

Foreign Contribution (Regulation) Rules, 2011 do not specify any amount but reporting is generally required only when amount exceeds ` one lakh.

Interest accrued on foreign contribution is also ‘foreign security’.

The definition in section 2(1)(h) of FCRA, 2010 is as follows—

‘“Foreign contribution” means the donation, delivery or transfer made by any foreign source,—

(i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified from time to time, by the Central Government by the rules made by it in this behalf [The limit is that market value should not exceed ` 1,00,000 – Rule 6A to FC (Regulation) Rules inserted w.e.f. 12-4-2012. Thus, gift will market value exceeding ` 1,00,000 will be treated as ‘foreign contribution’]. [The limit was ` 25,000 upto 16-9-2019]

(ii) of any currency, whether Indian or foreign;

(iii) security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).

Dive Deeper:
[Key Highlights] Foreign Exchange Management (Overseas Investment) Rules, 2022
[Key Highlights] Foreign Exchange Management (Overseas Investment) Regulations, 2022

Explanation 1: A donation, delivery or transfer of any article, currency or foreign security referred to in this clause by any person who has received it from any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution within the meaning of this clause.

Explanation 2: The interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of section 17 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.

Explanation 3: Any amount received, by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent of a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.’

Dive Deeper:
Registration for Accepting Foreign Contribution (FCRA)

2. Meaning of ‘security’

‘Security’ has meaning attached to it under SCRA and FEMA:

3. Public disclosure of receipt of foreign contribution on website

A person who has been granted a certificate of registration or prior permission shall place the audited statement of accounts on receipts and utilisation of the foreign contribution, including income and expenditure statement, receipt and payment account and balance sheet for every financial year beginning on the first day of April within nine months of the closure of the financial year on its official website or on the website as specified by the Central Government – Rule 13(a) to FC (Regulation) Rules.

Not necessary to put information about foreign contribution on website – A person receiving foreign contribution in a quarter of the financial year was required to place details of foreign contribution received on its official website or on the website as specified by the Central Government within fifteen days following the last day of the quarter in which it has been received clearly indicating the details of donors, amount received and date of receipt – Rule 13(b) to FC (Regulation) Rules as existing upto 1-7-2022. This sub-rule has been omitted w.e.f. 1-7-2022.

4. Foreign Source

The restrictions on ‘foreign contribution’ are applicable if the foreign contribution is from ‘foreign source’.

Foreign source includes Foreign Government, international agency (but not UN or its agencies, World Bank, IMF etc.), foreign company, multi-national corporation, company where more than 50% capital is held by foreigner or foreign company, foreign trust, foreign citizen etc. [section 2(1)(j) of FCRA, 2010].

It is an ‘inclusive’ definition and hence any foreign source would get covered even if not specified in section 2(1)(j) of FCRA.

In Association for Democratic Reforms v. UOI (2014) 126 SCL 1 = 43 taxmann.com 443 (Del HC DB), two companies incorporated in India had given donations to political parties. Majority shares of these companies (55.1%) were held by a company incorporated outside India. It was held that the donations are received from ‘foreign source’ as defined in section 2(1)(j)(vi)(c) of FCRA.

Company – ‘Company’ has meaning assigned to it under section 2(17) of Income-tax Act [section 2(1)(f) of FCRA, 2010]

Important point to be noted is that even a body corporate incorporated outside India will be ‘company’ for purpose of FCRA.

Agencies not considered as ‘foreign source’ – List of 109 agencies of UN and other international organisations not to be treated as foreign source has been specified in Notification No. SO 1014(E) dated 13-11-2000 as amended by Notification No. SO 1133(E) dated 1-5-2009 [91 SCL 265 (ST)]. (See Division 2 for the list)

‘Global Development Network’ will not be treated as ‘foreign source’ – Notification No. SO 1433(E) dated 22-6-2011.

5. Foreign company

Foreign company is defined in section 2(1)(g) of FCRA.

Indian company having more than 50% foreign shareholding is ‘foreign source’ – Many companies in India have foreign shareholding more than 50% due to liberalisation in Foreign Direct Investment (FDI) policy. These would be ‘foreign source’ as per section 2(1)(j)(vi) of FCRA. Receipt of donations/contributions directly or indirectly by persons and organisations from these companies are presently violative of the FCRA.

This is not in harmony with the liberalised provisions of FEMA. However, this issue has not been sorted out.

Meaning of ‘multi-national corporation’ – As per Explanation to section 2(1)(g) of FCRA, 2010; ‘multi-national corporation’ is a corporation incorporated in foreign country which has subsidiary or branch or place of business in two or more countries or territories or carries on business or operates in two or more countries or territories.

6. Meaning of subsidiary

‘Subsidiary’ has meaning assigned to it under Companies Act [Section 2(1)(t) of FCRA, 2010]

7. Persons who cannot accept, receive or deliver foreign contribution

Following persons are prohibited from accepting foreign contribution [section 3(1) of FCRA, 2010]:

(a) candidate for election of any legislature

(b) correspondent, columnist, cartoonist, editor, printer or publisher of any newspaper

(c) public servant, Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government [earlier words were – Judge, Government servant or employee of any Government controlled corporation or Government company] Words in italics in clause (c) substituted vide Foreign Contribution (Regulation) Amendment Act, 2020 w.e.f. 29-9-2020.

(d) member of any legislature

(e) political party or its office bearer

(f) Organisation of political nature

(g) Association or company in electronic media.

Explanation 1: For the purpose of clause (c), “public servant” means a public servant as defined in section 21 of the Indian Penal Code.

Explanation 2: In section 3(1)(c) and section 6(c), the expression “corporation” means a corporation owned or controlled by the Government and includes a Government company as defined in section 2(45) of the Companies Act, 2013.

Explanation 1 and 2 substituted vide Foreign Contribution (Regulation) Amendment Act, 2020 w.e.f. 29-9-2020.

[Earlier, the Explanation read as follows – In clause (c) and section 6, the expression “corporation” means a corporation owned or controlled by the Government and includes a Government company as defined in section 617 of the Companies Act, 1956].

(2) (a) No person, resident in India, and no citizen of India resident outside India.

Prohibition in accepting and delivering foreign contribution – A person cannot accept foreign contribution or currency on behalf of any of aforesaid persons. He also cannot deliver any such contribution to political party or any person referred above.

Who cannot accept foreign contribution on behalf of other person – No person, resident in India, and no citizen of India resident outside India, shall accept any foreign contribution, or acquire or agree to acquire any currency from a foreign source, on behalf of any political party, or any person referred to in section 3(7), or both [section 3(2)(a) of FCRA, 2010]

Who cannot deliver any currency to other person – No person, resident in India, shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to any person if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to any political party or any person referred to in section 3(1), or both [section 3(2)(b) of FCRA, 2010]

Who cannot deliver any currency accepted from foreign source – No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to—

(i) any political party or any person referred to in section 3(7), or both; or

(ii) any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a political party or to any person referred to in section 3(1), or both [section 3(2)(c) of FCRA, 2010].

Who cannot deliver currency to other person – No person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any person or class of persons, referred to in section 9, shall deliver such currency—

(a) to any person other than a person for which it was received, or

(b) to any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a person other than the person for which such currency was received [section 3(3) of FCRA, 2010].

8. Meaning of various words used in section 3(1)

Meaning of various words used in section 3(1) of FCRA as stated above, is as follows—

Political party – Political party means a party registered with Election Commission. It also means a party which has set up candidates for election, even if it is not registered with Election Commission [section 2(1)(n) of FCRA, 2010].

Association – ‘Association’ may be incorporated or unincorporated. It includes registered or unregistered society or any organisation [section 2(1)(b) of FCRA, 2010].

9. Candidate for election

Candidate for election means a person who has been duly nominated as a candidate for election to any Legislature [section 2(1)(d) of FCRA, 2010].

‘Legislature’ means House of Parliament, Legislature of State or Delhi, Municipality, District Council or even a Panchayat [section 2(1)(k) of FCRA, 2010].

Intimation by candidate for election receiving foreign contribution before nomination – Candidate for election, receiving any contribution within 180 days prior to his nomination of election, has to give intimation to Central Government in prescribed form giving details of foreign contribution received and how it is utilised by him [section 21 of FCRA, 2010].

The report shall be in form FC-1 in electronic form within 45 days from the date on which he is duly nominated as a candidate for election [Rule 18 of Foreign Contribution (Regulation) Rules, 2011 as amended w.e.f. 10-11-2020].

‘Electronic form’ shall have the same meaning assigned to it in section 2(1)(r) of the Information Technology Act, 2000 – rule 2(ba) of FC (Regulation) Rules.

10. Person

‘Person’ includes : (i) an individual; (ii) a Hindu undivided family; (iii) an association; (iv) a company registered under section 25 of the Companies Act, 1956 (1 of 1956) [section 2(m) of FCRA, 2010].

11. Organisation of political nature cannot accept foreign contribution

Any organisation of political nature (which is not a political party) cannot accept any foreign contribution as per section 3(1)(f) of FCRA, 2010. Any person cannot accept foreign contribution on behalf of such organisation.

Organisation of political nature means such organisation as the Central Government may, specify in this behalf by an order in a Gazette [section 5(1) of FCRA, 2010].

Thus, an organisation will be treated as ‘organisation of political nature’ only if it is notified by Central Government by a Gazette Notification.

Government will frame guidelines specifying grounds on which an organisation shall be specified as an organisation of a political nature.

Before making an order under section 5(1) of FCRA, notice will be given to the organisation. The organisation can make representation to Central Government [section 5(3) of FCRA, 2010]. After considering reply and reports of concerned authority, order will be passed by Central Government within 180 days of issue of show cause notice [section 5(6) of FCRA, 2010].

Application for revision to Central Government if adverse order passed – If an adverse order is passed by competent authority, application for revision can be made under section 32 of FCRA to Secretary, Ministry of Home Affairs, Government of India, New Delhi on a plain paper. Application shall be accompanied by a fee of rupees three thousand only, which shall be paid through the payment gateway specified by the Central Government [Rule 20 of Foreign Contribution (Regulation) Rules, 2011 amended on 10-11-2020].

Appeal against order – The order is appealable before High Court under section 31(2) of FCRA, 2010. Appeal should be filed within 60 days.

12 Guidelines for declaration of an organisation to be of a political nature

As per rule 3(1) of FC(R) Rules (re-numbered w.e.f. 10-11-2020), the Central Government may specify any organisation as organisation of political nature on one or more of the following grounds:—

(i) organisation having avowed political objectives in its Memorandum of Association or bylaws;

(ii) any Trade Union whose objectives include activities for promoting political goals;

(iii) any voluntary action group with objectives of a political nature or which participates in political activities;

(iv) front or mass organisations like Students Unions, Workers’ Unions, Youth Forums and Women’s wing of a political party;

(v) organisation of farmers, workers, students, youth based on caste, community, religion, language or otherwise, which is not directly aligned to any political party, but whose objectives, as stated in the Memorandum of Association, or activities gathered through other material evidence, include steps towards advancement of political interests of such groups;

(vi) any organisation, by whatever name called, which habitually engages itself in or employs common methods of political action like ‘bandh’ or ‘hartal’, ‘rasta roko’, ‘rail roko’ or ‘jail bharo’ in support of public causes.

The organisations specified under clauses (v) and (vi) of rule 3(1) shall be considered to be of political nature, if they participate in active politics or party politics, as the case may be – Rule 3(2) of FC(R) Rules as inserted w.e.f. 10-11-2020.

In Indian Social Action Forum (INSAF) v. UOI (2011) 109 SCL 458 = 13 taxmann.com 125 (Del HC DB), constitutional validity of section 5 and rule 3 have been upheld. It was held that the section gives guidelines are given and delegated power cannot be said to be arbitrary.

Intimation about such organisations – Intimation or information about such organisations shall be furnished to Secretary to Government of India, Ministry of Home Affairs, New Delhi by registered post or in electronic form [Rule 23 of Foreign Contribution (Regulation) Rules, 2011 as amended on 10-11-2020].