FCRA and Foreign Donations: Best Practices for NGOs

FCRA and Foreign Donations: Best Practices for NGOs

Foreign donations play a crucial role in supporting numerous non-profit organisations in India. Foreign contributions to NGOs in India have seen significant growth over recent years, increasing from ₹10,292 crore in 2009–10 to ₹16,457 crore in 2018–19—a 1.6-fold rise over a decade.  This highlights a nuanced picture of foreign funding trends and their impact on the nonprofit sector.

However, accepting these contributions comes with the responsibility of adhering to the Foreign Contribution Regulation Act, 2010 This regulatory framework governs how non-profits receive and use foreign funds, ensuring they come from credible sources and are directed towards lawful activities. In this article, we explore best practices for maintaining transparency and accountability to ensure full compliance with FCRA regulations. Let’s start from the basics:

  1. Proper Registration and Approval

To stay compliant with FCRA, it is crucial for proper registration and FCRA approval. Non profit organisations should maintain proper records of all the foreign contributions that they received and use. Before receiving any foreign contribution, it is mandatory to complete FCRA registration in India. You can use our FCRA services online to complete your registration and procure your FCRA license. For those who already have an FCRA license , it is crucial to maintain its validity and renew it from time to time.

Did you know? As of  3 April  2024, there are 16,242 active NGOs with valid FCRA licenses, while 14,396 licenses have expired and 20,701 have been cancelled.  
  1. Transparent Recording

Keep proper records with respect to the foreign donations received and spent. The authorities should have access to these records and keep them updated in the required format. Accurate record-keeping forms an integral part of FCRA compliance; it ensures that the FCRA compliances are transparent and accountable.

  1. Purpose Restrictions

Non-profit organisations registered under the FCRA have to adhere to the rules stipulated under it. The Foreign Contribution Regulation Act, 2010, entails strict rules, and compliance with the statute is enforced by the government. In regard to this, non-profit organisations must ensure that they meet the requirements of the act.

  1. Foreign Exchange Regulations

It thus requires the filing of annual reports on nonprofit organisations registered under the FCRA. The annual report should have details related to all the foreign contributions received and spent in the year. Such a report has to be certified by a chartered accountant and presented in the proper format. Annual reporting is essential because there needs to be accountability and transparency concerning FCRA compliance.

  1. Run regular audits.

Regular audits need to be conducted to monitor compliance with FCRA regulations. Schedule periodic audits to review financial records for compliance with legal requirements and identify any anomalies or grey areas for improvement. It helps to ensure that foreign funds are utilised in a responsible manner and ensures organisational integrity.

 Maintain transparency and accountability

Transparency and accountability are major concerns in foreign contribution management. Maintain very accurate books of accounts concerning all the transactions; clearly document the application of funds; and regularly report to stakeholders. This openness instils confidence in the donors and ensures the operations of the organisation are in tune with FCRA guidelines.

  1. Consult a lawyer.

Consulting experts in the field of law will help one solve the complexities brought about by FCRA compliance. Legal advice may be sought on interpretations of various regulations, solving problems related to compliance, and understanding best practices. A legal advisor will ensure that your organisation is aware of any change in the law for purposes of compliance.

Best Practices Tips for NGOs

Best practices for NGOs are guidelines for functioning and operating within the legal ambit. Besides ensuring accountability and transparency, following these helps in gaining the trust of the stakeholders in the mission of the organisation. Here are some dos and don’ts that will help NGOs maintain high standards and achieve their objectives:

FCRA Dos:

  • Books to be Kept Separately: The books of accounts in respect of foreign receipts should be maintained separately, and this helps in better monitoring by the stakeholders and donors and also for reporting to the Ministry of Home Affairs.
  • Single Bank Account: Maintain only one designated bank account for receipt of foreign contributions. In case of change in the designated bank account, the same shall be intimated within 15 days to MHA using Form FC-65.
  • File Annual Returns: Follow FCRA annual returns, even if no foreign contribution is received.
  • Renew Registration:FCRA registration certificates have a validity of 5 years. Apply for a renewal by filing Form FC-3C at least 6 months prior to the expiry of the registration.
  • Report Changes: Report to the government any changes in the bank accounts, particulars of the association relating to name, address, and objects of the association, or when more than 50% of the key members change by using Form FC-6.

FCRA Don’ts:

  • Do not mix the funds: Cash withdrawn from the account of foreign contribution should not mix with the local cash. Do not divert from the grant purpose as agreed upon by the donor as specified in the contract. Do not transfer to unregistered entities. FCRA funds shall not be transferred to non-FCRA registered organisations without prior government approval.
  • No Inter-Transfer Between Utilisation Accounts:Though there can be more utilisation accounts, the funds should flow only from the main designated account.
  • Do Not Invest in Speculative Ventures:Do not invest FCRA money in speculative mutual funds or high-risk ventures; only fixed deposits for safety.
  • Administrative Expenses Should Not Exceed: It has to beBelow 50% of the total foreign contributions received
  • Do not accept contributions directly in utilisation accounts: The foreign contribution should be received only in the designated FC bank account and not directly in the utilisation accounts.
  • Do not accept funds during suspension:  You cannot receive any foreign contribution if your FCRA registration has been suspended or cancelled.
  • Do not make a false statement: Ensure that information furnished to the authorities is accurate. Do not give false statements or conceal information when permission or registration is sought.

FCRA and Digital Fundraising:

Online fundraising for NGOs in India must first obtain a no-objection certificate in accordance with the Foreign Contribution (Regulation) Act, 2010. Organisations need valid FCRA registration to receive foreign donations and deposit all such funds into an FCRA-designated bank account. One needs to use approved online platforms, followed by maintaining transparency regarding correct recording and reporting in FCRA annual returns. Compliance here ensures that funds are put to good use, and this also maintains all compliances in a legal sense.

FCRA and Emerging Trends

FCRA and Emerging Trends FCRA is an evolving concept. Emerging trends in fundraising include cryptocurrency donations, crowdfunding sites, and other new areas that are coming up. Since the use of digital currencies is going mainstream, NGOs are under the compulsion to understand the provisions of FCRA for compliance with foreign contributions received in cryptocurrencies. Similarly, NGOs are working hard to adjust to the new means of fundraising that has come with crowdfunding platforms. Knowledge of these emerging trends is, therefore, critical for NGOs to effectively utilise new avenues of funding responsibly and within the rule of law.

Conclusion

Guiding the complexities of FCRA regulations, especially with emerging trends like cryptocurrency donations and crowdfunding platforms, requires careful attention and expertise. Opt for legal consultation online in India to simplify the process for you. Our comprehensive FCRA registration services ensure your organisation remains compliant with all legal requirements while you focus on your mission. Let our experienced team guide you through the intricacies of FCRA compliance, so you can effectively manage and grow your foreign contributions. Choose Vakilsearch for reliable, expert support in maintaining your FCRA registration and staying ahead of regulatory changes.