Why Foreign Contribution Regulations Act (FCRA)

Every religion which exist in this universe has been advocating the idea of helping those who are in dire need of help by those who can afford. It can be charity or zakat or dhan or kaar seva etc. All this is simply a way to help poor and needy people who are sufferers due to whatever reason.

Initially those who have extra resources used to help others directly and individually. This sort of help use to be within the vicinity of one’s residence. With the passage of time the need and size of the donation thus required grew to such a level that the donors felt the need to join together, pool their excess resources and do charity in a collective and meaningful manner. The recent example can be of earth quake in Nepal. The requirement of funds and commodities was so huge that many countries pooled their resources directly or indirectly to help the needy and share their sufferings.

The second and important reason behind the concept of charitable organizations were the failure of the states to discharge their duties in an effective and efficient manner for the welfare of the state. The example can be poor performance in providing quality education to all, quality health care to all, to make citizens economically independent etc. To overcome these problems the states started encouraging charitable organizations to grow by exempting them from paying taxes. In other words government made their contributions financially to these organizations by forgoing their share of taxes which otherwise such organizations would have paid from their resources. This initiative from the government made these charitable organization financially viable.

Finally state authorities came a step forward by giving such charitable organizations legal cover and allowed these organizations to register under any of the following Acts:

  1. Societies Registration Act, 1860
  2. Indian Trusts Act 1882
  3. Charitable and religious Trusts Act 1920
  4. Companies Act 2013 (Section 8)

Thus the birth of Non-Governmental Organizations (NGOs) took place and people with the mind-set of doing charity joined hands and started working directly or indirectly for the upliftment of poor be it in the educational sector, health sector, religious awareness, economic upliftment, cultural or social welfare activities.

Presently all over the world and mostly from the developed countries the governments have budgets to support financially charitable organizations to carry on their objectives not only within the country but all over the world to help reduce the sufferings of humanity including animal kingdom.

These revolutionary ideas influenced the corporate world resulting in huge donations coming from the corporate world directly or through charitable foundations created by such corporates. The addition to this was made by the mandatory spending by corporates and the idea of corporate social responsibility (CSR). The reason for making CSR spending mandatory was to return something in exchange of what the corporates got out of the natural and national resources and try to balance between damage inflicted through industrialization on such resources and repair of such damages.

As is said that there is an evil soul along with the pious soul in everyone’s body. Similarly few miscreants with malicious intentions entered into this field under the garb of charitable and pious veil and started activities which were opposed to public policy. Slowly they influenced the political system and started destabilizing the political structure of rival countries disturbing the process of peace and communal harmony and sometimes creating anti national scenarios. Thus once considered to be the ray of hope for the up liftmen of mankind become a serious threat to the existence of the society as a whole.

The countries effected by such violence started to think about the remedial actions to handle such situations. It was practically impossible to stop such inward remittances which were genuine in nature but at the same time it was more difficult to recognize the funds being flown in with mala fide intentions. In India the matter was extensively debated in the year 1976 or before and a legislation was passed to control this menace.  The act was named as Foreign Contributions Regulations Act 1976. This act was replaced by Foreign Contributions Regulations Act 2010.

The purpose of overhauling the earlier version of the act was to make the law harsher and meaningful to serve the purpose for which it was created. The main focus was to restrain flow of foreign funds to organisation like political parties, trade unions, student bodies etc. The act specifically established the process to know the usage of foreign funds received within the country and or foreign hospitality by associations and persons working in the important areas of national life. It was made mandatory to register by applying to home ministry under this act and dedicate a designated bank account where this money will be received to make tracking of such funds easy and transparent. Even interest earned on such amount was treated as foreign fund received under FCRA. The purpose of doing so was to avoid a situation where a NGO may receive large sums and without using such funds carry forbidden activities by only spending interest earned on such funds. Thus the message was clear to use the funds received through this channel including any accrual of interest for the purpose for which such funds were received without any deviation.

The present situation is that all the societies, trusts or charitable companies, carrying on activities like education, religious, economic, cultural or social welfare and expecting help from foreign funds from international funding agencies are required to apply for registration under section 6(1) of the Act. Associations not registered or having been denied registration cannot accept such foreign funding. Thus having registration or permission before receipt of foreign contributions is pre requisite condition. In simple words no association can receive funds on mere filing an application as there are chances that the application to grant registration may get rejected based on the report of the intelligence Bureau. However government has fixed ninety days’ time limit for disposal of application. Once the registration number is granted the same need to be quoted in all future correspondence.

To conclude the purpose behind enacting Foreign Contribution Act is not to put hindrances in the process of genuine charitable cause but at the same time wish to deal firmly against the social menace which few of such associations attempted in the past to destabilise the peace and harmony of a nation and to achieve their malicious objectives.

DILIP K RAINA –Chartered Accountant:

B.Com; FCA (ICAI); PGDFM; PGDCA; DBM; Cert. IFRS (ICAEW); NCFM Capital Market (Dealers Module); Microsoft Certified IT Professional: Application for Microsoft Dynamics NAV (ERP) & AXAPTA (ERP)

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