Penalties for FCRA offences – Is there cause for Worry? Simply remember the Nine Commandments of FCRA!
This is further to our Blog post of 7th June 2018
titled “New Penalties to compound FCRA offences”.
titled “New Penalties to compound FCRA offences”.
We have received a number of
calls and messages from individuals who are naturally feeling very concerned
regarding potential offences like: “what if a foreign donor accidentally
credits funds into our local account” or “what if an Indian donor accidentally
credits funds into our FCRA account”?
calls and messages from individuals who are naturally feeling very concerned
regarding potential offences like: “what if a foreign donor accidentally
credits funds into our local account” or “what if an Indian donor accidentally
credits funds into our FCRA account”?
“Does this mean penalty of minimum INR
100,000 will be imposed if an Indian donor accidentally sends INR 500 to our
FCRA account?
100,000 will be imposed if an Indian donor accidentally sends INR 500 to our
FCRA account?
The Irish lawyer and politician John Philpot Curran in a speech
in Dublin on July 10, 1790, had said: “The condition upon which God hath given
liberty to man is eternal vigilance.” In the Indian context one could rephrase
this as: “The condition upon which Ministry of Home Affairs (MHA) hath given
FCRA registration or prior permission to NGOs is eternal vigilance.”.
in Dublin on July 10, 1790, had said: “The condition upon which God hath given
liberty to man is eternal vigilance.” In the Indian context one could rephrase
this as: “The condition upon which Ministry of Home Affairs (MHA) hath given
FCRA registration or prior permission to NGOs is eternal vigilance.”.
Exercise
vigilance and due diligence everyday and at all times … there is no other way!
vigilance and due diligence everyday and at all times … there is no other way!
Let’s look at the potential offences once again and how best
one can avoid penalties.
one can avoid penalties.
One may call these the Nine Commandments of FCRA 2010!
Commandment No. 1: If
Thou art a politician, bureaucrat, judge etc., thou shalt not accept any
‘foreign hospitality’ without prior permission of MHA.
Thou art a politician, bureaucrat, judge etc., thou shalt not accept any
‘foreign hospitality’ without prior permission of MHA.
Thus, if you are a politician or bureaucrat and accidentally
or knowingly relish foreign hospitality without prior permission of MHA, there will
be a penalty of INR 10,000!
or knowingly relish foreign hospitality without prior permission of MHA, there will
be a penalty of INR 10,000!
As NGOs let’s not concern ourselves much with this commandment, except
wonder why this is the only offence with a penalty of just INR 10,000 while all
other offences attract a minimum penalty of INR 100,000!
wonder why this is the only offence with a penalty of just INR 10,000 while all
other offences attract a minimum penalty of INR 100,000!
Commandment No. 2: Thou
shall pass on or transfer your foreign contribution funds only to NGOs having FCRA registration
or prior permission.
shall pass on or transfer your foreign contribution funds only to NGOs having FCRA registration
or prior permission.
In other words, if you are the primary recipient of foreign
funds and are routing foreign contributions to other program partners (NGOs)
make sure the second recipient/s also has/have FCRA registration or prior permission
to receive these funds and that too only in their FCRA Bank account, even
though the second recipient/s will be receiving the funds in India, from an
Indian NPO in Indian Rupees.
funds and are routing foreign contributions to other program partners (NGOs)
make sure the second recipient/s also has/have FCRA registration or prior permission
to receive these funds and that too only in their FCRA Bank account, even
though the second recipient/s will be receiving the funds in India, from an
Indian NPO in Indian Rupees.
The Banks here need to be given all the necessary
details regarding why these funds need to go into the FCRA account.
details regarding why these funds need to go into the FCRA account.
Failure to comply with this regulation will be treated as an
offence attracting penalty of INR 100,00 or 10% of the funds transferred to the
second recipient, whichever is higher.
offence attracting penalty of INR 100,00 or 10% of the funds transferred to the
second recipient, whichever is higher.
In other words, even if the first
recipient transfers INR 10,000 from its FCRA account to an NGO not having FCRA
registration or prior permission, the penalty would be INR 100,000!
recipient transfers INR 10,000 from its FCRA account to an NGO not having FCRA
registration or prior permission, the penalty would be INR 100,000!
Commandment No. 3: Thou
shalt not incur more than 50% of your foreign funds received during any
financial year on administrative expenses.
shalt not incur more than 50% of your foreign funds received during any
financial year on administrative expenses.
As per Rule 5 of Foreign Contribution Regulation Rules 2011
under “Administrative expenses”. – The following shall constitute
administrative expenses: –
under “Administrative expenses”. – The following shall constitute
administrative expenses: –
- salaries, wages, travel expenses or any remuneration realised by Members of the Executive Committee or Governing Council;
- all expenses towards hiring of personnel for management of
activities and salaries, wages or any kind of remuneration paid, including cost
of travel, to such personnel;
- all expenses related to consumables like electricity and
water charges, telephone charges, postal charges, repairs to premise(s) from
where the organization or Association is functioning, stationery and printing
charges, transport and travel charges by the Members of the Executive Committee
or Governing Council and expenditure on office equipment;
- cost of accounting for and administering funds;
- expenses towards running and maintenance of vehicles;
- cost of writing and filing reports;
- legal and professional charges;
- rent of premises, repairs to premises and expenses on other
utilities;
Provided that the expenditure incurred on salaries or
remuneration of personnel engaged in training or for collection or analysis of
field data of an association primarily engaged in research or training shall
not be counted towards administrative expenses:
remuneration of personnel engaged in training or for collection or analysis of
field data of an association primarily engaged in research or training shall
not be counted towards administrative expenses:
Provided further that the expenses incurred directly in
furtherance of the stated objectives of the welfare-oriented organisation shall
be excluded from the administrative expenses such as salaries to doctors of
hospital, salaries to teachers of school etc.
furtherance of the stated objectives of the welfare-oriented organisation shall
be excluded from the administrative expenses such as salaries to doctors of
hospital, salaries to teachers of school etc.
This ‘offence’ can be compounded by coughing up penalty of
INR 100,000 or 5% of such foreign contribution so defrayed beyond the
permissible limit, whichever is higher.
INR 100,000 or 5% of such foreign contribution so defrayed beyond the
permissible limit, whichever is higher.
Commandment No. 4: Thou
shalt not receive any funds from any ‘foreign source’ unless you have FCRA registration
or prior permission.
shalt not receive any funds from any ‘foreign source’ unless you have FCRA registration
or prior permission.
NGOs not having FCRA registration or prior permission should
be ultra-careful if they have a payment gateway on their own website or receive
funds from other payment gateways, (e.g. crowd funding platforms) which invite
funds from both local and international donors.
be ultra-careful if they have a payment gateway on their own website or receive
funds from other payment gateways, (e.g. crowd funding platforms) which invite
funds from both local and international donors.
If your NGO is not registered under FCRA, please let your
crowdfunding service provider know this and instruct them to receive funds on
your behalf only from local sources, though even here there is scope for
potential offence if an overseas citizen of India (OCI) is contributing.
crowdfunding service provider know this and instruct them to receive funds on
your behalf only from local sources, though even here there is scope for
potential offence if an overseas citizen of India (OCI) is contributing.
Hence,
where ‘retail fundraising’ from unknown individuals is concerned, one must
ascertain their Nationality first, failing which, if an OCI transfers a sum of
just INR 1,000 to your account and you do not have FCRA registration or prior
permission under FCRA, this would be an offence attracting penalty of INR
100,000.
where ‘retail fundraising’ from unknown individuals is concerned, one must
ascertain their Nationality first, failing which, if an OCI transfers a sum of
just INR 1,000 to your account and you do not have FCRA registration or prior
permission under FCRA, this would be an offence attracting penalty of INR
100,000.
Commandment No. 5: Even
if your NGO has FCRA registration please ensure that foreign funds are received
only in your FCRA Bank account specified in your registration or prior
permission certificate issued by MHA.
if your NGO has FCRA registration please ensure that foreign funds are received
only in your FCRA Bank account specified in your registration or prior
permission certificate issued by MHA.
If your NGO maintains FCRA utilisation accounts please ensure
that funds from foreign sources are first deposited in your specified main FCRA
account and then to your specified FCRA utilisation account.
that funds from foreign sources are first deposited in your specified main FCRA
account and then to your specified FCRA utilisation account.
Any change in FCRA specified bank account or specified utilisation account must be immediately intimated to MHA in online form FC 6.
But, now what if the foreign donor accidentally credits funds
to your utilisation account or your local account?
to your utilisation account or your local account?
Well, first of all, one
hopes your Bank is vigilant enough and will block the payment till you clarify.
hopes your Bank is vigilant enough and will block the payment till you clarify.
However, if this does not happen, it would be best for your NGO to instruct the
Bank in writing that the funds have inadvertently been credited to the wrong
bank account and that the bank should immediately transfer funds to the right
bank account or simply return the funds to the donor with instructions from
your NGO and/or your bank to re-transfer funds to the correct specified FCRA
Bank account.
Bank in writing that the funds have inadvertently been credited to the wrong
bank account and that the bank should immediately transfer funds to the right
bank account or simply return the funds to the donor with instructions from
your NGO and/or your bank to re-transfer funds to the correct specified FCRA
Bank account.
Any, lapse in this regard would attract penalty of INR
100,000 or 5% of the amount credited to the wrong bank account.
100,000 or 5% of the amount credited to the wrong bank account.
Moral: Check your bank statements regularly
or daily or face large penalty!
or daily or face large penalty!
Commandment No. 6: Thou
shalt not deposit local funds in your specified FCRA Bank account.
shalt not deposit local funds in your specified FCRA Bank account.
As stated in our response to Commandment No. 5, if such an
inadvertent mistake occurs, one would hope that your Bank would be vigilant.
However, if not, please request the bank to immediately correct the mistake or
return the money to the donor with a request to re-transfer to the correct Bank
account.
inadvertent mistake occurs, one would hope that your Bank would be vigilant.
However, if not, please request the bank to immediately correct the mistake or
return the money to the donor with a request to re-transfer to the correct Bank
account.
This offence can set your NGO back by INR 100,000 or 2% of
the amount which was meant to go in your FCRA Bank account but, inadvertently
got credited to your specified FCRA Bank account.
the amount which was meant to go in your FCRA Bank account but, inadvertently
got credited to your specified FCRA Bank account.
Commandment No. 7: If thou
art a bank or an ‘authorised person’, thou shalt report or provide intimation
to MHA regarding the prescribed amount of foreign remittance and the source and
manner of such remittance.
art a bank or an ‘authorised person’, thou shalt report or provide intimation
to MHA regarding the prescribed amount of foreign remittance and the source and
manner of such remittance.
The onus of compliance is mainly on your Bank, but, don’t forget
to upload intimation of quarterly receipts of foreign contribution, preferably on
MHA’s (FCRA) online portal.
to upload intimation of quarterly receipts of foreign contribution, preferably on
MHA’s (FCRA) online portal.
Commandment No. 8: Thou
shalt file your FCRA annual returns online before 31st December.
shalt file your FCRA annual returns online before 31st December.
Most NGOs file their tax returns by 30th September
but, it’s strange why so many wait, till December to file their FCRA returns.
but, it’s strange why so many wait, till December to file their FCRA returns.
Be diligent. Filing your annual return is mandatory even during the year or
years that you do not receive any foreign contribution.
years that you do not receive any foreign contribution.
Filing your return in FC 4, even during the year or years
that you do not receive any foreign contribution is indicative to MHA that you
wish to keep your registration alive.
that you do not receive any foreign contribution is indicative to MHA that you
wish to keep your registration alive.
If you miss the due date, be prepared to
shell out a minimum penalty of INR 100,000.
shell out a minimum penalty of INR 100,000.
Commandment No. 9: Thou
shalt maintain proper books of account (or proper company account or cost centre in your accounting software like Tally) and records of foreign contribution
received and manner of its utilisation.
shalt maintain proper books of account (or proper company account or cost centre in your accounting software like Tally) and records of foreign contribution
received and manner of its utilisation.
Non-compliance would attract penalty
of INR 100,000 or 5% of the foreign contribution received during the relevant
period of not maintaining accounts, whichever is higher.
of INR 100,000 or 5% of the foreign contribution received during the relevant
period of not maintaining accounts, whichever is higher.
End Note
Remember, managing compliance takes resources, but, it’s nowhere near as expensive as the costs associated with a breach!
Noshir H. Dadrawala
it was very helpful