As already shared by Soma Shastriji and others, I also feel that an FCRA organisation can disburse foreign funds ONLY to other FCRA (either registration or on prior permission) holding organisations (ref. section 7 and rule 24 FCRA 2010 and FCRR 2011 and further notifications).
The disbursement has to be also reported accordingly in the FC-6 annual return with FCRA details of the recipient NGO etc. to qualify as a utilisation under FCRAct. The law seems quite clear in this regard to me….
Therefore, it seems that the section 8 company or even the for profit Indian Company should have the FCRA permission before the transfer can be made to them.
As regards disbursing to the International NGO (whether based in India or abroad!), as Subhashji has also shared, this is allowed as per section 11(1)(c)(i, ii) of the IT Act only in specific circumstances with CBDT approvals and such utilisations are also not possible/permissible under FCRA.
Maybe the foreign donor can send money directly to the International NGO to ease the situation for the Indian NGO?!
need grant for orphan and neede women and drinking water
Thanks Subhash! While I am fully aware of the Income Tax and Service tax provisions, I wanted to be doubly sure about FEMA provision. I could not find an automatic route to channelize/ repatriate the grant to a Foreign (not INGO) Not for Profit Company. To make it clear here’s the intended transaction flow –
USAID–> Indian FCRA NGO –> Foreign Not-for-Profit Co. –> Indian For-profit Co.
CA Grant Contract
Does it clarify the situation? Thanks!
Thanks Rajesh. This does help.
In above fund transfer chart, problem will be for Indian NGO to give funds to foreign NGO. Even if Indian NGO could give funds to foreign NGO, after taking approval from RBI, problem for Indian NGO would be under Income Tax Act. This application of funds would not be allowed under Income Tax Act, unless the concerned NGO has a general or specific CBDT approval. As i mentioned in my earlier response, FCRA authorities are also not allowing transfer back of funds outside India (although strictly speaking this is not legal, since transfer of funds outside India is the domain of RBI).
Last part of the chain is not an issue, since money is being received by a For Profit entity.
However overall the chain of events seems quite cumbersome and would result in delays and approval issues. It would be better if the Indian NGO directly transfers the funds to the Indian For Profit entity, based on a contract.
Hope the above does provide some clarity, however considering the whole issue is quite complicated, it would be better if you consult a specialist who can help examine the documents in detail and accordingly suggest the best way forward.
Please note that section 7 prohibits onward transfer of Foreign Source Funds to another “person”. Definition of person is wide enough per sec 2(1)(m) and includes an “association whether incorporated or not” per sec 2(1)(a). Therefore, Foreign NGO is also hit and cannot receive foreign source funds (USAID Funds) from Indian FCRA entity without FCRA compliance.
However, needless to mention that commercial transactions are excepted per [explanation 3 to sec 2(1)(h)].
Section 8 is a provision under the Companies Act 2013 to register a company as Not for Profit. The FCRA registered NGO which has provided grants to Section 8 company has to ensure that the Section 8 company is also registered under FCRA. The section 8 company can in turn sub grant funds to an INGO provided the INGO is also registered under FCRA.
In case funds have to be transferred to an organization without FCRA registration, there is a separate procedure to follow.
Thanks and regards,
B V Soma Sastry
There are a number of issues which need to be clarified, before one can properly answer your query. For example, it is not clear if the international NGO you refer to has a legal entity in India. Bcause if it is based outside India, then RBI permission would need to be taken before funds can be transferred. Further even FCRA authorities are not allowing transfer of funds outside India. There are certain Income Tax implications too.
Last point you have said International NGO implementing program through a company. Is it a for-profit company or another NGO.
In view of lack of clarity, it is not possible to provide with a proper answer.
There are a few issues involved in the query. Firstly, sec. 8 company should ensure that it is empowered by its memorandum/articles to sub-grant funds to another NGO company for implementing programs in India. Secondly, it must ensure that the sub-grant to another NGO/company do not violate any terms of the grant given by the FCRA registered NGO from which it has received the grant. And if it is registered u/s 12A of the Income tax Act, 1961 than, such sub-grant will not be considered as application of income accumulated u/s 11(2) of the I.T. Act in view of explanation to section 11(2) if the NGO to whom sub-grant is given falls under any category of institution listed in the aforesaid explanation.
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