FCRA for Foundations

Dear Dialogue Group members,

The companies Act 2013 makes it mandatory to spend 2% of PBT for certain category of companies on CSR. Most of the companies are establishing Foundations under registration of Trust. Some of the companies incorporated under the companies act 1956 are operating with 100% foreign investments. Please clarify whether the Foundations of their own or NGOs who receive grants from such companies need to have FCRA or not.

R S Sharat

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8 Responses to FCRA for Foundations

  1. Subhash Mittal says:

    Sharat ji, As per the FCRA Act as present, only provision for defining Foreign Contribution is that it should come from Foreign Source. As stated by Bharat Gupta, Foreign source definition states that a company registered under Companies Act and having more than 50% share capital from person listed as foreign source will be treated as foreign source. On this ground any contribution being received from such corporations whether by Foundations or NGOs (both being Indian entities with social objects) by an entity which has social objects would be treated as Foreign Contribution.

    What Mr Nagrajan has said is very much what is desired, but remains in the realm of legal interpretation. There have been several cases, where FCRA Dept has insisted that foundations of such company have to obtain FCRA registration. In fact one case i am aware where the foundation had to pay fines for condonation, where it received funds without FCRA registration.

    I certainly hope what Mr Nagrajan has said becomes reality, but presently we are stuck with the given situation.

    • Sharat says:

      Many thanks Subhashji.

      Thanks & Regards,

      Sharat

      • Subhash Mittal says:

        With proposed amendment included in Finance Bill, amending the definition of Foreign Source, most foreign owned companies would come out of requirement to have FCRA to receive funds under CSR from their own or even other foreign owned corporates.

  2. R S Sharat says:

    Tanks Mr. Jayachandran and Nagarajan. I agree it is time that the Home Ministry clarify this.

  3. R S Sharat says:

    Thanks for the clarification. I understand if the NGO provides goods and services FCRA is not required, but the NGO has to pay the service tax to the government. Grateful for advice.

  4. Jayachandran says:

    Both need to have FCRA number

  5. Nagarajan says:

    Dear Member,

    With reference to the Indian foundations, instituted by companies having foreign investments, our observations and views are:

    1. Many companies, like AXIS Bank, ITC have directed the recipients of funds from the foundations instituted by them as Foreign Funds and hence have suggested them to report the same as foreign source in their returns under FCRA.

    2. However, we believe that this is too much stretching of the law and its intention. These companies are for profit and have investments are from foreign source, However, their income is earned in India, out of which they use the CSR funds. The foreign character of ownership remains, but not on the earnings or profits! If this is to be treated as “foreign source” for FCRA purposes, every single funding from even Indian foundations could be treated as foreign. We do not think that is the intention of the law. It is better that the Ministry of Home Affairs clarify this.
    3. As for as the Foundations of those companies with substantial foreign investments seeks FCRA registration and obtain them also, then the funds disbursed to the NGOs operating at the grass root level, have to treat them as FCRA funds and follow the law accordingly. Beggars have no choice!

  6. Bharat Gupta says:

    Dear Sharat,

    In my opinion, as per FCRAct, section 2(1)(j)(vi), any Indian Company with more than 50% foreign shareholding would be considered as a ‘foreign source’ and funds received from them would be ‘foreign contribution’ requiring FCRA permission.
    This would mean that in your query both the foundation and the NGO will require FCRA registration/prior permission for above situations !

    Of course, there is a proposal in MHA to amend this limit and increase it to the FDI limit (refer 21.12.15 circular on FCRA site), which in some cases may go up to 100% also and in many other cases upto 74% foreign equity, but most probably this is yet to be finalised/notified. We have to wait for that change..

    Thanks
    Bharat Gupta

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