Current Budget proposals have made changes in FCRA Act.
As per the existing definition of a foreign source, an Indian registered company which has more than 50% shareholding held by foreign sources is to be regarded as ‘foreign source’. However as per the new proposals, as long as the shareholding is within the FDI norms as declared under FEMA then such companies will not be treated as foreign source. This is in line with the proposal already floated by FCRA Dept and earlier discussed on SRRF Dialogue (visit link http://blog.srr-foundation.org/?p=2786)
It may be of interest that the change is being made effective from the beginning of FCRA 2010. Thus in case anyone has received funds from such companies, need not apply for condonation, considering changes in the Act. Further in future, now such funds will be treated as local and would not fall under FCRA.
It may be of interest to note that considering BJP/Congress have been indicted vide a HC Order on the issue of receipt of donation from Sterlite a subsidiary of Vedanta, discussed earlier on the above link. This amendment with retrospective effect could be to bailout the two political parties by excluding such companies from the very definition of foreign source. It may be noted that currently a Special Leave Petition is pending in the Supreme Court against the HC order.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in
If the proposed amendment in Finance Bill 2016 relating to FCRA is passed as it is, it would mean that no NGO needs to account for funds from corporates under FCRA. All such funds will become local. This will come as a major relief for many NGOs, who found it very difficult to keep a track of ownership of these corporates. Sometimes some corporates became more than 50% foreign ownership during the year, making it very confusing for the NGOs to decide when the grant became FCRA and when was it non-FCRA.
In past several foreign owned companies who started their own foundations went to the FCRA Dept for condonation, after they realised of 50% provisions in FCRA Act. If law is changed then this is no longer a default and no condonation or even FCRA permission is needed by such foundations.
Dear Mr Mittal
Thanks for this information. My query in relation to this is how can a 100% subsidiary that has taken loans from its parent convert 50% of the loan amount equity. In this case is FCRA permission required or do we directly go to RBI for permissions? What is the process?