Hefty Compounding Fees under FCRA

FCRA Dept, has recently come out with a Gazette Notification No. SO 2291 (E) dated 5 June 2018, which has completely revamped the compounding penalties under FCRA Act 2010, superseding earlier two Notifications (SO 1976(E) dt 26th Aug 2011 and SO 2133(E) dt 16th June 2016.

The new notification covers a large number of offences specified within the FCRA Act 2010 and seems to be quite comprehensive. Let us briefly look at these offences and penalties imposed.

1. Acceptance of Foreign Hospitality without Prior Permission (S.6) Rs 10,000/- Not covered earlier
2. Transfer of FC to any other person who does not have registration or prior permission. (S.7) Rs 1 lakh or 10% of trfd whichever is higher. Not covered earlier.
3. Violating 50% limit on Admin Exps. (S. 8) Rs 1 lakh or 5% of excess amount spent on Admin. whichever is higher. Not covered earlier.
4. Accepting FC without registration or Prior Permission (S. 11) Rs 1 lakh or 10% of amount so accepted whichever is higher. Earlier this penalty was for 2%-5%, with minimum range from Rs 10k to Rs 1 lac, whichever higher.
5a. Accepting FC in any account other than designated account. Rs 1 lakh or 5% of amount so accepted whichever is higher.  




5b. Non-reporting of such amount by banks and concerned entity. Rs 1 lakh or 3% of amount so rec’d or deposited whichever is higher. -ditto-
5c. Non-FCRA funds deposited in designated account. Rs 1 lakh or 2% of amount so deposited whichever is higher. Not covered earlier.
6. Non-intimation of receipt of FC as per S.18 Rs 1 lakh or 5% of amount so rec’d during non-submission period, whichever is higher. Not covered earlier.
7. Non-maintenance of account and records as per S.19 of the Act. Rs 1 lakh or 5% of FC during non-maintenance period, whichever is higher. Not covered earlier.

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12 Responses to Hefty Compounding Fees under FCRA

  1. Subhash Mittal says:

    Last remaining clause 7, which penalises any non-maintenance of accounts & records. S. 19 read alongwith Rule 11 states that in case accounts & records are not maintained as per requirements, 5% of FC rec’d during the period in which accounts / records are not maintained, as penalty would be charged. Minimum penalty being Rs 1 lakh.

    S. 19 only requires that an account be maintained of foreign contribution rec’d and record of how this contribution has been utilised in the prescribed manner. Rules require that separate set of accounts exclusively for FC be maintained (Rule 11). It may be noted that accounts include not only books of accounts, but all supporting records, such as vouchers, bank statements, etc. Further since Rule 13 requires disclosure of donor details, please ensure all records relating to donor details are kept.

  2. Subhash Mittal says:

    In this post, I discuss Clause 6 of the notification.

    Clause 6 basically is applicable when person receiving FC does not intimate GoI in prescribed manner. (S. 18. Rules 17 & 17A).

    Annual return (FC4) to be submitted online within 9 months of the year-end, alongwith annual income & expenditure, receipt & payment account and Balance Sheet (Rule 17(1 &2)).

    Annual Return to be submitted for Articles rec’d with a value of above Rs 25,000/- to be intimated through FC1 (Rule 17(3)).

    Further whenever there are following changes you are required to intimate FCRA Dept through FC6 within 15 days of the change.
    (i) Name of the NGO and change of address within the state,
    (ii) changes in aims, objects or registration details with local authorities,
    (iii) Changes in bank / branch of the designated account.
    (iv) key members, if it causes replacement of more than 50% of the members as intimated in the original application.

    In addition to above, Rule 13 also prescribes certain reporting responsibilities.
    (i) Putting on its official website, audited FCRA accounts, within 9 months of the year-end. (Rule 13(1)).
    (ii) Qtly details (date, donor name & address & amount) of all FC rec’d within 15 days of the quarter end on its (NGO’s) official website or FCRA website.

    Thus whenever NGO does not intimate in accordance to above, it could be penalised with 5% of FC contribution rec’d during the period for which default continues with minimum fine of Rs 1 lakh.

  3. Subhash Mittal says:

    In this post, I discuss clause 4 & 5 of the Notification.

    Clause 4 is applicable on those NGOs, who accept FC without having prior permission / registration. This was their earlier too, but penalties earlier imposed ranged from 2%-5%, however under new clauses, it has been increased to 10% without an exception and minimum penalty being Rs 1 lakh. This is quite stiff.

    Clause 5(a) is applicable where an NGO has FCRA Registration / prior permission, but deposits the amount in a non-designated account. Penalty amount is 5% of contribution so deposited, with minimum Rs 1 lakh. One needs to be very careful, we know sometimes donors directly deposit the amount in NGO’s accounts and it can be deposited in a wrong account. If this is not reported by the organisation, it could cause additional 3% penalty (Clause 5(b)).

    Clause 5(c) states if any non-FCRA funds are deposited in a designated account, it could cost NGO 2%, with minimum Rs 1 lakh penalty. This is really unfair, as sometimes, NGO is not clear on the status of funds rec’d, i.e. whether this is FCRA or not, so on safer side they deposit under FCRA fund, thus offering the funds greater scrutiny, however now this kind of safety precaution could also cost the NGO.

  4. Subhash Mittal says:

    Third clause of the notification covers spending more than 50% on administrative exps. This is the first time that FCRA has brought in penalties for spending more than 50% on administrative exps. Remember we are now required to disclose Admin exps. now in the Annual Return (FC4). Problem is not the 50%, which is reasonable adequate, it is the definition of Admin Exps.

    Admin Exps. are defined under Rule 5, and covers
    (i) All costs incurred on Trustees/EC members, including travel exps.
    (ii) All salaries, wages, travel, recruitment costs, etc. incurred for ‘hiring of personnel for management of the activities of the person’. Now this is the most important clause, as interpretation varies, from all employees to only those employees belonging to Admin & senior management cadre. Also refer to proviso below.
    (iii) all routine costs incurred on premises etc, which includes rent, repairs, electricity, water, telephone, postal, printing & stationary, office equipment, etc.
    (iv) accounting and staff managing banks, investments.
    (v) all vehicle exps,
    (vi) legal & professional charges, etc.
    There are two proviso to the rules which give exceptions, these are:
    – salaries, etc. of personnel engaged in training, research, collection and data analysis for organisations involved in training & research, and
    – expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisation (such as salaries to doctors of hospital, salaries to teachers of schools, etc.) shall be excluded from administrative exps.

    Thus more than ever now there is a need to ensure proper back-up record is maintained for your classification of Admin Exps.

    My suggestion is that we should first prepare strictly as per the rules, however if you find Admin to be more than 50%, than you may consider the above proviso, which may allow you to treat some of those exps as programmatic exps.

  5. Ranjan Kumar Mohanty says:

    Transfer of FC to any other person who does not have registration or prior permission. (S.7) – – Here the person means organization or individual person too.

    • Subhash Mittal says:

      S.2(m) defines ‘person’ as individual, HUF, Association & a company registered under S. 25 of Companies Act 1956 (S.8 under Companies Act 2013). Thus person includes individual, however please always look at context of the section, when considering individual. In context of S. 7 which is in context of registration & prior permission is likely to be an association or a S.8 company, as prior permission / registration are applicable only in case of S. 11.

      • Dr. O. P. Kulhari says:

        Thanks SRRF team to share very important information which will help us to strictly follow the provisions / norms of FCRA in our accounting system.

  6. vramaratnam says:

    Nice Article, useful information

  7. Subhash Mittal says:

    My comments on two of thee above provisions are as follows:
    1. Rs 10,000 penalty on accepting hospitality without permission / intimation : Foreign Hospitality is covered under S. 6 of the FCRA Act. Persons impacted are legislature, office bearers of political parties, judges and Govt servants including employees of public sector bodies. Thus it does not directly cover NGOs.

    2. Transfer to persons not having PP/Reg : This is a new clause, now any NGO transferring funds to another NGO not having PP / Reg would face a minimum of Rs 1 lakh penalty which could go upto 10% of funds transferred. This is quite heavy and all NGOs now must ensure that they do not transfer funds to non-registered NGOs.

    • Udayashankar says:

      Dear Friends,

      Season’s Greetings from Delhi!

      Funds transfer from registered agency to the non-registered:
      Does this cover consultancy contract given by the registered to the non-registered? Payments against consultancy contracts can’t be treated as transfer of funds, as per common sense. Fear is that the FCRA section may act with extra sense!
      2. Who is liable to pay the penalty if Banks don’t inform MHA about the receipt of FC into specified account? What happens if the reports on a specific receipt to MHA from the Bank and the specified account holder differ in digits due to input errors?

      • Subhash Mittal says:

        Warm Greetings to Uday Shankar ji. Two points that you raise.

        One, can an NGO transfer funds to a non-registered NGO as a consultancy contract. Well I would suggest to avoid it to the extent possible considering draconian nature of working of the Dept. However if you must, you must be able to prove in a court that it was a genuine contract and not a grant, where grantee NGO was working on a fixed contract basis and payments are based on benchmarking.

        Second point you raise about failure of Bankers to intimate to FCRA authorities. Since this is a requirement of the bankers, any penalty raised would be on bankers and not the NGO.

        Hope this clarifies your queries.

  8. Subhash Mittal says:

    I would like to highlight some of the provisions given in this Notification.

    First earlier two notifications (SO 1976(E) dt 26th Aug 2011 and SO 2133(E) dt 16th June 2016) have been superseded by the latest Notification. This has certain implications. Supersede means earlier notification remain effective till the date of new notification, i.e. 5 June 2018, but after this date those notifications are no longer effective. One major change which has come is relating to late filing of Annual Return, earlier Notification 2133 dt 16-6-2016, covered penalties for late filing, however the new Notification does not cover late filing of returns.

    This leaves a big confusion, what are the options for a person who is not able to file return within due dates.

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