As per latest FAQ issued by FCRA Dept., a company incorporated in India will not be treated as ‘foreign source’, even if it has operations in more than two countries. To see latest FAQs please visit https://fcraonline.nic.in/home/PDF_Doc/fc_faq_04102022.pdf
It may be noted that under S. 2 (1) (j) (iii) of FCRA 2010 Act, a foreign company is treated as Foreign Source. S.2(1)(g) defines Foreign Company. One of its sub-clause, (g)(iv), further defines multi-national corporation (MNC).
The definition of MNC is a company incorporated outside India, and includes, and has a subsidiary or a branch or place of business in two or more countries or operates in two or more countries. Thus the first condition of the definition requires that the company be incorporated outside India. Question arises then why FCRA Dept has clarified that a company incorporated in India, will not be treated as a MNC.
Well there are some views which consider that a company even if incorporated in India, but if it is a subsidiary of a foreign company should be treated as Foreign Source. The Dept has now made it clear that any company which is incorporated in India, even if it operates in more than two countries should not be treated as MNC for the definition of Foreign Source.
The clarification still does not cover if a subsidiary of a foreign company would be treated as foreign source. Although we would like to point out that the original amendment in Finance Act 2016 had made it quite clear that it never considered subsidiaries to be still covered as Foreign Source. Further Ministry of Home Affairs placed a written clarification stating that the purpose of the amendment (Click here for press release) was to ensure that the definition of ‘foreign source’ remains consistent with the FDI Policy of the Government of India; and provisions of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. Therefore we hope with this clarification, now we all can state that if funds have been rec’d from an Indian company than it will not be treated as foreign source.
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