Dear Sirs,
We are an organisation in MP working on healthcare. We have a donor which was not classified as a foreign company and as per the company’s directive we have been considering this money to be indian money.
We now have a confusion when while reviewing the New Companies Act wherein the subsidary company seems to become a foreign entity due to the shareholding pattern of holding company. Our donor is the subsidary company.
therfore the following are our queries
- are all the funds that we have received since 1/4/2014 classified as foreign donation under FCRA???
- if they are considered foreign donation and we have fcra but have not deposited this money in fcra account, what are the consequences?
- what is the corrective action that can be taken?
regards
Abhishek
AKF handled ICEF Funds generated out of counter part fund in I Rs held by CIDA with in India. The fund totally belonged to CIDA against their Potash exports to India.
AKF in turn funded NGOs out of funds received from ICEF. May I request Mr. Sardana to clarify whether the grass roots level NGos treated ICEF funds routed through AKF as local fund or Fc fund?
Dear Abhishek,
I think your query has been addressed quite adequately by several members. Just to confirm once again, definition of Foreign Contribution itself is dependent upon the source, i.e. who is making the contribution and not from where money has been raised. Therefore if funds have come from a foreign source, it becomes foreign contribution. Regarding Question 2, once it is a violation, then the Dept could treat this as mixing of funds.
Regarding your question 3, well that is a delicate one and I think no one can answer that except you. Whatever decision that you take, please do keep your Board in the loop, ultimately they will be accountable for any consequences of any action / non-action in this regard.
rgds
As long as the locally mobilized fund held by a subsidiary of a foreign body was not sent out of India, such fund should be treated as local fund irrespective of the share holding of the foreign body in their Indian subsidiary. If FCRA says otherwise, FCRA is in error. Unfortunately, if the Act is not amended, irrationality continues!
The subsidiary of a foreign body, registered in India, is bound to comply with FCRA act and also maintain a local fund Bank account if the subsidiary receives funds from any Indian source and disburses locally mobilized funds. The recipient of such local fund from the subsidiary has to treat that fund as local fund only. If the rules indicate otherwise, then the rules are in error! Act reigns supreme, if the rules are in error. If the Act is in error, Constitution reigns supreme.
Udayashankar
Well, with regard to 1 & 2 most of it is answered by others. I will try to reflect on 3 (what is the corrective action that can be taken?) and subject to expert’s consent. Here I feel better late than never and not to conceal the facts.
Errors & Omissions occur with every organization/ company. But how soon we realize and rectify is important. In your case, you still have time till 31st December, 2015 to rectify it.
Since you know the fact that it is from a foreign source and the same has to be reported in FC6 for FY 2014-15. Now, pass a Donation entry equivalent to the amount received and show as an advance against the Local (Indian) Contributions Ledger Account during for FY 2014-15. Subsequently, pass all the expenditure in FC accounts to offset the Local (Indian) Contributions Ledger Account. This would facilitate you to report it during the fiscal year 2014-15 itself.
Hope it will resolve your problem.
All the best!
Kumar
I agree with what Mr.Kumar says, but the local account transaction cannot be shown in the FC-6 return. It is better the entire mistake is brought to the knowledge of the FCRA wing as early as possible, so that they give a solution to this issue.
Yes it will be treated as Foreign Source as per FCRA Act.
If this is a subsidiary of a foreign company, i.e. more than 50% of shares are held by the foreign company then the subsidiary would be a foreign source under FCRA and funds received foreign funds to be deposited in the FCRA designated account.
A comprehensive look at the definitions of Foreign Contribution, Foreign Source and Foreign Company under FCRA, 2010 demonstrate that the contribution received from a subsidiary of a foreign company shall entail compliance with FCRA. Even indirect foreign shareholding shall get covered by FCRA.
Detailed note is placed at my blog Standpoint – http://avineeshmatta.blogspot.in
Dear Mr. Matta: How would income / funds generated from local source in India be construed in this instance where it is scanned through FCRA lens? I mean the income / funds of wholly owned subsidiary of a foreign company generated in India that are free from the transfer price regime. Thanks!
Dear Mr. Arya,
Issue is not that the income germane to Indian operations shall not become foreign source. If that be the case then a foreigner or expat non-Indian executive shall donate without entailing the recipient to comply with FCRA.
The larger question is who is making a contribution. An Indian subsidiary even if deriving 100% income from within India and with no foreign connections except that it’s ownership rests with any foreign entity holding more than 50% beneficial interest shall be construed as a foreign company and thus becomes a foreign source.
Kindly go through the relative definitions and its interpretation which are encapsulated in my blog posting of March 2015 on “FCRA 2010 and CSR Spend”, the link of which is there in my previous reply.
Thanks Mr. Matta!
The foreign source is to be construed not as per the Companies Act but as per the Foreign Contributions Regulations Act. So if the source is not a foreign source as per the FCRA, it will be regarded as so notwithstanding that its status is a foreign source as per the Companies Act.
A comprehensive look at the definitions of Foreign Contribution, Foreign Source and Foreign Company under FCRA, 2010 demonstrate that the contribution received from a subsidiary of a foreign company shall entail compliance with FCRA. Even indirect foreign shareholding shall get covered by FCRA.
Detailed note is placed at my blog Standpoint – http://avineeshmatta.blogspot.in