MAJOR CHANGES IN CSR PROVISIONS

As many of you may be aware that recently new CSR rules have been brought by Ministry of Corporate Affairs. We provide below a summary of major change for your reference.

Societies & Trusts allowed to implement CSR projects

Draft rules proposed that only S.8 companies could implement CSR projects, thus denying a large number of NPOs, which were otherwise qualified. This could have dragged the law into courts, and also would have caused huge hardships on such entities, it seems better sense has prevailed and now such restriction has been removed. Only requirement remains is of 3 year track record of successful implementation of similar programs.

However all those who wish to implement CSR projects, must obtain a CSR Registration No. by filing Form CSR 1 on through MCA portal. The Form has following major requirements which a NGO must have

  • 12A & 80G registrations
  • If not a company promoted entity, then at least 3 year track record of similar activities
  • Directors/Trustees/CEO/Authorised representatives details, including their PAN/DIN
  • Registration Certificate copy
  • Copy of PAN Card
  • Details of Board Resolution giving authority to fill & sign the Form
  • DSC of the person signing the application
  • Certificate by CA/CS, etc. to confirm accuracy of details given in the Form

CSR funds must be ‘spent’ though can be done in more than one year

Changes made in 2019 in Section 135, have now been made effective and rules made. The provision requires that projects be identified between ongoing and otherwise. An ongoing project being a multi-year project, but should not be more than three years. The provision now allows funds relating to ongoing project to be spent in 1+3 years. That is funds remaining unspent in the year project has been initiated, can be transferred to a separate Unspent CSR Account within 30 days of the year-end, and can be spent over next three years. [S.135(6)]

If funds allocated remain unspent under any other project, the unspent amount would need to be deposited in one of the ‘funds’ specified under Sch VII, within 6 months of the year-end.  Thus now any ongoing project can be completed in 4 (1+3) years. [2nd proviso of S.135(5)]. Thus in one way or other, funds required to be spent as per S.135(2) must be either spent or trfd to Sch VII fund or deposited in a separate bank account to be spent over next 3 years.

Penalties: In case of defaults, the company shall be liable to a penalty of twice the amount required to be trfd to a Sch VII Fund or ‘Unspent CSR Account’ or Rs 1 crore whichever is less. There is a penalty even on every concerned officer who is in default of this compliance of Rs 1/10th of the amount required to be transferred or Rs 2 lakh whichever is less. [S.135(7)]

Excess spending can be carried forward

In case of any spending in excess of CSR requirements, the company can carry forward the same and set-off against future CSR requirements. [3rd Proviso of S.135(5)]

CSR Policy & Annual Action Plan

Earlier CSR Policy was defined as a list of activities/projects, however now it is defined as a statement containing the approach and direction and includes guiding principles for selection, implementation and monitoring of activities. This is much better. Further it includes preparation of an Annual Action Plan, consisting of a list of approved projects, amounts allocated, implementation method (direct, by an implementing agency, its name, etc.) and fund utilisation modalities. However realising these details may not be fully ready at the beginning of the year, rules allow alteration in the Plan during the year. Though rules require that all alterations must be approved by the Board. [R 2(1)(f) & 5(2)]

Expenditure on Covid-19 allowed as CSR

Several amendments have been made over last year or so to allow expenditure on Covid-19 related activities as CSR.

  • A company involved in R&D activities in normal course, may undertake R&D for new vaccines, drugs, medical devices for Covid-19. However such expenditures should be incurred during the period 2020-21 to 2022-23. However the activity must be in collaboration with any of the institutes included under item (ix) of Sch VII. [R2(1)(d)(i)]
  • Any expenditure incurred under any of the clauses of Sch VII for the purposes of Covid-19 is allowed. In particular it has specified activities relating to promotion of health care including preventive health care and sanitation and disaster management.  (MCA General Circular 10/2020 dt 23rd March 2020)
  • Ex-gratia (i.e. payment not covered by contract) payment to casual/ temporary / daily wage workers over and disbursement of wages for fighting Covid 19 can be considered as CSR, provided Board passes a specific resolution in this regard. This has to be certified by the statutory auditor. (MCA Circular 15/2020 dt 10th April 2020)
  • Payment to PM CARES Fund (Office Memorandum CSR-05/1/2020 dt 28-3-2020)
  • Chief Minister’s Relief Fund or State relief Fund for Covid-19 not covered by Sch VII, not to be covered under CSR. (MCA Circular 15/2020 dt 10th April 2020)
  • Contribution to State Disaster Management Authority (MCA General Circular 10/2020 dt 23rd March 2020)

Expenditure on Employees disallowed under CSR

Earlier rule only forbid CSR activities which were ‘only’ meant for employees. This rule could be easily circumvented to beat the spirit of law. Since an activity which benefited predominantly employees could ‘technically’ be allowed as CSR, since it included some community members and did not preclude community.

However the new rules have now gone to other extreme and do not allow any activity under CSR, under which employees [as defined under S.2(k) of Code on Wages 2019] benefit. [R2(1)(d)(iv)] This would mean, if a dispensary is being run, which covers both employees as well as community, the company probably cannot claim it as CSR expenditure or at least has to take out expenditure relating to employees. Mar’20 draft rule was more practical, it put a cap of 25% on employees. It would have reduced unnecessary complications. 

Sponsorship of events:

Any activity supported by a company on sponsorship basis, which provides marketing benefits for a company’s products/ services is not allowed as CSR.

This could mean if an event is sponsored for an activity falling under Sch VII, and if only a company’s name is used, without advertising company’s products / services, then it may be allowed as CSR.

Assets created out of CSR Exp.

CSR Expenditure may result in creation of an asset, but it must not be capitalised in the books of the company. For example, if a CSR expenditure results in say an asset like water tank, then it can be handed over to a Public Authority [as defined under RTI] or to the community, say a community based organisation like SHG or CBO or even an FPO, etc. If the asset is say a mobile medical van, which needs to be operated on a regular basis, then it can be handed over to a registered NPO.

Under no circumstances, it can be retained by the company.

In fact in case any such assets exist in the books of the company at the time of effectiveness of CSR Amendment Rules 2021 (22-01-2021), the company needs to transfer the assets within 180 days of such effectiveness or another 90 days with the Board approval.

Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008.

Posted in CSR | 7 Comments

Can NGOs include ‘Public Servants’ in their Board?‎

Respected Sir,

Greetings from Kutch Mahila Vikas Sangathan!

Let me in introduce myself, my name is Kamlesh Barmeda, and I have been working with Kutch Mahila Vikas Sangathan (KMVS) since 2007 as Finance Manager, Kutch Mahila Vikas Sangathan (KMVS) was founded in 1989 with the objective of organizing rural women of Kutch to facilitate their empowerment. The overarching mission of KMVS has been the empowerment of rural women; And foster their leadership – economic, political, social and cultural – through conscious-raising, organization and their mobilization into local collectives, capable of independently addressing gender inequities in their region.

Recently, the Govt. of India has made some changes in FCRA Law , We have studied the changes but I would not be able to understand the following issue and as experts we Kindly request to please help us to clarify the same.

After changes in FCRA , I would like to know and understand which cadre / nature of employees of Govt. not to be part of the Governing Board of the Trust, also want to know it includes? the Professor/ Teacher of School/ College getting Central or State Govt. grant?
Waiting for your reply and your kind cooperation for the same.
Thanking You,

Kamlesh Barmeda

Posted in FCRA, TAX, LEGAL | 4 Comments

Carrying Repairing and rebuilding out of FCRA fund

Dear Members,

I would like to get advice on the following issue.

A sporting organisation holding  FCRA  registration has established a health care center PHC type  in rural area in 2007 with foreign support. For the administrative purpose the organisation has created a Trust  in 2010 consisting of the selected GB members from the same organisation and the land of the PHC is given to the Trust by the said organisation. So long the cost of PHC building construction, instruments, staff are maintained by the organisation based on an notary affidavit agreement with the Trust. In August 2020 some amount of foreign grant (about 4.5 lac)  is received by the organisation for rebuilding the PHC’s tin – shed  completely overthrown by the severe cyclone Amphan and started to work in middle of September 2020 on request of the Trust. In the mean time the FCRA amendment bill becomes effective. Now I like to know whether the FCRA holding organisation can spend for the rebuilding of tin-shed of the Trust’s PHC though the organisation spends directly and keeping all accountability with it.

I request to give advice how the repairing and rebuilding of the shed can be possible from the grant received from abroad by the organisation?

Please let me also have the suggestion what will be the utility of the grant if it is not permissible to spend for the purpose.

With best regards.

Samir Kr. Halder
Ashakiran Hospital Trust

Posted in FCRA, TAX, LEGAL | 2 Comments

80G and 12A registration for Section 8 company

Dear Members,

We have established non profit company under section 8 of Indian companies act 2013. Please let us know whether we should register for 80g and 12a or these two are already incorporated in section 8.


Dr.PSR.Sabhapathy

Posted in FCRA, TAX, LEGAL | 1 Comment

Key Changes in Rules subsequent to amendment in FCRA 2020 – Part ‎II

In earlier part we covered changes in Rules relating to

  • Opening of FCRA Account at SBI Main Branch, New Delhi
  • Maintaining another FCRA Account for keeping & utilization of Funds
  • Transfer of funds to other NPOs under S.7 totally prohibited
  • Administrative Exps. Limited to 20%
  • Renewal of FCRA
  • Changes in Annual Return (FC4)

For seeing the changes re above, please go to the link:  http://blog.srr-foundation.org/?p=4074

This post covers several other changes made in the Rules.

Organisations of Political Nature

A new sub-rule (2) has been brought up under Rule 5. It requires that any organization which undertakes activities which can fall under last two clauses [(v) & (vi)] under Rule 5(1) shall be considered as of political nature. Thus paving the way to allow FCRA staff / inspectors to decide which organization is of political nature, without any office order. [Rule 5(2)]

Eligibility for registration enhanced & codified

Earlier an organization to be eligible for registration, it had to be at least three year old and should have spent Rs 10 lakh on its core activities for the benefit of the society during the last three financial years. This was not codified, but was a practice followed by the Dept. Now the Govt has codified it under Rules.

The eligibility limit has been further enhanced to Rs 15 lakh.  The, FCRA Dept has also been empowered to exempt any agency controlled by central or a state government from this condition. [Rule 9(1)( f)(i)]

The Dept has now further allowed to include any capital expenditure already incurred by an NPO as part of this eligibility expenditure, provided that the chief functionary to give undertaking that the assets will be vested with the organization and not to be diverted to any other purpose. [Rule 9(1)( f)(ii)]

Pending applications

All registration & prior permission applications pending at the time of commencement of these amended rules will need to open first FCRA Account, and provide details to FCRA Dept, before these are considered by the Dept. [Rules 9(1A) & 9(2A)]

Prior Permission

  • A new sub-rule has been inserted requiring person seeking prior permission for receipt of specific amount to submit a specific commitment letter from the donor. This was again a practice, however now same has been codified. [Rule 9(2)(f)(i)]

Cases or single/ major donor permissions / registrations

  • A new condition has been put for common members between Indian & foreign donor organization.
  • the chief functionary of Indian organization, must not be ‘part’ of the donor organization. ‘Part’ has not been defined, but earlier undertakings were taken from applicant organizations to confirm that the Chief Functionary was not an employee of the donor organization.
  • 75% of the office bearers or members of the Indian governing body shall not be the members or employees of foreign donor organization.
  • In case donor being a single individual, that individual shall not be chief functionary or office bearer of the recipient person and further office bearers or governing body members shall not be family members or close relatives of the donor.

The above rules were part of practice of the Dept and have now been codified. [Rule 9(2)(f)(ii)]

The above rules have been specifically made in context of Prior Permission, considering that prior permissions are generally based on a single donor. However these are likely to be also applicable n case of registration, where the Indian entity mainly relies on one donor for the FC funds.

High Value permissions

A new rule has been put in place for permission of more than Rs 1 crore at the date of disposal of application, central Govt may permit funds to be rec’d in installments provided second & subsequent installments will be given only after submission of 75% UC of funds rec’d till that date and after field inquiry of the utilization of FC. [Rule 9A]

This raises a number of questions. Are UCs to be submitted to FCRA Dept ? Who will undertake field inquiry of utilization of funds ? If these functions have to be done by FCRA Dept, will fresh installments can be taken only after submission of its approval by FCRA Dept. This could put new hurdles in smooth utilization of FC funds. Right now it is not clear and one could interpret it as being submitted to donor only, but let’s wait & watch how this pans out in future.

New Fees

For registration now application fee has been fixed at

  • Registration : Rs 10,000/- [Rule 9(4)(b)]
  • Prior Permission : Rs 5,000/-  [Rule 9(4)(a)]
  • Renewal : Rs 5,000/-   [Rule 9(4)(a)]
  • Revision Application for FCRA Order : Rs 3000/- [Rule 20]
  • Compounding Application : Rs 3000/- [Rule 21]

All fees have to be deposited on a Payment Gateway specified by the Dept, earlier these were supposed to be paid through demand draft or banker’s cheque. It may be noted while for first three bullets there are specific forms, for revision there is no form and application is to be made on Plain paper. For compounding it is to be made through electronic Form, but no Form No. is specified.

Renewal of Certificate

  • Now renewal application must accompany affidavit from each of the office bearer and member giving an undertaking that they will inform of any violation of the Act (Format AA). [ Rule 12(2)]

Considering some of the member based organizations have a very large number of members, asking all members of an Association to submit an affidavit could be totally ineffective. It should be made clear that requirement is for members of governing body and not general body.

  • All renewal applications to be submitted along with details of ‘FCRA Account’ in SBI, NDMB Branch. [Rule 12(2A & 2B)]
  • FCRA rules now propose that NGOs cannot receive or utilize FC funds after the date of expiry of FCRA registration.  [Rule 12(5)] It further states that all unutilized FC and assets created out of FC, would vest in the prescribed authority, till the FCRA is renewed or till fresh registration granted. [Rule12(6A)]

This is likely to cause untold hardship to the NGOs who have applied in a timely manner, but the Dept has not been able to process the application. This will disrupt projects under implementation and will be another roadblock, just like stopping of transfers of FC to Indian registered NGOs. 

Last Date for applying for renewal

  • Further there seems to be some drafting error as Rule 12(2) says that the application is to be made within 6 months from the date of expiry of the FCRA certificate. While under Rule 12(6), it is clearly mentioned that the renewal application must be rec’d before the expiry of the validity of the registration certificate. For purposes of clarity and abundant caution, please ensure application is submitted at least six months prior to expiry of registration certificate.

Surrender of Certificate

  • A new provision has been brought for voluntary surrender of FCRA certificate through Form FC-7. [Rule 15A]
  • Surrender of certificate as per S.14A will deem to expire on the date of acceptance of the application by the Dept. [Rule 10(2)]

Changes in bank accounts, name, address, aims, objectives or key members of Association

  • All changes in name of the association, address within the State, aims & objects, banks both FCRA designated & utilization, office bearers/key functionaries/members mentioned in the application for grant of registration /prior permission / renewal as the case may be have to be updated on FCRA portal.
  • It may be noted that all changes would be effective only after final approval of the Dept.

In addition to above, all changes

Socio Research & Reform Foundation (NPO)                       
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008

Posted in FCRA, TAX, LEGAL | Comments Off on Key Changes in Rules subsequent to amendment in FCRA 2020 – Part ‎II

ANNUAL RETURN last date extended to 30th June 2021

FCRA Dept has now extended filing of Annual Return to 30th June 2021. As per the Notice this is done to enable NPOs to comply with following (based on FCRA Public Notice dt 23-11-2020):

  1. Opening of FCRA Account with SBI, New Delhi Main Branch, Sansad Marg.
  2. Upload Adhar details of all office bearers / directors / key functionaries, etc.
  3. Upload affidavits of all office bearers / directors / key functionaries, etc.
  4. Obtain Darpan Id from Darpan portal

Thus from the language of Public Notice, it appears that FCRA Dept wants NPOs to comply with the above changes. However it is not clear why opening of Bank Account is being insisted, since that has nothing to do with Annual return relating to 31st March 2020. However seems govt is insistence that all NPOs open there FCRA account in SBI, New Delhi Main Branch, at the earliest.

FCRA Dept had made Darpan Id mandatory in Oct’2017. An NPO had gone to Delhi HC against the same, who allowed NPO to file returns without Darpan Id, on the ground that it need not make its Adhar details public of its Trustees, which was required for getting Darpan Id. See earlier post  http://blog.srr-foundation.org/?p=3652 .

Once again the notice reiterates, that NGO need not visit Parliament Street Branch, and can request any other Branch of SBI to facilitate. Though it may take some time for SBI branches to facilitate, but ultimately they should do it.

If in any doubt, please contact SBI Parliament Street Branch email id: agmcommercial00691@sbi.co.in .

So now anyone expecting transfer of FC funds from outside India, you may do so till the date of opening of account or 31st March 2021, whichever is earlier.

All new applicants must open bank account directly in SBI, Parliament Street with immediate effect.

Please note that FUNDS TRANSFER TO NGOS is not covered by above notice, no Indian NGO can transfer funds to another NGO, after effective date of Amendment Act, i.e. 29th Sept 2021.

Click to See Notification

Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008.

Posted in FCRA, TAX, LEGAL | 2 Comments

How to re-apply if FCRA registration lapsed

If the Registration has lapsed due to some reason, how do the trust apply again after period of 4 months of expiry is also crossed.

Do we open another entry for the MHA site as previous password is not allowing this.

Anil Marya

Posted in FCRA, TAX, LEGAL | 2 Comments

Key Changes in Rules subsequent to amendment in FCRA 2020

Subsequent to amendments in FCRA through FCRA 2020, now the Govt. has brought out several major changes in the Rules. These changes have brought some clarity on earlier changes made in the Act. In this post we cover some of the key changes.

  1. ‎”FCRA Account”: 

Entire process of opening of Bank Account atSBI New Delhi Main Branch (NDMB) at Sansad Marg has become slightly now more clear.

  1. SBI FCRA Account cannot be operated immediately after opening the Account with SBI. One will need to take approval from MHA through Form 6C and once approval is submitted to SBI, only after that SBI will allow this account to be operated.
  2. Please note this account is only for receipt of Foreign Contribution from abroad. Funds generated in India, say on sale of assets, refund of deposits, etc cannot be deposited in this account.
  3. There is no need to transfer funds from your existing FCRA Account to SBI Account. In fact, you would not be able to transfer those funds to SBI, NDMB branch, since it is only for receipt of funds from abroad.
  4. NPOs facing problem in opening of bank account at SBI NDMB branch may contact them at Telephone Nos. 011-23374143/4213/4390/4392 and write to them on email: fcra.00691@sbi.co.in.
  5. This account can be opened till 31st March 2021. Therefore, till such time SBI Account becomes operational, one may continue to use its current FCRA designated account. Though receipt of funds should be avoided, as FCRA authorities have not made abundantly clear, if funds can be rec’d from outside India, once FCRA Account with SBI has been opened, but not yet operationalised, pending MHA approval.
  • Another FCRA Account:
  • FCRA Authorities have allowed to retain current FCRA designated account with a status of ‘Another FCRA Account’ for keeping & utilization of funds. But please note intimation of its status to be used as ‘Another FCRA Account’ or opening of a fresh account to be used as ‘Another FCRA Account’ needs to be intimated to FCRA authority in Form 6C. Same form can be used both for FCRA Account at SBI NDMB Branch as well as use of ‘Another FCRA Account’.
  • ‘Another FCRA Account’ is considered very important. In SRRF’s opinion all NPOs should continue to use current FCRA designated Account or another ‘FCRA Account’ should be continued. This will be useful, as following advantages can be gained by the NPO, by retaining the same.
  • As funds presently lying in FCRA designated accounts cannot be transferred to SBI NDMB branch, hence NPO can continue to use this account to keep its present funds in the same account.
  • Home branch advantage by retaining the account, as it will not be easy to operate & manage SBI, NDMB branch in a remote manner.
  • As mentioned above, funds generated within India, from sale of assets, etc. cannot be deposited in FCRA account at SBI NDMB.
  • Transfer of funds to other NPOs totally prohibited

Subsequent to changes in S.7, of FCRA Act 2010, now Indian NPOs cannot transfer any funds to any other NPOs. Rules have made it further amply clear by removing Rule 24. Even Annual return (FC4) now specifically requires information of transfer of funds to other NPOs, before 29-9-2020.

  • Administrative Exps. Limited to 20%

FCRA amendment Act 2020 brought down administrative expenses to 20%. There are two schools of thought, which stated that this 20% limit is applicable only from 29th September, date when the amendment was put in place. Another school of thought stated that once the amendment was made, all Annual returns filed after this date would require that Administrative Exps. Be 20%, irrespective of the period for which the retuen is applicable. While there is no direct clarity in the Rules regarding this dilemma, however I f one has to go by some indication, the Annual return (FC4) now requires that the NPO declares that administrative expenses do not exceed 20%.

Therefore SRRF would suggest that all NPOs now restrict their administrative expenses to 20% or below of total Foreign Contribution rec’d. It may be noted both the Act as well as Rules require limit to be 20% of FC rec’d and not total expenditure.

  • Renewal of FCRA
  • All FCRA renewal applications are required to have FCRA Account at SBI, NDMB.
  • Major change is, i.e., last time in 2016 FCRA if not renewed NPOs while could not receive fresh FCRA funds after expiry date but could utilize the funds lying in their NPO Account. However this time Rule 12(5) states that an NPO can neither receive nor utilize FCRA funds in the FCRA Account. This will cause innumerable problems to the Sector, since it is the Dept which generally is at fault in delaying the renewal.
  • There seems to be drafting error in these rules, as Rule 12(2) states that renewal application needs to be made within 6 months of the expiry of FCRA registration, while Rule 12(6) states that application for renewal alongwith fees should be received before expiry, otherwise FCRA will expire. It is suggested that all NPOs must file their applications at least 6 month before expiry date, considering different languages used in different rules.
  • Renewal Fee has been increased to Rs 5000/-.
  • Annual return (FC4)
  • It seems Darpan Id & Adhar for members has been made mandatory.
  • Annual Return while is almost same in terms of information required, however now requires 15 different declarations covering almost all compliance requirements covered for NPOs.
  • Some of the disclosure requirements, which caused difficulties in tallying total utilization, amongst different disclosures in previous version of FC4, like assets, etc. has been made more logical.

Another blog will be posted to cover remaining changes, in a few days.

Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008.

Posted in FCRA, TAX, LEGAL | 2 Comments

Classification of Admin expenses under FCRA

Dear Members,

I am working in NGO as Finance Manager. And i have some doubts regarding FCRA Administrative Expenses.

1. We had purchased a Vehicle from Mahendra and they have provided loan to Organization. Every month the premium and interest is paying through bank.

Now please tell me how to treat these while submitting FCRA Annual Returns.

a. Premium paid -> Admin / Programme Expenses
b. Interest paid – > Admin / Programme Expenses

2. We are also running a Hotel for Girls and Boys. We are incurring Electricity Charges, Electrical repairs to this Hostel. Can we show this as Administrative Expenses / Programme Expenses

3. In the previous year We had transferred FCRA Funds to other FCRA holder. Now the project was closed. They have transferred unutilized funds to our organization. How can we show this in our books of accounts?

Please help me sir. Your valuable guidance can help me a lot.

With regards,

Sirisha

Posted in FCRA, TAX, LEGAL | 3 Comments

New Detailed guidelines for Opening of designated FCRA ‎Bank A/c

As per the latest FCRA Amendment 2020 came into force for mandating specified branch namely SBI, New Delhi Main Branch, Sansad Marg, Delhi- 110001 for maintaining FCRA Designated Account. ‎

SBI, NDMB now created a designated FCRA cells to handle all the FCRA Account related queries. Their contact details are given below:

E-mail: fcra.00691@sbi.co.in
Contact: 011-23374143/4213/4390/4392.

Contact: 011-23374143/4213/4390/4392.

They have also issued format for Board Resolution and Multi Level Marketing (MLM) declaration, which we need to submit at the time of opening of account. (Click here for details Guidelines)

Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008

Posted in FCRA, TAX, LEGAL | 1 Comment