Foreign Contribution and Regulation Act (as amended) and Administrative Expenses
There is a provision under Foreign Contribution Regulation Act 2010 in section 8(1)(b) that an FCRA registered society shall not spend more than 50% of the contribution received in a financial year on administrative expenses.
With the amendment in FCRA 2010 w.e.f. 28.09.2020 which has reduced the limit of 50% to 20% of the contribution to be spent on administrative expense.
What constitutes the Administrative Expenses is defined in the Rule (Foreign Contribution Regulation Rules 2011). The rule is as under:
Rule 5 of FCRR, 2011 defines that administrative expenses constitute the following :
- Salaries, wages, travel expenses or any remuneration realised by the Members of the Executive Committee or Governing Council of the person.
- all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel.
- all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment.
- cost of accounting for and administering funds.
- expenses towards running and maintenance of vehicles.
- cost of writing and filing reports.
- legal and professional charges; and
- rent of premises, repairs to premises and expenses on other utilities;
Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses:
Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc.
The analysis of the rule along with our comments as follows:
||Salaries, wages, travel expenses or any remuneration realized by the Members of the Executive Committee or Governing Council of the person;
||Any payments to Governing Board Members, Trustees, Executive committee members whether in the form of consultancy, remuneration, honorarium, wages, travel should include in the Administrative Expenses. However, program staff salary and travel is to be considered as project expenses.
||All expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel;
||This is little confusing but it seems Any payments to managers or co-ordinators, coordinating activities and persons of the organization should be considered as administrative expenses.
||All expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment;
||All the expenses related to Functioning and maintenance of an office are considered as administrative expense. However, expenses related to the premise exclusively used for the project activities, like Training Centers, Library etc.. should not be considered under this rule.
||Cost of accounting for and administering funds
||Salary of accountant or office support staff and travel and other expenses of them should be considered as administrative expenses.
||Expenses towards running and maintenance of vehicles
||All the expenses related to Functioning and maintenance of vehicle are considered as administrative expense.
||Cost of writing and filing reports;
||Any expenses related to documentation whether it is consultancy, salary, wages, travel etc.. should considered as administrative expenses.
||Legal and professional charges;
||Fees paid to Auditors, Lawyers or any legal fees should be considered as Administrative Expenses
||Rent of premises, repairs to premises and expenses on other utilities:
||Rent, Rates and taxes of Admin office and field office should consider as administrative expenses. However, expenses related to the premise specifically and exclusively used for the project activities, like Training Centers, Library etc.. are not considered in the administrative expenses.
Apart from the above, it should be kept in mind that in case of organizations who are running school, hospitals etc, they can pay the salary to the teachers, non- teaching staff, doctors, nurses etc and such payment shall not be part of Administrative Expenses for the purpose of calculation of 20% limit.
DOs FOR FCRA WEBSITE
For seeking FCRA services [Registration, Prior Permission and Renewal], the applicant must:-
- Obtain DARPAN ID from Darpan portal of NITI AYOG
- Upload documents electronically online
- Pay application Fee electronically online
- Have a definite cultural, economic, educational, religious or social programme
- Have undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilized
- Open a dedicated Foreign Contribution Bank Account
- Intimate opening of additional dedicated Foreign Contribution Utilization Bank Account(s)
- Place the audited statement of accounts electronically online on receipts and utilization of the foreign contribution, including income and expenditure statement, receipt and payment account and balance sheet for every financial year beginning on the first day of April within nine months of the closure of the Financial year in case of receipt of foreign funds.
- Maintain a separate set of accounts and records, exclusively, for the foreign contribution received and utilized and for which the registration is sought
- Apply to the Central Government six months before the date of expiry of certificate of registration, for its renewal
- To intimate any change in the designated bank account / utilization bank account / name / address / aims / objectives / key members in respect of association granted registration / prior permission under the FCRA, 2010.
For seeking Hospitality under FCRA, 2010
- Submit signed or digitally signed application electronically online on fcraonline.nic.in two weeks before the proposed date of onward journey
- The invitation letter from the host or the host country and administrative clearance of the Ministry or department concerned in case of visits sponsored by a Ministry or department of the Government
- In case of emergent medical aid needed on account of sudden illness during a visit abroad, for the acceptance of foreign hospitality intimate the Central Government within sixty days of such receipt giving full details including the source, approximate value in Indian Rupees, and the purpose for which and the manner in which it was utilized
For seeking Other services under FCRA, 2010
- Intimate within thirty days from date of receipt of foreign contribution in excess of one lakh rupees or equivalent thereto in a financial year from any of his relatives
- Furnish within forty-five days receipt of foreign contribution by a candidate For election from the date on which he is duly nominated as a candidate for election
- Make an application electronically online to the Central Government for transfer of foreign contribution to any unregistered person.
DON’Ts FOR FCRA WEBSITE
Do Not Mix Foreign Contribution with Domestic Receipts
- Bank accounts must be separate (obviously)
- Do not Transfer funds from FC Bank to Non FC (even Direct Bank Transfer)
- Books of Accounts must be separate.
- Keep Separate Cash Box (it shows good cash control system)
Do Not approach Middlemen
- Any Middlemen, government employees, CAs, other organization person, anybody who claim as consultant regarding getting FCRA work done must be avoided
- For any query, you can approach directly to FCRA department.
Do Not Deviate from the Purpose of the Grant
- Make sure while getting FC funds that the purpose is crystal clear for what purpose it is received.
- Make sure that you used these funds for the very specific purpose.
- And, care should be taken that, this specific purpose should even reflect in the books of accounts, FC Annual Returns and Annual Reports.
Do Not use ATM or Debit Cards
- Mostly, Bank is not providing any ATM or Debit Cards for FC Bank Account.
- However, If you have such card for FC Bank Account, do not use for cash withdrawals for online payments.
Do Not encourage Cash Withdrawals
- Yes, Cash is most suspicious area. Avoid Cash Payments.
- This requires extra efforts on the part of the organization to develop Financial Control System in such a way to encourage Bank Payments through “Account Payee” cheques only.
- Also note that Cash Expenses and withdrawals limit is Rs.2,000/-
Do Not Invest FC funds in Mutual Funds or Speculative Investments
- Be safe, invest only in Fixed Deposits.
- Mutual Funds, Shares, Speculative Investments must be avoided.
Do not accept foreign hospitality while visiting aboard (Sec.6)
You cannot accept foreign hospitality without prior permission of the Central Government except for an emergent medical aid needed on account of sudden illness contracted during a visit outside India.
Do Not Transfer FC funds to Unregistered Organizations (Sec.7)
- You can transfer funds to unregistered organizations only with the prior approval of FCRA department in the prescribed format and manner.
- One can make payments from FC funds to other persons for services rendered by them.
Do not utilize foreign contribution for administrative purpose (Sec.8)
Avoid as far as possible more than 50% of foreign contribution, received in a particular financial year to administrative expenses. Provided further that administrative expenses exceeding 50% of such contribution may be defrayed with prior permission of the Central Government.
Do not accept foreign contribution without prior permission or having a certificate of FCRA Registration (Sec.11)
No association/NGO/Society having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless obtains prior permission or a certificate of registration under FCRA from the Central Government
Do not accept foreign contribution during suspension of FCRA registration (Sec.13)
- No association/NGO/Society, whose certificate of FCRA registration has been suspended, shall receive any foreign contribution during the period of suspension of certificate without prior permission of the Central Government.
- No association/NGO/Society, whose certificate of FCRA registration has been suspended, shall utilize in the prescribed manner, the foreign contribution in his custody without prior permission of the Central Government.
Do not accept foreign contribution during cancellation of FCRA registration (Sec.14)
No association/NGO/Society, whose certificate of FCRA registration has been cancelled under Section 14, shall apply afresh for grant of FCRA registration or prior permission to receive foreign contribution before a period of three years from the date of cancellation of its certificate.
Do not accept foreign contribution in undisclosed bank account(s) (Sec.17)
- Do not receive foreign contribution in more than one foreign contribution designated account(s).
- Do not receive foreign contribution directly in the utilized account(s) of the association / NGO / Society.
- Do not mix foreign contribution with domestic funds.
- Do not hide amount, source and manner in which the foreign contribution/remittance was received.
Do not avoid filing mandatory FC annual returns (Sec.18)
No association/NGO/Society, who has been granted prior permission or certificate of FCRA registration will avoid filing mandatory FC annual return.
Do not indulge in making of false statement, declaration or delivering false accounts (Sec.33)
No association/NGO/Society, subject to this Act will knowingly gives false intimation under clause (c) of section 9 or section 18 or seeks prior permission or registration by means of fraud, false representation or concealment of material fact.
Do not deliver any article or currency or security obtained in contravention of section 10 (Sec.34)
No association/NGO/Society, upon whom any prohibitory order has been served under section 10 delivers, transfers or otherwise deals with, in any manner whatsoever, any article or currency or security, whether Indian or foreign in contravention of such prohibitory order.
Do not act in contravention of any provision of the FCRA, 2010 (Sec.35)
No association/NGO/Society, will accepts, or assists any person, political party or organization in accepting, any foreign contribution or any currency or security from a foreign source in contravention of any provision of this Act or any rule or order made thereunder.