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Advisory to NGO on Foreign Funding
Advisory to NGO on Foreign Funding
This service is applicable to NGO who need advice on foreign funding, it’s crucial to ensure compliance with FCRA provisions and other related regulations. Here’s a detailed advisory to NGOs on foreign funding:
1. Obtain FCRA Registration
Requirement:- NGOs must obtain FCRA Registration before accepting any foreign contributions (funds, gifts, donations, or other resources) in India.
Process: Apply online through the FCRA Portal on the Ministry of Home Affairs (MHA) website.
Ensure the NGO has been in operation for at least three years before applying.
Submit detailed documentation, including:
• A valid registration certificate under relevant laws (e.g., Societies Registration Act, Indian Trusts Act, Companies Act).
• Financial statements and annual reports for the last 3 years.
• A statement of the NGO’s activities, goals, and impact.
• Details of office bearers and governing body members.
Validity: FCRA registration is valid for 5 years. NGOs must apply for renewal within six months before expiry.
• Financial statements and annual reports for the last 3 years.
• A statement of the NGO’s activities, goals, and impact.
• Details of office bearers and governing body members.
Validity: FCRA registration is valid for 5 years. NGOs must apply for renewal within six months before expiry.
FCRA Compliance and Reporting
2. FCRA Compliance and Reporting
• Annual Returns: NGOs are required to file an annual FCRA return with the Ministry of Home Affairs. This return must be filed on the FCRA portal, and includes details such as:
– Total foreign contributions received.
– How funds were utilized.
– Expenditure details.
• FCRA Annual Return (Form FC-4): NGOs must submit this return every year within 9 months of the end of their financial year. Failure to do so may lead to suspension or cancellation of FCRA registration.
Maintain Separate Bank Accounts
3. Maintain Separate Bank Accounts
• FCRA Bank Account: NGOs must open a separate bank account for foreign contributions in a designated branch of an authorized bank. This account is called the FCRA Account.
• All foreign contributions must be deposited into this account.
• NGOs are prohibited from using foreign funds for activities other than those outlined in their registration details.
• Account Usage: Ensure that the foreign funds are only used for activities that align with the NGO’s objectives as stated during FCRA registration.
Utilization of Foreign Contributions
4. Utilization of Foreign Contributions
Purpose-bound Utilization: Funds received from foreign sources must be used strictly for the purposes mentioned in the NGO’s FCRA application. Misuse of funds or diversion to unauthorized activities can lead to penalties, suspension, or cancellation of FCRA registration.
30% Administrative Limit: A maximum of 50% of the foreign contribution can be used for administrative expenses (depending on the specific conditions of the FCRA registration). However, 30% of foreign funds is considered a safe upper limit, with the remaining funds being used for direct welfare or developmental activities.
Restrictions on Political Activities
5. Restrictions on Political Activities
NGOs receiving foreign funding under FCRA are prohibited from engaging in political activities or supporting any political party or candidate.
Political activities include any direct or indirect efforts to influence or participate in the electoral process, or to promote any political party or its candidates.
Foreign Funds for Prohibited Activities
6. Foreign Funds for Prohibited Activities
Foreign funds cannot be used for activities that:
• Endanger India’s sovereignty or national security.
• Promote religious conversion.
• Create disharmony or disrupt public peace.
• Violate any laws of India, including those relating to national security, terrorism, or sedition.
Donor Compliance
7. Donor Compliance
Due Diligence on Donors: NGOs should verify that the foreign donors or funding agencies are not from countries that are under sanction by the Indian government or international bodies. Some foreign governments and organizations may be restricted under FCRA.
Transparency in Donations: Maintain transparency in the source and purpose of foreign donations to avoid any potential misuse of funds.
Audit Requirements
8. Audit Requirements
– NGOs must have their financial statements audited by a certified chartered accountant to ensure proper accounting and transparency.
– The audit report must be submitted along with the annual FCRA returns.
FCRA Suspension or Cancellation
9. FCRA Suspension or Cancellation
If an NGO fails to comply with FCRA provisions or misuses foreign funds, the Ministry of Home Affairs may suspend or cancel the NGO’s FCRA registration.
Common causes for FCRA suspension include:
– Non-compliance with reporting requirements.
– Using foreign funds for activities not aligned with the objectives.
– Involvement in prohibited activities (e.g., promoting religious conversion, political interference).
Action on Suspended FCRA Registration: In case of suspension, the NGO cannot accept any further foreign contributions. A cancellation of registration may also result in a complete cessation of foreign fund inflow.
State Compliance and Local Laws
10. State Compliance and Local Laws
State Regulations: In addition to the FCRA, NGOs should be mindful of any state-specific regulations governing NGOs, especially with regard to the use of foreign funds at the state level.
Other Legal Frameworks: Compliance with other legal frameworks such as Income Tax Act, Goods and Services Tax (GST), and Labour Laws is also necessary for ensuring proper functioning and continued eligibility for foreign funding.
Transparency and Accountability
11. Transparency and Accountability
Public Disclosure: NGOs should publicly disclose their foreign funding and utilization via their websites or annual reports, particularly when engaging in large-scale international fundraising. Transparency promotes trust among donors and stakeholders and enhances credibility.
Social Audits and Impact Assessments: Regular audits and impact assessments should be conducted to show how foreign funds are contributing to the intended causes. These audits are often shared with stakeholders, including donors, beneficiaries, and regulatory bodies.
International Partnerships and Grants
12. International Partnerships and Grants
If the NGO is partnering with international organizations, donors, or agencies, ensure that all necessary approvals are obtained for such partnerships. International funding bodies often require the NGO to comply with both Indian regulations (FCRA) and their internal funding rules.
Due Diligence: Make sure the foreign funding body or partner organization complies with international norms and is not involved in activities that may conflict with Indian laws or FCRA provisions.
Final Considerations-
Keep Documentation Updated: Regularly update all documents, such as financial statements, annual reports, and activities, as these may be scrutinized by the Ministry of Home Affairs or auditors.
Consult with Experts: Regular consultations with legal and financial experts are advisable to ensure that the NGO remains compliant with all regulations, particularly as laws or policies related to foreign funding may change.
Training and Capacity Building: NGOs should invest in training for their staff on financial management, FCRA compliance, and best practices in handling foreign funds.
By following these guidelines, NGOs can ensure that they are in full compliance with the Foreign Contribution (Regulation) Act and other regulations, and effectively utilize foreign funding for their developmental, social, or welfare activities. Compliance will also help maintain the NGO’s credibility, enhance donor trust, and protect against any legal issues.