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What is foreign contribution?

As per FCRA, foreign contribution basically implies a donation of an article (which is valued over INR 25,000 and is not a gift for personal use), any currency (both foreign or Indian), or a foreign security by a ‘foreign source’.


Amounts received from a foreign source by way of fee or towards cost in return for goods or services provided in the ordinary course of business will not be considered as foreign contribution.


Which entities are eligible to receive foreign contribution?


Foreign contribution can only be taken by an association of individuals which has an office in India (irrespective of whether it is incorporated), which has a definite cultural, economic, educational, religious or social programme. Therefore, unincorporated associations or ventures structured as societies, trusts, or Section 25 companies any of the above goals are eligible to receive foreign contributions. An individual would not be eligible to take a foreign contribution, as he would not qualify as an ‘association of individuals’. Partnerships or LLPs may not be able to obtain foreign donations because by definition these are business structures started with a profit-motive (as the discussion below will indicate, it may not be possible to take foreign contribution for a business started for earning profits).


List of illustrative activities for which foreign contribution may be received (as per Ministry of Home Affairs) is provided in the Annexure. The list in the Annexure will indicates that a vast majority of the activities conducted must be conducted with a non-profit motive. Most activities by their very nature are non-profit, such as, welfare of aged widows, relief or rehabilitation of victims of natural calamities. Further, ‘economic’ activities under the list such as microfinance projects, animal husbandry, vocational training, etc. are expressly stated to be eligible only if they are conducted for a non-profit motive.


While structuring a non-profit, the founders should ensure that its objectives are clearly classifiable into one of the above categories if they want to receive foreign donations. Such purposes should also be mentioned in the constitutional document (e.g. memorandum of association in case of a Section 25 company, trust deed in case of a trust or the bye-laws of a society).


Foreign contribution can either be received by an organization by taking prior permission of the Central Government before receiving each tranche (i.e. that is, each time it receives a donation), or if it gets itself registered with the Central Government to receive foreign contribution, in which case it can receive contribution from different sources till the registration is valid.


Who is eligible to provide a foreign contribution?


As per the FCRA, any ‘foreign source’ is eligible to provide donations to Indian entities. The definition of a foreign source is very wide, and includes individuals, foreign governments, foreign companies, multinational corporations, trusts, foundations, societies, trusts, clubs which are organized or incorporated abroad.


Examples: The Bill and Melinda Gates Foundation would be a foreign foundation. Similarly, Warren Buffett will be eligible to donate in his personal capacity as a citizen of a foreign country.


 Note: If more than one-half of its share capital is held of an organization is held by foreign entities (whether it is a government, citizens, company, trust or society in a foreign country), it will qualify as a foreign source. Entities which seek donations from Indian offices of multinationals, e.g. a donation from Microsoft Corporation India Private Limited, will be required to comply with the provisions of FCRA. Foreign companies having business presence in India and Indian companies which are subsidiaries of foreign companies will qualify as ‘foreign sources’.

The Central Government may permit certain foreign institutions to carry out activities in India by notification – such institutions will not come be treated as ‘foreign sources’ for the purposes of FCRA. The government has permitted various UN agencies to conduct activities in India by notification. Hence, funding from such agencies would not attract the compliance requirements under FCRA.


Secondly, a company that is incorporated outside India and has an establishment in India may not be considered as foreign source if fifty per cent or more of the paid-up share capital is ultimately held by one or more Indian citizens or bodies incorporated in India.

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