1. By CA. Vittal Rao Lokare 1

2. Introduction  Trade/Business Quid-Pro-Quo ( Something for something)  to control such trading transactions  R B I Mumbai Controls and monitors Through Foreign Exchange Management Act, 1999 (FEMA)  Charity No Quid-Pro-Quo (One sided/ unilateral & gratuitous transactions)  to regulate such charity transactions  MHA, New Delhi (FC Section) Regulates and supervises Through Foreign Contribution (Regulation) Act 2

3. International Charity Flow For social development projects Diagrammatic representation OOOOOO OOOOO OOOO OOO OO O International NPO Local Indian NPO OOOOOO OOOOO OOOO OOO OO O (Bi-lateral co-operation agreement ) Donors Benefactors Abroad Beneficiaries in India - community

4. Other concepts Certificate v/s Report : Certificate = Fact Report = Fact + opinion

5. Other concepts –contd. Cash system of accounting v/s Mercantile system (Accrual system)

6. Foreign Contribution(Regulation) Act  The object is to regulate  for any activities detrimental to the NATIONAL INTEREST.  and matters connected therewith or  Incidental thereto. 6

7. Foreign Contribution(Regulation) Act, 1976  This Act came into existence in 1976.  This also got Rules and Regulations.  This Act got amended from time to time and major changes took place in December 1984 *** FC(R)Act 1976 was abolished and new Act called FC(R)Act 2010 is brought into existence. 7

8.  This new Act called FC(R)Act, 2010 came in force with effect from 1 st May 2011.  This also got connected with Rules called  Foreign Contribution(Regulation) Rules, 2011. to explain procedural aspects involved. 8

9. Foreign Contribution (Regulation)Act,2010  There are 9 chapters in this Act. Chapter 1 : deals with : Title & definitions. Chapter 2 : Regulations of Foreign Contributions & Foreign Hospitality Chapter 3: Registration. Chapter 4: Accounts, intimation,Audit & disposal of assets etc.. Chapter 5: Inspections, search & seizure. 9

10. Foreign Contribution (Regulation)Act,2010 (contd.) Chapter 6 : Adjudication- confiscation, articles, currency, security- procedures etc.. Chapter 7 : Appeals & Revisions. Chapter 8: Offences & Penalties Chapter 9: Miscellaneous ( calling for information, investigation, delegation of power, power to make Rules, power to remove difficulties, Repeal and savings.) *** 10

11. Foreign Contribution (Regulation)Act,2010 Chapter 2: deal about Regulations of Foreign Contributions & Foreign Hospitality. Section 7: FC Can be received only if it is registered and granted a certificate. A person can transfer FC to any other person only if such other person is also registered and granted certificate OR has obtained the prior permission under FC(R) Act. 11

12. Foreign Contribution (Regulation)Act,2010 Chapter 2: deal about Regulations of Foreign Contributions & Foreign Hospitality. Section 8: This section directs that the FC received should be utlised for the purpose for which such FC received. ( No mis-application/ No diversion of funds) The administrative expenses shall not exceed 50% of such contribution (It should be less than 50%) If exceeding 50%, prior approval of Central Government is required. 12

13. Foreign Contribution (Regulation)Act,2010 Chapter 3: deal about Registration. Section 11: The existing registered organizations( Regular & Prior-permission orgs.) get automatically covered under new Act in so far as Registration is concerned. The registration is valid for new ones under this Act for 5 years and also for the existing ones, 5 years commencing from 1 st May 2011. If FC is received by unregistered bodies, the unutilized or un received amount can not be utilized or received without prior approval of central government. 13

14. Foreign Contribution (Regulation)Act,2010 Chapter 3: deal about Registration. Section 12: When applied for registration, the central government may ordinarily register and grant certificate within 90 days (Three months) This registration is valid for 5 years. Prior permission shall be valid for the specific purpose or specific amount of FC proposed to be received. 14

15. Foreign Contribution (Regulation)Act,2010 Chapter 3: deal about Registration. Section 14: Cancellation of certificate. After making an enquiry, the central government may cancel the certificate, if 1- making incorrect or false statement 2-violated any terms and conditions of the certificate or renewal 3- necessary in the public interest 4-has violated any provisions of this Act or Rules or order made. 5- not been engaged in any reasonable activities in its chosen field for the benefit of the society for two consecutive years or has become defunct. if certificate is cancelled, not eligible for registration or prior permission for 3 years from the date of cancellation of the certificate. 15

16. Foreign Contribution (Regulation)Act,2010 Chapter 3: deal about Registration. Section 16: Renewal of certificate. Person who has been granted a certificate, shall have such certificate renewed within 6 months before the expiry of the period of the certificate. (in other words, apply for renewal after four & half year) The central government will renew certificate within 90 days ( 3months) {ordinarily} from the date of receipt of application for renewal *** 16

17. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 17: (Receipt of FC) The FC received shall be in a single account only as specified in the application for grant of certificate. It may open one or more accounts ( in one or more banks ) for utilizing the FC amounts. No funds other than FC shall be received or deposited in such account or accounts. Every bank shall report to MHA (or such authority as specified.) 17

18. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 18: (Intimation) To inform MHA New Delhi, in Form -FC 6 as to the amount of FC received, the source and the manner in which FC was received, and the purpose for which, and the manner in which such FC was utilized. Those who receive FC money shall also submit a copy of bank statement which indicates FC receipts duly certified by the bank officer along with Form -FC6 18

19. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 19: (Books of accounts) Those who receives FC amount, shall maintain : a) An account of FC received and b) A record as to the manner in which such contribution has been utilized. 19

20. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 20: (Audit by government) The Central Government may authorise gazetted officer of Group ‘A’ rank under Central Government to audit any books of accounts of such person. Such officer has the right to enter in or upon any premises ( at any reasonable hour ) before sunset and after sunrise for the purpose of auditing the said books of accounts. In the following circumstances: 20

21. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 20: (Audit by government) …….. Continued. In the following circumstances: a. When failed to furnish any intimation within the time specified or b. Intimation so furnished is not in accordance with law. c. Any provisions of FC(R)Act has been contravened. 21

22. Foreign Contribution (Regulation)Act,2010 Chapter 4: (Accounts, Intimation,Audit and Disposal of assets, etc.) Section 22: (Disposal of FC assets) If the organization ceases to exist or If has become defunct Then All the assets shall be disposed off accordance with the law in which it was created If no law exists Then, the Central Government may by notification specify the all such assets shall be disposed off by such authority, in such manner and procedure as may be prescribed. *** *** *** 22

23. Foreign contribution (Regulation) Act, 2010 Ends Foreign Contribution (Regulation) Rules, 2011 begins 23

24. By CA. Vittal Rao Lokare 24

25. Foreign Contribution(Regulation) Rules, 2011 Introduction: These Rules prescribe the procedures to be followed in implementation of the Act. Rule 1 & 2 give short title, commencement and various definitions. Rule 3 deals about guidelines for declaring an organization to be of a political nature, when not being a political party. Rule 4 defines what the speculative activities are. 25

26. Foreign Contribution(Regulation) Rules, 2011 (Contnd) Rule 5 deals about Administrative expenses. The following will be such expenses: 1. Salaries, wages, travel expenses or any remunerations of the executive committee or governing council. 2. All expenses towards hiring of personnel for management of the activity (programmes) and salaries, wages, or any kind of remunerations paid including travel to such personnel 3. Expenses like electricity and water, telephone, postage, repairs to premises( Admn office and field office ) and expenses on office equipments. 4. Cost of accounting and administering fund 5. Expenses on running and maintenance of vehicles. 6. Cost of writing and filing reports. 7. Legal & professional charges 8. Rent of premises and expense on other utilities Contd… 26

27. Foreign Contribution(Regulation) Rules, 2011 (Contnd) Rule 5 deals about Administrative expenses. The following will be exceptions for such expenses: If an association is primarily engaged in Research and Training, the expenditure incurred on : 1. Salaries or remuneration of personnel engaged in training 2. Salaries or remuneration of personnel engaged for collection. 3. Salaries or remuneration of personnel engaged in analysis of field data. If an organizations objectives are welfare oriented, 1. Salaries to doctors of hospitals 2. Salaries to teachers of schools etc.. 27

28. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 6: deals about receiving FC money from relatives. It states any person receiving FC money in excess of Rs. One lakh in a financial year from any of his relatives shall inform the Central Government in Form FC- 1 within 30 days from the date of receipt. Rule 9: deals about “Registration” or “Prior permission” to receive foreign contribution. Make application electronically on-line in Form FC-3 Followed by hard copy of on-line application duly signed with the required documents. Hard copy to reach central government within 30 days of on- line submission.( Failing which request ceases) 28

29. Foreign Contribution (Regulation)Rules,2011 Contnd. When lapsed, a fresh on-line application can be made only after 6 months. A separate bank account to be opened exclusively to receive FC money When one or more bank accounts are opened in one or more branches for the purpose of utilizing, intimation o plain paper shall be furnished to MHA New Delhi, within 15 days of the opening of any account. Same Rules applies to person seeking prior-permission. No second application within a period of 6 months after submitting an application. Fee for prior-permission - Rs 1,000/- (Rs.one thousand only) Fee for general registration - Rs. 2,000 /-( Rs.Two thousand only) Fees can be revised by Central Government 29

30. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 10 : deals about validity of certificate It states that every certificate of registration is valid for a period of 5 years from the date of its issue. Rule 11: deals about maintenance of accounts They shall maintain a separate set of accounts and records, exclusively, for the foreign contributions received and utilized Rule 12: deals about Renewal of registration certificate This shall be liable to be renewed after the expiry of 5 years. Application in Form FC -5 to be made 6 months before the date of expiry When implementing an on going multi-year project, shall apply for renewal 12 months before the date of expiry of the certificate of registration. Application for renewal to be accompanied by a fee of Rs 500/-( Rs. Five hundred only) If failed to apply, shall be deemed to have ceased from the date of completion of the period of 5 years from the date of grant of registration. 30

31. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 12 contnd. If ceased, a fresh request for grant of registration may be made to the Central Government It should provide sufficient grounds, in writing explaining the reasons for not submitting, then the application may be accepted for consideration along with fee and such application should be within 4 months after the expiry of original certificate of registration. Rule 13: deals about FC Receipts exceeding Rs. 1 Crore in a financial year. It shall place the summary data on the public domain on receipts and utilization of foreign contribution pertaining to the year and one year there after. Central Government shall also display or upload the summary data on is website for information of the general public 31

32. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 14: deals about utilization when registration gets suspended. With the prior approval of the Central Government upto 25% of the un-utilized amount may be spent for the declared aims and objects for which the FC was received. The remaining 75% of the un-utilized FC amount shall be utilized only after revocation of suspension of the certificate of registration. Rule 15: Deals about custody of FC amount whose certificate has been cancelled. The balance in FC bank account shall vest with the banking authority concerned till Central Government issues further direction. If the balance in bank account is transferred the same above rule will apply to the person to whom the fund has been transferred 32

33. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 16: deals about reporting of receipt of FC by banks Within 30 days, every bank shall send a report of any FC transaction( receipt of remittance ) by any person who is required to obtain a certificate of registration or prior permission, but who has not been granted such certificate or prior permission Such report to contain certain required details. The bank shall also send a report ( to the Central Government) within 30 days from the date of such last transaction a. Receipt of FC in excess of Rs. 1 crore or equivalent in a single transaction Or b. In transaction within a duration of 30 days. Whether registered or not and such report shall give certain details. 33

34. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 17: deals about intimation of FC amount by the recipient. Submit a report in Form FC-6. To accompany financial statements for every financial year beginning on 1 st day of April It should reach within 9 months of the closure of the financial year ( December) To be sent to the Secretary to the Government of India, Ministry of Home Affairs, New Delhi. Form FC-6 to reflect FC received in exclusive bank account and also to include the details of funds transferred to other bank accounts for utilization Form FC-7 to be used when foreign articles are received. Form FC-8 to be used when FC related to foreign securities. The above reports shall be duly certified by a Chartered Accountant. 34

35. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 17: contnd. Every Form FC-6 shall be accompanied by a copy of statement of account from the bank where exclusive foreign contribution account is maintained duly certified by the bank officer. The accounting statement shall be preserved for a period of six (6) years. Even if no Foreign Contribution is received during the financial year, a ‘NIL’ report shall be furnished. Rule 24: deals about procedures to be followed for transferring FC amount to other registered or unregistered bodies. Form FC-10 to be used as an application to Central Government, when intending to transfer the FC amount 35

36. Foreign Contribution (Regulation)Rules,2011 Contnd. Rule 24: Contnd. The Central Government may permit the transfer who is registered or having prior permission when such recipient has not been proceeded against under any provisions of the Act. Such transfer of FC amount shall be reflected in the returns in Form FC-6 as well as in Form FC -10 by the transferor and the recipient. In case FC is proposed to be transferred to a unregistered body or having no prior permission, such concerned may apply for permission to transfer a part of FC, not exceeding 10% of total FC received. Such application shall be counter signed by the district magistrate having jurisdiction in the place where transferred fund utilized. The donor shall not transfer any FC amount until the Central Government has approved the transfer. *** *** *** 36

37. Design of Book-keeping under New FC(R) Act 2010 and Rules 2011

38. OfERR One Approved Bank Account Main Cash Book Core Fund Cash Book Ledger Voucher File Ledger Main Ledger Bank A/C Ledger Voucher File General Account Spirulina Account Agriculture Account Tailoring Account Receipts & Payment A/C Receipts & Payment A/C Receipts & Payment A/C Receipts & Payment A/C Foreign Contrbution Section Local ( Non – FC ) Section Receipts & Payments A/C. & Balance Sheet to be Submitted to Ministry of Home Affairs, Govt. of India, New Delhi. Consolidated Receipts & Payment Account, Income & Expenditure Account & Balance Sheet to be Submitted to (1) General Body Members (2) Registrar of Societies & (3) Income Tax Department. Cash Book Utilisation Bank A/C Utilisation Bank A/C Utilisation Bank A/C Utilisation Bank A/C Voucher File Bilateral Fund Cash Book Bilateral Fund Cash Book Bilateral Fund Cash Book

39. Important definitions: 1. Speculative activities:- a. The following shall be treated as speculative activities: i) Any activity or investment that has an element of risk of appreciation or depreciation of the original investment, linked to market forces, including investment in mutual funds or in shares. ii) Participation in any scheme that promises high returns like investments in chits or land or similar assets not directly linked to the declared aims and objects of the organisation or association. b. A debt-based secure investment shall not be treated as speculative investment 39

40. Important definitions (contd.): 2. Foreign contribution: means the donation, delivery or transfer made by any “foreign source” a) of any article(not being an article of personal gift). b) of any currency, whether Indian or Foreign c) of any security. Explanation: i) received either directly or through one or more persons (indirectly) ii)interest on SB account and on fixed deposits shall also be deemed to be foreign contribution ( calf goes with cow) iii) amount received from a foreign student towards the cost of his education including fee is excluded from this definition 40

41. Important definitions (contd.): 3 “Foreign source”:-includes, - a) any foreign government b) any international agency ( excluding UNO, World Bank, IMF, or such other agency which Central Govt notifies) c) a foreign company d) a corporation incorporated in foreign country e) a multi- national corporation f) a company within the meaning of Companies Act,1956 and more than 50% of its share capital is held by any foreign Govt/ citizen/corporation/Trust/Society/foreign company g) a foreign trade union h) a foreign trust/foundation mainly financed by a foreign country i) a society/club/association/of individuals formed outside India j) a citizen of a foreign county 41

42. Thank You All  Date : 9 th January, 2013 CA. Vittal Rao. Lokare. C.A. Institute, Bangalore. Bangalore. 42

43. Resource person L. Vittal Rao. B.com., FCA. Chartered Accountant Jubilee Building 45, Museum Road Bangalore - 560 025 Telephone: (080)-2559 4297 (office) Mobile : 91 – 944 811 4291 E-mail : vittalvibha @ sify.com 43