Why NGOs get banned from receiving foreign funds in India and how to avoid it?

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On July 24, 2018, the Union State Minister of Home Affairs in India, Kiren Rijiju announced that nearly 19,000 NGOs in the country have been banned from receiving foreign funds under the Foreign Contribution (Regulation) Act (FCRA) of the Government of India since the year, 2011.

Foreign funds are a major source of financial support for NGOs in India. Various private foundations, foreign governmental agencies, and individuals provide money for charitable causes in India in form of donations and project funding support. These grants are used by recipient organizations to implement welfare programmes for the needy and the poor across rural and urban areas of the country.

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However, the process of receiving these grants has been subjected to law ever since the FCRA was drawn up in 1976 to regulate the acceptance of foreign contribution which includes financial donations as well as foreign hospitality.

In the recent years, the government has taken a strong interest in regulating the NGOs receiving foreign grants. The FCRA, 2010 was enacted in the Parliament of India by the 42nd Act of 2010 “to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”

A number of incidents generated enormous interest on the FCRA during the recent years. For example, Greenpeace India lost its FCRA license in 2015 for obstructing development activities in the country by organizing protests against thermal power, nuclear power, coal, and aluminum mining.

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An Intelligence Bureau Report called ‘Impact of NGOs on Development’ published in 2014 warned that many nonprofit organizations in the country with support from international donors were planning to disrupt the developmental activities, endangering the Indian economy.

Besides, the protests against Kudankulam Nuclear Power Plant in the southern part of India exposed deeper connections between protesting NGOs and the foreign funds received in their bank accounts from US-based donors.

These incidents led to increased monitoring and vigilance of the foreign flow of funds to NGOs in the country. According to a December 2017 news report, foreign funding for NGOs in the year 2015-16 was around Rs. 17,773 but it went down drastically to Rs. 6,499 crore due a high number of FCRA cancelations.

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According to the Ministry, most NGOs get banned from receiving foreign funds is because of their failure to submit annual returns and completed balance sheets at the end of the fiscal year. Under the FCRA registration, it is mandatory for NGOs to submit their annual returns every year in order to continue receiving the foreign funds.

Below are some of the tips for NGOs to avoid cancelation of their FCRA registration:

Filing of Annual Returns

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Under the FCRA, 2010, it is mandatory for all FCRA-registered NGOs to submit their annual returns online via https://fcraonlineservice.nic.in tithing a period of nine months from he closure of the year i.e. by 31st December every year.

Separate Maintenance of Accounts and Records

NGOs have to maintain a separate set of accounts and records exclusively for the foreign contribution and submit the prescribed Form FC-4 duly accompanied with scanned copies of income and expenditure statement, balance sheet and statement of receipt and payment, which is certified by a Chartered Accountant.

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Submit Annual Returns if you have not received any Foreign Funds

As per the Act, it is mandatory for FCRA-registered organizations to submit annual returns as ‘NIL’ if they have not received any foreign contribution during that financial year. Returns also have to be filed even when the NGO has not utilized any of the foreign funds received during the financial year.

Renewal of FCRA Certificate

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It is recommended that if your FCRA certificate is due for renewal, try to apply for it at least six months prior to the date of expiry.

Report Changes

Make sure that you report any change in your organization’s mission, objectives, work, key members, bank account, address etc to the Ministry.

Registration at DARPAN portal

NGOs under FCRA should register themselves separately at the DARPAN portal of the NITI AAYOG and obtain a DARPAN ID. This process has other advantages such as receiving local grants from the Government of India.

Avoid Use of Cash

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Avoid use of ATM or Debit Cards or withdrawal of cash from bank accounts in which you have received the foreign funding. As these accounts are monitored closely, withdrawal of cash or transacting in cash can cause issues for the NGOs.

Avoid Using Foreign Funds for Investment purpose

NGOs should not try to divert foreign funding to other purposes such as for investment or for fixed deposits, mutual funds etc.

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Transferring Foreign Funds to Other Organizations

Foreign funds under the FCRA should not be transferred to unregistered organizations without the prior approval from the Ministry

Foreign Contribution for Administrative Purpose

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Avoid spending more than 50% of the foreign contribution towards administrative expenses.

Avoid Mixing of Accounts and Receipts

NGOs under FCRA should not mix their FCRA-approved bank accounts with their local bank accounts and the receipts should be kept separately. Only one separate bank account needs to be maintained for accepting foreign funds.

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