2018 AMENDMENT

It is a fact that political parties cannot receive contribution from any foreign source as defined under
Clause (c) of Section 2 of the FCRA, 1976. Section 29 B of the Representation of the Peoples Act,
1951 also prohibits political parties from receiving foreign contributions.

Clause 217 of the Finance Bill, 2018 seeks to amend Section 236 of the Finance Act, 2016 which
relates to amendment to sub-clause (vi) of the clause (i) of Sub-section (1) of Section 2 of the
Foreign Contribution (Regulation) Act, 2010. The proviso to the said sub-clause inserted under the
Finance Act, 2016 states that where the nominal value of share capital is within the limits specified
for foreign investment under the Foreign Exchange Management Act, 1999 (42 of 1999), or the rules
or regulations made there under, then, notwithstanding the nominal value of share capital of a
company being more than one half of such value at the time of making the contribution, such
company shall not be deemed to be a foreign source, if the foreign investment is within the limit
specified under the Foreign Exchange Management Act, 1999 or the rules or regulations made there
under.

The main purpose of the proposed amendment is to ensure that the definition of 'foreign source'
remains consistent with the FDI Policy of the Government of India; and provisions of the Companies
Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. It is proposed to
bring the said amendment with effect from the 5th August, 1976, the date of commencement of the
Foreign Contribution (Regulation) Act, 1976, which was repealed and re-enacted as the Foreign
Contribution (Regulation) Act, 2010.

2020 AMENDMENT

On 28 September 2020, the Ministry of Law and Justice notified the Foreign Contribution
(Regulation) Amendment Act 2020 (FCRA Amendment Act) which amends the existing provisions
of the Foreign Contribution Regulation Act 2010 (FCRA).

The FCRA provides a compliance/governance framework governing foreign contributions/donations

received in India, including, inter alia, norms on registration and prior permission requirements for
receiving foreign contribution, filing of financials/undertakings, utilisation of funds and prohibitions
applicable on receipt of foreign contribution.

The FCRA Amendment Act brings in a slew of amendments to the FCRA in relation to restrictions on
the type of entities receiving foreign contribution, restrictions on transfer and utilisation of funds,
additional conditions for obtaining registration/permissions and provisions on
renewal/suspension/surrender of certificate of registration under FCRA. A summary of key
amendments brought in by the FCRA Amendment Act is provided below.

a. Prohibition on receiving Foreign Contribution: 3(1) of the FCRA sets out a list of persons
who are prohibited from receiving any kind of foreign contribution, including inter alia,
election candidates, correspondent, columnist, cartoonist, editor, owner, or publisher of a
registered newspaper, judges, government servants, employees of governmental corporation,
members of any legislature and political parties, entities engaged in the production or
broadcast of news or current affairs. The FCRA Amendment Act has amended this section
and added "public servants" (as defined under Indian Penal Code 1860) in this list.
Further, the FCRA Amendment Act has amended explanations to existing §3(1) and clarified
that employees of government companies (as defined under the Companies Act 2013) are also
prohibited from receiving any kind of foreign contribution.

b. Transfer of foreign contributions: Previously under §7 of the FCRA, foreign contribution

could be transferred only to those persons who were registered or had obtained a prior
permission under the FCRA to obtain foreign contribution. The FCRA Amendment Act has
amended this section and stipulated a complete prohibition on transfer of foreign contribution
received by a person to any other person.
c. Requirement of Aadhaar: Per §12 of the FCRA, a person is permitted to accept foreign
contribution if they possess registration, or have obtained prior permission under the FCRA,
to accept foreign contribution. The FCRA prescribes the format and manner of application
required to be made for registration/prior permission. The FCRA Amendment Act has added
a new provision (§12A) which provides that the Central Government may require persons
seeking registration/prior permission/renewal to also provide Aadhaar number of all office
bearers, directors, key functionaries, or provide copies of passport or the Overseas Citizen of
India card, for foreigners.
d. FCRA Account: 17 of the FCRA previously provided that foreign contribution may be
received in a single branch of any scheduled bank and more accounts may be opened in other
banks for utilisation of the contribution. The FCRA Amendment Act has amended §17 and
provided that foreign contribution can only be received in an account designated as "FCRA
account", opened with the prescribed branch of the State Bank of India New Delhi. Further,
no funds other than foreign contribution can be received or deposited in the FCRA account.
Further, other FCRA accounts (in addition to the FCRA account in the State Bank of India's
prescribed branch) may be opened in any scheduled bank for keeping or utilising the received
foreign contribution.
 e. Restriction on utilisation of funds: Previously, 8 of the FCRA stipulated a maximum cap of
50% on the percentage of foreign contribution that may be utilised towards administrative
expenses. It is relevant to note that 'administrative expenses' are defined to include salaries,
wages, travel expenses, expenses incurred towards hiring of personnel, consumables like
water/electricity, telephone charges, postal charges, charges towards rent and repair of
premises, costs associated with running of office and vehicles, costs incurred towards legal
and professional fees etc. The FCRA Amendment Act has reduced this limit by amending §8
of the FCRA. The provision now states that spends of foreign contribution towards
administrative expenses shall be restricted to an upper limit of 20%. 
Further, previously, per §11 of the FCRA, if a person accepting foreign contribution
was found guilty of violating the provisions of the FCRA, the unutilised or unreceived foreign
contribution could be utilised or received, only after obtaining the prior approval of the
Central Government. The FCRA Amendment Act has amended §11 of the FCRA and further
empowered the Central Government to restrict usage of unutilised foreign contribution in
such cases, if such person has contravened provisions of the FCRA.    
f. Renewal/Suspension of registration: Earlier, the Central Government had the power under
§13 of the FCRA to suspend the registration of any person for a period of 180 days. Pursuant
to the FCRA Amendment Act, §13 has been amended and the Central Government has been
provided with powers to suspend the registration of a person for another period of 180 days,
in addition to the existing 180 days.

The FCRA Amendment Act has also introduced certain new powers for the Central Government, ie,
to: a) conduct an enquiry before renewal of registration; and b) permit a person to surrender their
registration0, on being satisfied that such person has not contravened FCRA and has vested the
management of foreign contribution and related assets in the prescribed manner.

The FCRA Amendment Act can be seen as another step by the Central Government towards
regulating the flow of funds received from non-residents by resident Indians. The FCRA Amendment
Act aims at increasing transparency by introducing the requirement to provide Aadhaar, empowering
the government to conduct an inquiry into the affairs of the person registered under the FCRA and
introducing a requirement of mandatory 'FCRA Account'. However, it is anticipated that market
participants may view the FCRA Amendment Act as an attempt to increase regulation of non-profit
organisations operating in India, that are receiving funding from abroad.