The Foreign Contribution (Regulation) Act, 2010 (FCRA) read with Foreign Contribution (Regulation) Rules, 2011 aims to regulate the operations of individuals, associations or not-for-profit organisations receiving foreign contributions and manner of utilising such contributions. Foreign funding is quintessential for smooth functioning of not-for-profit organisations. Since its enactment, the FCRA and FCR Rules have seen frequent amendments to keep up with the changing times.

This new year saw a fresh round of amendments to the FCR Rules. The amendments were notified by the Central government on December 31, 2024, which came into effect from January 1, 2025 (“2024 Amendment”) and primarily deals with usage of unspent administrative expenses.

Under FCRA, when an organisation receives foreign contribution, it is allowed to spend 20 per cent of the total contribution received in a financial year on ‘administrative expenses.’ Given the varied operational requirements and needs of such organisations, the FCR Rules provide an indicative set of examples of what constitutes as ‘administrative expenses’ as a guiding tool.

These examples include, among others, salaries, travel expenses or remuneration realised by members of executive committee/governing council of the not-for profit, all expenses towards hiring of personnel for management of the activities of the not-for-profit and salaries or any kind of remuneration paid, including cost of travel to such personnel, expenses for consumables like electricity and water charges, telephone charges, postal charges, rent of and repairs to premise(s) from where the not-for-profit is functioning, stationery and printing charges, etc.

Captive consumption

In short, all expenses incurred by an FCRA-registered entity for its captive consumption, i.e., for running its day-to-day operations and for undertaking regular compliances such as accounting, legal compliances, etc., are typically understood as administrative expenses. Currently, the FCRA imposes an obligation to obtain prior approval of the Central government in case the administrative expenses exceed 20 per cent of foreign contribution received in a financial year.

The 2024 Amendment now gives associations receiving foreign contributions the option to carry forward the unspent part of allowable administrative expenses in a financial year to the immediately succeeding financial year. Further, under Form FC-4, which is an annual report required to be submitted by every FCRA-registered entity, reasons for carrying forward the unspent part of allowable administrative expenses are to be stated. In addition to the above amendments, the chartered accountant, as a part of the annual compliance check, is required to report prior violation (if any) of the FCRA by the relevant organisation and examine the relevant books and records of the registered entity and certify the same while issuing the audit certificate.

The carry forward option is a welcome step as earlier there was no clarity on whether the surplus of allowable administrative expenses in immediate successive financial year required prior approval from the Central government. Secondly, whether this carried forward surplus will form part of the 20 per cent cap for the succeeding year or be in addition to the year’s 20 per cent cap is something that the organisations would need absolute clarity on. The intent appears to lean towards the latter interpretation; however, it would be ideal to wait for the government to expressly clarify on that.

Prior to the 2024 Amendment, chartered accountants had to certify if an association or not-for-profit organisation had utilised foreign contribution received for the purposes it was registered for, at the time of filing the annual report.

Pursuant to the 2024 Amendment, the Central government places an additional obligation on CAs to specifically identify if there has been any FCRA violation along with identifying the specifically violated provisions. In case there is no such violation, a negative confirmation has been sought from the CAs under the updated format of the form. Accordingly, this requirement may pose some practical challenges for the organisations in identifying and engaging CAs who are willing to take on the rigorous certification obligations as part of the annual report. However, the changes appear to be in line with the larger objective of FCRA as it introduces an additional layer of scrutiny and verification.

Sreetama is Partner (General Corporate), and Soumya is Associate (General Corporate), Cyril Amarchand Mangaldas