What is the Foreign Contribution Regulation Act?

 About:
o The FCRA was enacted in 1976 during
the Emergency period due to concerns about foreign
interference in India's affairs through financial support to
independent organizations.
o FCRA was designed to regulate foreign donations to
individuals and associations, ensuring that they operate in a
manner consistent with the values of a sovereign democratic
republic.
 Amendments to FCRA:
o 2010 Amendment:
 Enacted to consolidate the law to regulate
the acceptance and utilization of foreign
contribution by certain individuals or associations
and to prohibit acceptance and utilization of foreign
contribution for any activities detrimental to the
national interest.
o 2020 Amendment:
 Prohibiting the transfer of foreign contribution to any
other person or organization.
 Reducing the limit of usage of foreign contribution for
administrative expenses from 50% to 20%.
 FCRA Registration:
o Registration under the FCRA is essential for receiving foreign
donations in India.
 It's granted to individuals or associations engaged
in various areas of work, including cultural, economic,
educational, religious, or social programs, among
others.
 The FCRA regulates foreign contributions in these
defined areas to ensure transparency and compliance
with the law.
o Entities can register under multiple categories based on their
programs, allowing for diverse activities.
o Applicants need to open a bank account for the receipt of the
foreign funds at a specified branch of State Bank of India in
New Delhi.
  Prohibitions of Activities Under FCRA Registration:
o The applicant must not represent fictitious entities.
o The applicant should not have been involved in religious
conversion activities, either directly or indirectly.
o The applicant should not have a history of prosecutions
related to communal tension or disharmony.
o The applicant must not be engaged in activities related
to sedition.
o The FCRA prohibits candidates, journalists, media
companies, judges, government servants, politicians, and
political organizations from receiving foreign funds.
 Validity and Renewal:
o FCRA registration is valid for five years, and NGOs are
required to apply for renewal within six months of the
registration's expiry.
o The government has the authority to cancel an NGO's FCRA
registration for various reasons, including violations of the
Act or a lack of reasonable activity in their chosen field for
two consecutive years.
 Once cancelled, an NGO is ineligible for re-registration
for three years.
 FCRA 2022 Rules:
o In July 2022, the MHA introduced changes to FCRA rules.
These changes included increasing the number of
compoundable offences from 7 to 12.
o The rules also raised the limit for contributions from relatives
abroad that do not require government intimation from Rs 1
lakh to Rs 10 lakh and extended the time limit for intimation
of the opening of bank accounts.
What are the Concerns of NGOs Regarding the FCRA?
 Strict Compliance:
o The FCRA registration process demands extensive
documentation and involves strict compliance, which can
pose challenges for NGOs.
o The FCRA's interpretive ambiguity can be exploited by
authorities to target and restrict NGOs.
 Administrative Delays:
 o Lengthy administrative procedures for FCRA registration and
renewal delay NGOs' operations and funding access.
 Lack of Transparency:
o Some NGOs have been criticized for lacking transparency in
their utilization of foreign funds received under the FCRA.
 Concerns often arise when the specific purposes and
beneficiaries of these funds are not disclosed.
 Uneven Access to Funding:
o The complex FCRA registration process poses challenges
for organizations, with high denial rates affecting their ability
to receive foreign contributions.
 Potential for Political Influence:
o Some have raised concerns about political influence in the
FCRA registration and regulation process, which may impact
the approval or denial of FCRA registrations.

Way Forward
 Strengthen the oversight mechanisms to prevent any potential
misuse of foreign contributions.
 Simplify and expedite the FCRA registration process to promote
greater access to funding for legitimate NGOs.
 Ensure that the FCRA registration and regulation processes are
free from political influence and are based on objective criteria.
 NGOs should be encouraged to provide clear and detailed reports
on the utilization of foreign funds, ensuring that purposes and
beneficiaries are explicitly disclosed.
Eligibility criteria:
An association should be registered either under the Societies
Registration Act, 1860 or the Indian Trusts Act, 1882 or under Section 8
(erstwhile Section 25) of the Companies Act, 2013; An association
normally be in existence for at least 3 years and has undertaken
reasonable activity in its chosen field for the benefit of the society for
which the foreign contribution is proposed to be utilized. An association
should have spent at least Rs.10,00,000/- over the last 3 years on its aims
and objects, excluding administrative expenditure. Statements of Income
& Expenditure, duly audited by CA, for last 3 years are to be submitted to
substantiate that it meets the financial parameter.
80G
Section 80G is a provision under the Income Tax Act of India that allows
taxpayers to claim deductions for donations made to specified charitable
institutions and funds. The purpose of this section is to encourage
individuals and organizations to contribute towards charitable causes
while also providing them with tax benefits.
The government provides this incentive to encourage charitable
donations and support the activities of charitable organizations, which
can benefit society as a whole. By providing tax benefits to donors, the
government hopes to encourage more people to donate to charitable
causes. Taxpayers need to provide the details of their donations and the
eligible amount for deduction under Section 80G while filing their income
tax returns.
Budget 2023 Update for Deductions Under Section 80G
As per the latest announcement in budget 2023, the donations
made to the following funds will not be eligible for deductions
under Section 80G:-

 National Defence Fund

 Prime Minister’s National Relief Fund
 The National Foundation for Communal Harmony
 National/State Blood Transfusion Council
Contribution to the below-mentioned funds will be eligible for a
50% deduction without any qualifying limit -
 Jawaharlal Nehru Memorial Fund
 Indira Gandhi Memorial Trust
 Rajiv Gandhi Foundation
 Prime Minister’s Drought Relief Fund
What is Section 80G of the Income Tax Act?
Section 80G of the Income Tax Act provides for a deduction for donations
made to certain charitable institutions or funds. The deduction is
available to individuals as well as companies.
The deduction under section 80G can be claimed on the amount donated
to eligible institutions or funds. The deduction can be claimed up to a
maximum of 50% or 100% of the donated amount, depending on the
institution or fund to which the donation has been made.
However, it is important to note that not all donations are eligible for
deduction under section 80G. Only donations made to certain specified
funds or institutions are eligible for deduction. It is, therefore, important
to check whether the institution or fund to which the donation has been
made is eligible for deduction under section 80G.
To claim the deduction under section 80G, the taxpayer must obtain a
receipt or 80G certificate from the institution or fund to which the
donation has been made.
The receipt should contain the name and address and PAN no.of the
institution or fund, the amount donated, and the registration number, of
the institution or fund under section 80G.
Eligibility to Claim Deduction Under Section 80G
Both company and non-company can claim a deduction under Section
80G of the Income Tax Act for donations made to eligible charitable
institutions or funds.
The following persons can claim deduction under section 80G -
Individuals
Companies
Firms
Hindu Undivided Firm (HUF)
Non-Resident Indian (NRI)
Any other person

What type of donations are eligible for the deduction under

section 80G?
To claim a deduction under Section 80G, the donation must be in the
form of money and not goods or services. The deduction can only be
claimed for cash, cheque, or electronic transfer donations.
In addition, it is important to note that donations made in cash exceeding
Rs. 2,000 will not be eligible for the deduction under Section 80G.
Donors should ensure that they receive a receipt for the donation. The
receipt should specify the amount donated, the name and address of the
charitable institution or fund, and the registration number of the
institution or fund under Section 80G.
Donors should also check the eligibility and maximum limit for deduction
for each institution or fund before donating. It is important to note that
the deduction limit and eligibility criteria can vary depending on the
institution or fund to which the donation has been made.
Budgeting
In the context of an NGO (Non-Governmental Organization), a budget is a
financial plan that outlines the organization's estimated revenues and
anticipated expenses over a specific period, often a fiscal year. NGO
budgets serve several key purposes:

1. **Financial Planning:** NGOs use budgets to plan and allocate

resources effectively, ensuring that funds are allocated to various
programs, projects, and operational needs.

2. **Resource Allocation:** The budget helps allocate resources to

different activities, projects, and initiatives in line with the organization's
mission and goals.

3. **Decision-Making:** It provides a basis for decision-making, helping

NGO leadership prioritize activities, identify areas of cost savings, and
make informed financial decisions.

4. **Fundraising:** NGOs often use budgets as a tool when seeking

funding from donors. A well-structured budget can demonstrate
transparency and accountability to potential funders.

5. **Monitoring and Evaluation:** Budgets are used for monitoring

financial performance against the planned allocations. This process helps
identify variances and take corrective actions if needed.

6. **Accountability:** NGOs are accountable to their stakeholders,

including donors, beneficiaries, and the public. Budgets contribute to
transparency by outlining how funds are utilized to achieve the
organization's objectives.

Components of an NGO budget typically include income sources (grants,

donations, etc.) and various expense categories such as personnel,
program costs, administrative expenses, and fundraising costs. NGOs
need to strike a balance between achieving their mission and ensuring
financial sustainability.

Accounting
Process of identifying, recording, summarizing, and reporting economic
information to decision-makers in the form of financial statements.
Usually, an NGO organization has a treasurer or a financial officer to
take care of the finances. Here are some important things that a
treasurer must know to perform the accounting job. Here are some
unique requirements to account for the financial transaction.
1. Select an accounting method: Proper bookkeeping depends
upon choosing an accounting method for recording the inflow and
outflow of money. Just like any business, it needs adequate cash
 flows to pay for employees’ wages, utility bills, rent, etc. It has
sources of revenue such as contributions from donors, membership
fees, etc. Thus, account for all the incoming receipts and outgoing
payments. These two methods of accounting are as follows: cash
basis of accounting and accrual basis of accounting. The cash basis
works on the actual exchange of cash whereas the accrual basis
works on when a transaction occurs irrespective of
receipt/payment of cash.
2. Know tax compliances: If an NGO applies and qualifies for tax-
exemption status, there is no tax obligation, but you have to file a
business tax return. Submission of all the forms that qualify a
business for tax exemption is also necessary. Irrespective of no tax
payable, an NGO business is still required to report revenue and
expenses. So, keeping accurate records and reports of business
activities and finances is crucial for NGO accounting.
3. Prepare appropriate financial statements: Non-profit
accounting also requires them to prepare financial statements to
report their finances. There are three main financial statements:
 Statement of activities.
 Statement of financial position.
 Statement of cash flows.
 Statement of activities is the non-profit accounting version of the
income statement. Just like an income statement, it tells the
revenue and expenses of the organization over some time. Since
non-profits don’t earn profits, thus it calculates the changes in net
assets of the business.
 Statements of financial position provide a clear view of the
financials of the non-profit organizations at a particular point. It
shows what they own, what they owe, and how money is left with
them. It has net assets that express the excess of assets over
liabilities. It is the balance sheet equation for non-profit
accounting.
 Statement of cash flows: It helps to track all the organisation's cash
flows. It represents the cash generated from the investing,
operating, and financing activities. The non-profit version of the
cash flow statement shows the change in the net assets and lists
cash flows restricted to certain uses. It will have items such as
membership fees, fundraising proceeds, donor contributions,
program fees, etc.

Fund-Raising
Fundraising is the lifeblood of non-governmental organizations (NGOs). It
is the process of gathering resources and assets from various sources to
support the organization's mission and specific projects. Successful
fundraising is essential for an NGO to achieve its goals and fulfil its
mission.
Understanding the Fundraising Landscape
Before diving into fundraising strategies, it's crucial to understand the
dynamic landscape in which NGOs operate. Fundraising success depends
on aligning three critical factors: the organization's mission, external
opportunities, and its capabilities.
1. Mission of the Organization: The mission defines what the
organization intends to accomplish, its overall goals, and the
reason for its existence.
2. Capabilities: NGOs must assess their strengths and weaknesses,
including available resources and competencies that can be
developed to achieve their goals.
3. External Opportunities: NGOs should consider the needs of their
clientele, competitors, allies, and the social, economic, political,
and technological forces in their service area. This assessment
helps determine what is needed and feasible.
Developing a Fundraising Strategic Plan
1. Get Organized: Establish a dedicated team responsible for
fundraising activities, including board members, staff, and
volunteers.
2. Situation Analysis: Conduct a thorough analysis of your
organization's strengths and weaknesses, including board
involvement, staff expertise, membership, donors, grants,
corporate donations, fundraising events, earned income, and
campaigns.
3. Set Direction: Develop a vision for your organization's future,
including branding and development goals. Create a first draft of
the fundraising plan.
4. Prepare: Ensure you have essential elements in place before
starting, including an organizational budget, non-profit tax status,
donor tracking database, vision, mission, values, strategies, plans,
acknowledgement system for donors, trained staff, knowledge of
funding sources, basic organizational materials, clarity on fund
utilization, and board involvement.
5. Fundraising Team: The Fund Development Team should oversee
fundraising strategy and activities, working with staff to establish a
strategic plan, engaging in fundraising activities, and leading
certain fundraising efforts.
Auditing
Auditing, or a financial audit, is an official examination and verification of
a business’s financial records.
The main goal of auditing is to make sure that a company’s financial
statements are accurate and follow regulatory guidelines. Auditing also
gives investors, creditors, and other stakeholders reasonable assurance
that they can rely on a company and its integrity.
The Importance of Auditing
Credibility and Reliability
With an internal auditing system, your business can create accurate and
reliable financial reports through which you can gain insights into which
segments or product lines are performing best and how to properly
allocate resources. Additionally, regular auditing will make your
shareholders trust that your accounts are true and fair and that it’s safe
to invest in your business.
Preventing Fraud
If the government audits your financial statements and finds that your
business has been manipulating its financial health, or
hiding revenue and losses, you’ll likely deal with severe fees and legal
punishments. Your business will also acquire a bad reputation, and you
will most likely lose reliability in the eyes of your customers and
stakeholders.
Recurring internal audits by a professional auditor or accountant of the
company play an important role in detecting these fraud cases before
they become substantial and problematic. Having a rigorous auditing
system set in place alone prevents and scares employees or vendors from
attempting a scheme to defraud your business in the first place.
NGO audit
An NGO audit report is a document usually prepared by an independent
auditor who has evaluated the financial and operational performance of
the NGO. The findings of an NGO audit typically include
recommendations for improvement. The NGO can use the report to fine-
tune its operations and governance. This document finds use when
reporting to the NGO's stakeholders, donors, government agencies, and
the public.
The report must include a description of the scope of the audit, the
methods used, and the criteria for evaluation. It also provides
an assessment of the NGO's financial health, governance structure, and
program effectiveness, as well as an evaluation of the NGO's compliance
with applicable laws and regulations.
The NGO audit report should also review and identify potential areas of
risk and recommend improvements to the NGO’s policies and
procedures, keeping up with changes in legislation.
This document helps formally illustrate an NGO's scope of work. It not
only demonstrates credibility but also where further attention is
required. It helps attract further support and funding to the causes
people focus on.
NGOs in Social Development Sector

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1. Education and Skill Development:
 Example: NGOs like Pratham focus on improving education
outcomes. Pratham's "Read India" campaign aims to enhance
literacy levels among children through innovative teaching
methods.
2. Healthcare and Sanitation:
 Example: The Bill & Melinda Gates Foundation collaborates
with NGOs in India to improve healthcare, with a focus on
initiatives like immunization drives and the fight against
diseases like tuberculosis and malaria.
3. Women's Empowerment:
 Example: SEWA (Self-Employed Women's Association)
empowers women in the informal sector by providing them
with financial services, skill development, and a platform for
collective bargaining.
4. Environmental Conservation:
 Example: Greenpeace India actively engages in
environmental campaigns, advocating for renewable energy
adoption and raising awareness about issues such as air
pollution and deforestation.
5. Human Rights and Social Justice:
 Example: Amnesty International India works towards
protecting human rights, addressing issues such as
discrimination, violence against marginalized communities,
and advocating for legal reforms.
6. Disaster Relief and Rehabilitation:
 Example: Goonj, an NGO, focuses on disaster relief and
rehabilitation by providing clothing and essential items to
affected communities during natural disasters.
7. Community Development:
 Example: The Aga Khan Rural Support Programme (AKRSP)
engages in community-based development projects, including
initiatives for sustainable agriculture, water management,
and rural infrastructure.
 8. Advocacy and Policy Influence:
 Example: The Center for Science and Environment (CSE)
works on environmental policy advocacy, influencing
government policies related to air and water pollution, waste
management, and sustainable development.
9. Technology for Development:
 Example: Digital Green uses technology to promote
agricultural best practices. They create and share videos with
farming communities to improve agricultural techniques and
increase yields.
10. Social Entrepreneurship:
 Example: NGOs like SELCO Foundation promote social
entrepreneurship by providing solar energy solutions in rural
areas, contributing to both economic development and
environmental sustainability.
These examples showcase the diverse and impactful contributions of
NGOs in addressing specific social challenges and fostering overall
development in India.