The Ministry of Home Affairs (“MHA”) issued a public notice[1] under the Foreign Contribution (Regulation) Act, 2010 (“FCRA”), on April 7, 2025, (“April Notice”) changing the validity and scope of prior permission sought for specific projects.
The FCRA was enacted with the twin goals of regulating foreign contribution and prohibiting activities detrimental to national interest[2]. It aims to streamline the process of accepting and using foreign funding for social, educational, religious, economic and cultural purposes. It is administered, regulated and enforced by the MHA.
The FCRA provides for two methods of receiving foreign funding: registration and prior permission.[3] An organisation having a definite cultural, economic, educational, religious or social programme can choose to register under the FCRA if it fulfils certain conditions. Alternatively, prior permission may be sought, if a person or organisation wishes to receive foreign funds from identified donors for a specified activity or project. The latter route of prior permission is especially useful for organisations that cannot meet the stringent registration criteria or need funds only for a specific project.
The April Notice states that the validity period for receiving foreign funding shall be three years from the date of approval of the application for prior permission, and that the validity for utilising such foreign contribution shall be four years from the date of approval of the application. Further, for projects where prior permissions had been granted previously, the new timelines were effected from the date of the notice. This marks a significant change from the previous position wherein approvals were typically granted basis the length of the project on a case to case basis, with varying terms. The April Notice continues the recent MHA efforts to streamline processes, which could explain the change in timelines to a uniform period. Conversely, for organisations managing long-term projects, this requirement may be onerous as it could heighten the administrative burden of periodically renewing permissions, thereby introducing additional uncertainty and extending the timelines.
One may also take note of a prior public notice[4] issued in January 2025, wherein the MHA had reiterated that foreign contribution must be used solely for its intended purpose, i.e., the purpose for which the organisation was registered or granted prior permission under the FCRA. Utilisation, or even receipt of foreign contribution for other purposes or by organisations not registered under the FCRA, without prior permission of the government (including whose FCRA certificate has been cancelled, ceased, or expired), would constitute a violation under the FCRA and be liable for penal action.
A shift in the regulatory approach can also be seen in the amendments brought to the foreign contribution framework in December 2024 and January 2025. The Foreign Contribution (Regulation) Rules, 2011, were amended by the Foreign Contribution (Regulation) Amendment Rules, 2024, (“2024 Amendment”), effective January 01, 2025 (collectively “FCR Rules”). This follows other clarifications and extensions aimed at clarifying procedures and ironing out administrative hurdles for associations receiving contributions from foreign sources.[5]
The 2024 Amendment[6] inserted a third proviso to Rule 5 of the FCR Rules, allowing associations to carry forward unspent administrative expenses (within the 20% limit allowed) of a financial year to the immediately succeeding financial year after disclosing the reasons.[7] It also inserted a corresponding reporting requirement for organisations to provide details regarding the unspent part of allowable administrative expenses brought forward, total foreign contribution received during the year, the allowable administrative expenses of the current financial year, total administrative expenses incurred in the current year, administrative expenses of current year utilised out of current year allowance and from the amount brought forward, the unspent part to be carried forward, and the reason for the carry forward of unspent administrative expenses to next financial year.[8]
This change was necessary because of the position of administrative expenses as it stood before, which stated that administrative expenses must be up to 20% of the foreign contribution received during that financial year[9]. This created a scenario where if an organisation received foreign contribution in one financial year but used it in the following financial year, there was uncertainty about whether administrative expenses could be claimed in the second year. Hence, to remove this ambiguity, the 2024 Amendment allowed unspent administrative expenses to be carried forward to the immediately succeeding financial year. It was further clarified that administrative expenses could be claimed only in the year of receipt of foreign contribution and the immediately succeeding financial year, but not beyond that.
While the clarification regarding administrative expenses is arguably a positive step, interestingly, the 2024 Amendment has also increased the involvement of chartered accountants (“CA”) from merely certifying financial statements to verifying the financial details provided by associations and requiring them to provide an opinion on whether FCRA was violated. [10]
Hence, on one hand, the government is working to bring clarity to the regime by providing financial flexibility and enabling organisations to work within the framework of other domestic laws to prevent misuse of foreign funds and manage their unutilised funds; on the other, additional compliance, regulatory oversight and strict interpretation of procedural provisions may become burdensome and costly, thus hindering operations of FCRA recipient organisations, especially small organisations. Given the FCRA’s aim of balancing foreign contribution inflows with strict regulation, there is bound to be a tussle between stakeholders regarding the question of overregulation. While recent government actions prima facie appear to be supportive, it may be premature to comment till the issues surrounding the FCRA have achieved quietus. It is imperative to strike a balance between state intervention and stakeholder interests by addressing operational and practical difficulties.
For further information, please contact:
Ritika Rathi, Partner, Cyril Amarchand Mangaldas
ritika.rathi@cyrilshroff.com
[1] Ministry of Home Affairs, public notice dated April 7, 2025, No.II/21022/36(0025)/2025-FCRA-II.
[2] Foreign Contribution (Regulation) Act, 2010, preamble.
[3] Foreign Contribution (Regulation) Act, 2010, sections 11 and 12.
[4] Ministry of Home Affairs, public notice dated January 21, 2025 No.II/21022/58(93)/2024-FCRA(MU).
[5] This includes but is not limited to the public notice on ‘Clarification regarding refund of TDS pertaining to foreign contribution’ issued by MHA dated December 31, 2024, No.II/21022/23(12)/2020-FCRA-III; public notice ‘Regarding maintaining of FCRA accounts and utilisation accounts of associations whose FCRA Registration Certificate is not valid’ issued by MHA dated January 21, 2025 No.II/21022/58(93)/2024-FCRA(MU); and public notices on ‘Extension of validity of FCRA registration certificates’ issued by MHA dated December 27, 2024, September 28, 2024, June 29, 2024 and March 28, 2024.
[6] Foreign Contribution (Regulation) Amendment Rules, 2024 available at https://egazette.gov.in/WriteReadData/2024/259764.pdf
[7] Rule 2 of the Foreign Contribution (Regulation) Amendment Rules, 2024.
[8] Rule 3(b) of the Foreign Contribution (Regulation) Amendment Rules, 2024.
[9] Section 8(1) of the FCRA, 2010.
[10] Rule 3(c) and 3(d) of the Foreign Contribution (Regulation) Amendment Rules, 2024.
