Regulation of foreign contributions in India goes back to 1976, when the Foreign Contribution (Regulation) Act, 1976 was enacted to regulate the inflow of foreign funds in India to voluntary organizations set up for various socio-economic, religious or cultural objects. While the 1976 Act loosely regulated foreign funding to such organizations, in 2010 it was repealed in favour of a wider and stricter law on foreign contributions in India. The Foreign Contribution (Regulation) Act, 2010 (“FCRA”), along with the Foreign Contribution (Regulation) Rules, 2011 (“FCRR”) repealed the Foreign Contribution (Regulation) Act, 1976. The FCRA permitted registered entities to receive foreign contribution, but subject to strict conditions and disclosure requirements. The FCRA has been in the limelight in the past few years following widespread crackdown on several NGOs for FCRA violations, resulting in cancellation or suspension of registration of thousands of NGOs . Most recently, Amnesty International has also wound down its India operations following t he Government's freezing of its accounts alleging FCRA violations . 

The Government has further amended the FCRA, to further regulate the laws on foreign contribution in India. The Foreign Contribution (Regulation) Amendment Act, 2020 (“2020 Amendments”) has been notified and has come into force on September 29 , 2020. Given the strict enforcement and stringent penalties (including criminal consequences) for violations of the FCRA, it is critical for not for profit organizations (“NPOs”) to be aware of and clearly understand the ambit of and implications of the FCRA amendments brought about by the 2020 Amendments.  


2020 Amendment



Inclusion of “public servants” in the list of individuals/entities prohibited from receiving foreign contribution: These include election candidates, editor or publisher of a newspaper, judges, government servants, members of any legislature, and political parties, among others. The 2020 Amendment has amended Section 3(1) (c), of the FCRA Act, to include ‘Public Servant' as defined under the Indian Penal Code, 1860[1] in the category of persons who are prohibited to accept any foreign contribution. 

With this amendment, any government employee, including arbitrators, valuers, employees of public sector undertakings, telecom authorities, electricity authorities, professors at government institutes, etc. are not allowed to accept foreign contributions. 

•    Grantors/donors who fund individuals will have to conduct a basic diligence to ensure that the recipient is not a public servant. 

•    NPOs must review if any of their office bearers, chief functionary, trustees, members of the executive council or governing board, etc. are public servants. If yes, the NPO may not be eligible to continue receiving foreign contributions, as such funds could be viewed as indirectly funding a prohibited person. Hence, NPOs with public servants on their governing boards/key posts should restructure their governing bodies and office bearers to comply with this Amendment. 

Do note that this prohibition extends to both direct and indirect funding (through another entity or individual). 

With this amendment, the public servants who may have been involved in social work (in their personal capacity) will need to discontinue such work.


Blanket ban on sub-granting: Under the 2020 Amendment, any foreign contribution lawfully received by any person who is registered under the FCRA, or who has received prior permission, cannot, under any circumstance, transfer or sub-grant the same to any person

Previously, foreign contributions received by registered entities/those who have received one-time prior permission could have been transferred to (i) another entity that is registered under the FCRA, or (ii) with the prior approval of the Government, to an unregistered entity, up to a maximum of 10% (ten percent) of the foreign contribution. 

This Amendment is likely to significantly impact grassroots and smaller NPOs who used to benefit from the sub-grants made by larger entities who had received the foreign funding. The arrangements between various smaller and bigger NGOs for the transfer of funds cannot be utilized anymore and any ongoing agreements have to be terminated. 

•    In light of the blanket ban, NPOs should assess (i) whether to seek registration under FCRA, or (ii) obtain prior permission each time they want to accept a foreign contribution. 

•    If the NPO is unable to, or decides not to seek registration or prior permission under the FCRA, then it will have to rely exclusively on domestic sources of funding. 

It must be noted that receipt of service fees for services rendered by a NPO is not considered “foreign contribution” and consultancy arrangements are not impacted by this Amendment.


Reduction of cap on administrative expenses: The 2020 Amendment reduces the maximum limit for spending foreign contribution on administrative expenses from 50% to 20%. “Administrative expenses” covers amounts such as expenses of hiring personnel for management of the activities of the person, salaries, wages or any kind of remuneration paid to governing body/executive council members, rent, travel expenses, electricity and telephone expenses, legal and professional charges etc. 

With the reduction on utilization of foreign contribution on administrative expenses, talent acquisition is likely to be significantly impacted, as NPOs may not be able to offer competitive remuneration to professionals. Consequently, this may have a trickle down effect on the quality of governance and management of NPOs. 

• NPOs may consider undertaking an internal audit of their receipt and expenses to ensure that they are able to comply with the reduced cap on administrative expenses. Alternatively, they will have to fund their administrative expenses with domestic sources/grants.

• Please note that Rule 5 of the FCRR provides for two exceptions, which will not be considered administrative expenses: (i) expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training; and (ii) expenses incurred by a welfare-oriented organization directly in furtherance of the stated objectives, such as salaries to doctors of a hospital, salaries to teachers of a school etc.


Scrutiny at the time of renewal of registration: The 2020 Amendment provides that the Government may conduct a scrutiny of the organization at the time of the renewal of the registration. Previously, renewal of registration was considered a procedural matter.

While the renewal application has to be submitted 6 months prior to the expiry of the registration, there is no timeline for the government to complete the renewal or provision for deemed approval of the renewal application. Hence, the scrutiny process undertaken at the time of renewal may add to the timelines of the renewal application, as such renewal will be at the satisfaction of the scrutiny officer. 


Designated FCRA Account: The 2020 Amendment states that all foreign contributions have to be received only in a designated ‘FCRA Account' which has to be opened only in the main branch of the State Bank of India at 11, Sansad Marg, New Delhi. However, the funds can then be transferred to another bank account for utilization purposes.

Centralizing of account opening is likely to add to the overhead costs of NPOs, especially those NPOs working in distant parts of the country. 

Penalties prescribed under the FCRA

The FCRA provides for criminal penalties for violations of its provisions which attracts a maximum penalty of imprisonment up to five years, along with monetary penalties which may go up to five times the value of the article or the currency. It also provides for a penalty for assisting or accepting foreign contribution in violation of the FCRA. The NGO/entity receiving the funds and its officers in charge can be prosecuted for such offences. Do note that the Government has notified that these offences can be compounded by paying the prescribed amount of fine. Other penalties under the FCRA include suspension and cancellation of registration or categorizing the NGO in the “one-time permission” category (i.e., the NGO needs to apply each and every time to receive “foreign contributions”).

There have been several instances of various high-profile criminal prosecutions against several NGOs in the past few years, including against Lawyers Collective and Indira Jaisingh , corporate lobbyist Deepak Talwar, a leading program of the Kerala Government , to name a few. These cases were investigated by the CBI and involved (mis)utilization of foreign contribution for purposes other than what was disclosed, corruption in use of such funds. 

To conclude, the 2020 Amendments have been brought in by the Government with the stated objectives of increasing transparency and accountability of NPOs, their foreign funding and utilization of such funds. However, they have been met with strong criticism from the sector, and have been considered regressive and may end up sounding a death knell for several NPOs. Nevertheless, these Amendments need to be complied with in letter and spirit, to avoid any penalties or prosecution of the NPOs or its office bearers. 


1 Section 21 of Indian Penal Code, 1860 defines a ‘Public Servant' as including every officer of the military forces, any person who, by law, whether by himself or as a member of any body of persons has been assigned any adjudicatory functions; every person who is an officer of a court of justice including a liquidator, receiver or commissioner, member of panchayat assisting a Court of Justice, arbitrators who are adjudicating and have been referred by a Court of Justice, every government officer including municipal officers, police officers and any other officers who are giving information of offences, or any other officers protecting public health, safety, convenience. 

A Public Servant also includes any employee of the government whether or not appointed by the government or a local authority or a corporation established by the government but is remunerated by the government for performing public duties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.