Transcript By CA. Vittal Rao Lokare 1

By CA. Vittal Rao Lokare
1
Introduction
 Trade/Business
 Charity
Quid-Pro-Quo
No Quid-Pro-Quo
( Something for something)
 to control such trading transactions
 R B I Mumbai
Controls and monitors
(One sided/ unilateral & gratuitous
transactions)
 to regulate such charity transactions
 MHA, New Delhi (FC
Section)
Regulates and supervises
Through
Through
Foreign Exchange Management
Act, 1999 (FEMA)
Foreign Contribution (Regulation) Act
2
International Charity Flow
For social development projects
Diagrammatic representation
Beneficiaries
in India community
Donors
Benefactors
Abroad
OOOOOO
OOOOO
OOOO
OOO
OO
O
International NPO
Local Indian NPO
(Bi-lateral co-operation agreement )
OOOOOO
OOOOO
OOOO
OOO
OO
O
Other concepts
Certificate v/s Report :
Certificate = Fact
Report
= Fact + opinion
Other concepts –contd.
Cash system of accounting
v/s
Mercantile system (Accrual system)
Foreign Contribution(Regulation)
Act
 The object is to regulate
 for any activities detrimental to the NATIONAL
INTEREST.
 and matters connected therewith or
 Incidental thereto.
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Foreign Contribution(Regulation) Act, 1976
 This Act came into existence in 1976.
 This also got Rules and Regulations.
 This Act got amended from time to time and major
changes took place in December 1984
***
FC(R)Act 1976 was abolished and new Act called
FC(R)Act 2010 is brought into existence .
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 This new Act called FC(R)Act, 2010 came in force
with effect from 1st May 2011.
 This also got connected with Rules called
 Foreign Contribution(Regulation) Rules, 2011.
to explain procedural aspects involved.
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Foreign Contribution (Regulation)Act,2010
 There are 9 chapters in this Act.
Chapter 1 :deals with : Title & definitions.
Chapter 2: Regulations of Foreign Contributions &
Foreign Hospitality
Chapter 3: Registration.
Chapter 4: Accounts, intimation,Audit &
disposal of assets etc..
Chapter 5: Inspections, search & seizure.
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Foreign Contribution (Regulation)Act,2010 (contd.)
Chapter 6 : Adjudication- confiscation, articles,
currency, security- procedures etc..
Chapter 7: Appeals & Revisions.
Chapter 8: Offences & Penalties
Chapter 9: Miscellaneous
( calling for information, investigation,
delegation of power, power to make
Rules, power to remove difficulties,
Repeal and savings.)
***
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Foreign Contribution (Regulation)Act,2010
Chapter 2: deal about Regulations of Foreign
Contributions & Foreign Hospitality .
Section 7:
 FC Can be received only if it is registered and
granted a certificate.
 A person can transfer FC to any other person only
if such other person is also registered and granted
certificate OR has obtained the prior permission
under FC(R) Act.
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Foreign Contribution (Regulation)Act,2010
Chapter 2: deal about Regulations of Foreign Contributions
& Foreign Hospitality .
Section 8:
 This section directs that the FC received should be
utlised for the purpose for which such FC
received.
( No mis-application/ No diversion of funds)
 The administrative expenses shall not exceed 50%
of such contribution
(It should be less than 50%)
 If exceeding 50%, prior approval of Central
Government is required.
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Foreign Contribution (Regulation)Act,2010
Chapter 3: deal about Registration.
Section 11:
• The existing registered organizations( Regular &
Prior-permission orgs.) get automatically covered
under new Act in so far as Registration is concerned.
• The registration is valid for new ones under this Act
for 5 years and also for the existing ones, 5 years
commencing from 1st May 2011.
• If FC is received by unregistered bodies, the
unutilized or un received amount can not be utilized
or received without prior approval of central
government.
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Foreign Contribution (Regulation)Act,2010
Chapter 3: deal about Registration.
Section 12:
 When applied for registration, the central
government may ordinarily register and grant
certificate within 90 days (Three months)
 This registration is valid for 5 years.
 Prior permission shall be valid for the specific
purpose or specific amount of FC proposed to be
received.
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Foreign Contribution (Regulation)Act,2010
Chapter 3: deal about Registration.
Section 14:
Cancellation of certificate.
• After making an enquiry, the central government may cancel the
certificate, if
1- making incorrect or false statement
2-violated any terms and conditions of the certificate or
renewal
3- necessary in the public interest
4-has violated any provisions of this Act or Rules or order
made.
5- not been engaged in any reasonable activities in its
chosen field for the benefit of the society for two consecutive
years or has become defunct.
• if certificate is cancelled, not eligible for registration or prior
permission for 3 years from the date of cancellation of the certificate.
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Foreign Contribution (Regulation)Act,2010
Chapter 3: deal about Registration.
Section 16:
Renewal of certificate.
 Person who has been granted a certificate, shall
have such certificate renewed within 6 months
before the expiry of the period of the certificate.
(in other words, apply for renewal after four & half year)
 The central government will renew certificate
within 90 days ( 3months) {ordinarily} from the
date of receipt of application for renewal
***
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 17: (Receipt of FC)
 The FC received shall be in a single account only
as specified in the application for grant of
certificate.
 It may open one or more accounts (in one or more
banks) for utilizing the FC amounts.
 No funds other than FC shall be received or
deposited in such account or accounts.
 Every bank shall report to MHA (or such authority as
specified.)
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 18: (Intimation)
• To inform MHA New Delhi, in Form -FC 6
as to the amount of FC received, the source and the
manner in which FC was received, and the purpose for
which, and the manner in which such FC was utilized.
• Those who receive FC money shall also submit a copy
of bank statement which indicates FC receipts
duly certified by the bank officer along with Form -FC6
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 19:
(Books of accounts)
• Those who receives FC amount, shall maintain :
a) An account of FC received and
b) A record as to the manner in which such
contribution has been utilized.
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 20: (Audit by government)
 The Central Government may authorise gazetted
officer of Group ‘A’ rank under Central
Government to audit any books of accounts of
such person.
 Such officer has the right to enter in or upon any
premises (at any reasonable hour) before sunset and
after sunrise for the purpose of auditing the said
books of accounts.
 In the following circumstances:
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 20: (Audit by government) ……..Continued.
 In the following circumstances:
When failed to furnish any intimation within the time
specified or
b. Intimation so furnished is not in accordance with law.
c. Any provisions of FC(R)Act has been contravened.
a.
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Foreign Contribution (Regulation)Act,2010
Chapter 4:
(Accounts, Intimation,Audit and Disposal of assets, etc.)
Section 22:
(Disposal of FC assets)
• If the organization ceases to exist or
• If has become defunct
Then
• All the assets shall be disposed off accordance with the law
in which it was created
• If no law exists
Then, the Central Government may by notification specify
the all such assets shall be disposed off by such authority,
in such manner and procedure as may be prescribed.
***
***
***
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Foreign contribution (Regulation) Act, 2010
Ends
Foreign Contribution (Regulation) Rules, 2011
begins
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By CA. Vittal Rao Lokare
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Foreign Contribution(Regulation) Rules, 2011
Introduction:
 These Rules prescribe the procedures to be
followed in implementation of the Act.
 Rule 1 & 2 give short title, commencement and
various definitions.
 Rule 3 deals about guidelines for declaring an
organization to be of a political nature, when not
being a political party.
 Rule 4 defines what the speculative activities are.
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• Rule 5 deals about Administrative expenses.
Foreign Contribution(Regulation) Rules, 2011 (Contnd)
The following will be such expenses:
1.
2.
3.
4.
5.
6.
7.
8.
Salaries, wages, travel expenses or any remunerations of the
executive committee or governing council.
All expenses towards hiring of personnel for management of the
activity (programmes) and salaries, wages, or any kind of
remunerations paid including travel to such personnel
Expenses like electricity and water, telephone, postage, repairs to
premises( Admn office and field office) and expenses on office
equipments.
Cost of accounting and administering fund
Expenses on running and maintenance of vehicles.
Cost of writing and filing reports.
Legal & professional charges
Rent of premises and expense on other utilities
Contd…
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Foreign Contribution(Regulation) Rules, 2011 (Contnd)
• Rule 5 deals about Administrative expenses.
The following will be exceptions for such expenses:
•
If an association is primarily engaged in Research and Training, the
expenditure incurred on :
1.
2.
3.
•
Salaries or remuneration of personnel engaged in training
Salaries or remuneration of personnel engaged for collection.
Salaries or remuneration of personnel engaged in analysis of field data.
If an organizations objectives are welfare oriented,
1.
2.
Salaries to doctors of hospitals
Salaries to teachers of schools etc..
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 6: deals about receiving FC money from relatives.
• It states any person receiving FC money in excess of Rs. One
lakh in a financial year from any of his relatives shall inform the
Central Government in Form FC- 1 within 30 days from the date
of receipt.
Rule 9: deals about “Registration” or “Prior permission”
to receive foreign contribution.
• Make application electronically on-line in Form FC-3
• Followed by hard copy of on-line application duly signed with
the required documents.
• Hard copy to reach central government within 30 days of online submission.( Failing which request ceases)
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Foreign Contribution (Regulation)Rules,2011
Contnd.
• When lapsed, a fresh on-line application can be made only after
•
•
•
•
•
•
•
6 months.
A separate bank account to be opened exclusively to receive FC
money
When one or more bank accounts are opened in one or more
branches for the purpose of utilizing , intimation o plain paper
shall be furnished to MHA New Delhi, within 15 days of the
opening of any account.
Same Rules applies to person seeking prior-permission.
No second application within a period of 6 months after
submitting an application.
Fee for prior-permission - Rs 1,000/-(Rs.one thousand only)
Fee for general registration - Rs. 2,000/-( Rs.Two thousand only)
Fees can be revised by Central Government
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 10 : deals about validity of certificate
• It states that every certificate of registration is valid for a period of 5 years
from the date of its issue.
Rule 11: deals about maintenance of accounts
• They shall maintain a separate set of accounts and records, exclusively, for
the foreign contributions received and utilized
Rule 12: deals about Renewal of registration certificate
• This shall be liable to be renewed after the expiry of 5 years.
• Application in Form FC -5 to be made 6 months before the date of expiry
• When implementing an on going multi-year project, shall apply for
renewal 12 months before the date of expiry of the certificate of
registration.
• Application for renewal to be accompanied by a fee of Rs 500/-( Rs. Five
hundred only)
• If failed to apply, shall be deemed to have ceased from the date of
completion of the period of 5 years from the date of grant of registration.
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 12 contnd.
• If ceased, a fresh request for grant of registration may be made
to the Central Government
• It should provide sufficient grounds, in writing explaining the
reasons for not submitting , then the application may be
accepted for consideration along with fee and such application
should be within 4 months after the expiry of original certificate
of registration.
Rule 13: deals about FC Receipts exceeding Rs. 1 Crore in a
financial year.
• It shall place the summary data on the public domain on
receipts and utilization of foreign contribution pertaining to the
year and one year there after.
• Central Government shall also display or upload the summary
data on is website for information of the general public
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 14: deals about utilization when registration gets
suspended.
 With the prior approval of the Central Government upto 25% of the
un-utilized amount may be spent for the declared aims and objects for
which the FC was received.
 The remaining 75% of the un-utilized FC amount shall be utilized only
after revocation of suspension of the certificate of registration.
Rule 15: Deals about custody of FC amount whose certificate
has been cancelled.
 The balance in FC bank account shall vest with the banking authority
concerned till Central Government issues further direction.
 If the balance in bank account is transferred the same above rule will
apply to the person to whom the fund has been transferred
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 16: deals about reporting of receipt of FC by banks
 Within 30 days, every bank shall send a report of any FC
transaction(receipt of remittance) by any person who is
required to obtain a certificate of registration or prior
permission, but who has not been granted such certificate
or prior permission
 Such report to contain certain required details.
 The bank shall also send a report ( to the Central Government)
within 30 days from the date of such last transaction
Receipt of FC in excess of Rs. 1 crore or equivalent in a
single transaction Or
b. In transaction within a duration of 30 days.
Whether registered or not and such report shall give certain details.
a.
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 17: deals about intimation of FC amount by the
recipient.
• Submit a report in Form FC-6.
• To accompany financial statements for every financial year beginning
•
•
•
•
•
•
on 1st day of April
It should reach within 9 months of the closure of the financial year (
December)
To be sent to the Secretary to the Government of India, Ministry of
Home Affairs, New Delhi.
Form FC-6 to reflect FC received in exclusive bank account and also to
include the details of funds transferred to other bank accounts for
utilization
Form FC-7 to be used when foreign articles are received.
Form FC-8 to be used when FC related to foreign securities.
The above reports shall be duly certified by a Chartered Accountant.
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 17: contnd.
• Every Form FC-6 shall be accompanied by a copy of statement of
account from the bank where exclusive foreign contribution account is
maintained duly certified by the bank officer.
• The accounting statement shall be preserved for a period of six (6)
years.
• Even if no Foreign Contribution is received during the financial year, a
‘NIL’ report shall be furnished.
Rule 24: deals about procedures to be followed for
transferring FC amount to other registered or
unregistered bodies.
• Form FC-10 to be used as an application to Central Government, when
intending to transfer the FC amount
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Foreign Contribution (Regulation)Rules,2011
Contnd.
Rule 24: Contnd.
• The Central Government may permit the transfer who is registered or
having prior permission when such recipient has not been proceeded
against under any provisions of the Act.
• Such transfer of FC amount shall be reflected in the returns in Form
FC-6 as well as in Form FC -10 by the transferor and the recipient.
• In case FC is proposed to be transferred to a unregistered body or
having no prior permission, such concerned may apply for permission
to transfer a part of FC, not exceeding 10% of total FC received. Such
application shall be counter signed by the district magistrate having
jurisdiction in the place where transferred fund utilized.
• The donor shall not transfer any FC amount until the Central
Government has approved the transfer.
***
***
***
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 Design of Book-keeping under
New FC(R) Act 2010 and Rules 2011
OfERR
Local ( Non – FC )
Section
Foreign Contrbution
Section
One Approved Bank Account
Spirulina
Account
General
Account
Main Cash
Book
Bank A/C
Main
Ledger
Cash Book
Utilisation
Bank A/C
Core Fund
Cash Book
Ledger
Utilisation
Bank A/C
Utilisation
Bank A/C
Utilisation
Bank A/C
Bilateral Fund
Cash Book
Bilateral Fund
Cash Book
Bilateral Fund
Cash Book
Ledger
Ledger
Ledger
Ledger
Voucher File
Voucher File
Voucher File
Voucher File
Voucher File
Receipts &
Payment A/C
Account
Tailoring
Account
Bank A/C
Bank A/C
Bank A/C
Cash Book
Cash Book
Cash Book
Agriculture
Ledger
Voucher File
Receipts &
Payment A/C
Receipts & Payments A/C. & Balance Sheet to be Submitted to
Ministry of Home Affairs, Govt. of India, New Delhi.
Consolidated Receipts & Payment Account, Income & Expenditure Account & Balance Sheet to be Submitted to
(1) General Body Members (2) Registrar of Societies & (3) Income Tax Department.
Ledger
Voucher File
Receipts &
Payment A/C
Ledger
Voucher File
Receipts &
Payment A/C
Important definitions:
1.
Speculative activities:a. The following shall be treated as speculative activities:
i) Any activity or investment that has an element of risk of
appreciation or depreciation of the original investment,
linked to market forces, including investment in mutual
funds or in shares.
ii) Participation in any scheme that promises high returns
like investments in chits or land or similar assets not
directly linked to the declared aims and objects of the
organisation or association.
b. A debt-based secure investment shall not be treated as
speculative investment
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Important definitions (contd.):
2. Foreign contribution:
means the donation, delivery or transfer made by any
“foreign source”
a) of any article(not being an article of personal gift).
b) of any currency, whether Indian or Foreign
c) of any security.
Explanation:
i) received either directly or through one or more
persons (indirectly)
ii) interest on SB account and on fixed deposits shall
also be deemed to be foreign contribution ( calf goes
with cow)
iii) amount received from a foreign student towards the
cost of his education including fee is excluded from
this definition
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Important definitions (contd.):
3
“Foreign source”:-
includes, -
a) any foreign government
b) any international agency ( excluding UNO, World Bank,
IMF, or such other agency which Central Govt notifies)
c) a foreign company
d) a corporation incorporated in foreign country
e) a multi- national corporation
f) a company within the meaning of Companies Act ,1956 and
more than 50% of its share capital is held by any foreign Govt/
citizen/corporation/Trust/Society/foreign company
g) a foreign trade union
h) a foreign trust/foundation mainly financed by a foreign
country
i) a society/club/association/of individuals formed outside India
j) a citizen of a foreign county
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Thank You All
 Date : 9th January, 2013
C.A. Institute, Bangalore.
CA. Vittal Rao. Lokare.
Bangalore.
42
Resource person
L. Vittal Rao. B.com., FCA.
Chartered Accountant
Jubilee Building
45, Museum Road
Bangalore - 560 025
Telephone: (080)-2559 4297 (office)
Mobile : 91 – 944 811 4291
E-mail : vittalvibha @ sify.com
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