Receipt of Foreign Contribution in India: All you need to know

By on March 17, 2023

POSTED IN Corporate and Commercial,

Introduction

The Reserve Bank of India (“RBI”) issued circular on 16.02.2023 (“Circular”) mandating inclusion of certain additional technical codes in the NEFT and RTGS core banking / middleware solution systems of originating banks from where foreign contribution is remitted and disclosure of certain information of the donor. Instructions were issued by RBI under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2008. Circular mandates disclosure of details such as name of the donor, his address, country, amount of remittance and purpose of remittance by originating banks. The details of technical codes and the mode of disclosure is provided in Annex to this article.

Law governing receipt of foreign contribution in India

The mode and manner of foreign contribution by foreign source to a person is governed by Foreign Contribution (Regulation) Act, 2010 (“Act”). The Act was promulgated by repealing Foreign Contribution Regulation Act, 1976 and incorporating stringent provisions to prevent misutilisation of foreign contribution. The Act introduced new provisions prohibiting a person receiving foreign contribution to remit such foreign contribution received by him to any other person who is not authorised to receive foreign contribution, thus mandating utilisation of the foreign contribution so received only for the purpose declared and receiving foreign contribution in only a specified bank account. Further, the Act provides that the certificate of registration shall be valid for the specific purpose and amount so authorised and for a period of five years, unlike the earlier regime.

As per the Act, foreign contribution can be made to any person. A person is defined under Section 2(m) of the Act as an individual or a Hindu undivided family or an association or a company registered under Section 8 of the Companies Act, 2013. A foreign source is defined as government of any foreign country or its agency, any international agency (excluding certain notified agencies), a foreign company, a corporation, a multi-national corporation, a trade union in any foreign country or territory, a foreign trust or foundation, society, club or other association of individuals formed or registered outside India or a citizen of a foreign country.

Foreign contribution is broadly defined as donation, delivery or transfer made by any foreign source of any article (not including a gift, not having market value more than prescribed amount), any currency (whether Indian or foreign) and any security as defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956, including foreign security as defined under Section 2(o) of the Foreign Exchange Management Act, 1999. Donation from an Indian origin person who acquired foreign citizenship is also treated as foreign contribution.
There are certain prohibited classes of persons such as election candidates, correspondents, editor or owner of a registered newspaper, public servant, etc., who cannot receive foreign contribution under Section 3 of the Act. However, Section 3 of the Act does not apply when any such person receives foreign contribution by way of salary, wages or remuneration received inter alia in ordinary course of business, or by way of payment in normal course of international trade or commerce, or from a relative, etc.

Provisions to prevent misutilisation of foreign contribution

Section 11(2) of the Act provides for greater regulatory control over persons having a definite cultural, economic, educational, religious or social programme receiving and utilising foreign contribution in their formative stage. Such persons are granted prior permission to receive foreign contribution from specified foreign source and utilise the foreign contribution only for the declared purpose.
Amendment to Section 17 of the Act mandates every person registered or granted permission to receive foreign contribution to receive such foreign contribution in an account designated as “FCRA Account” in such notified branch of State Bank of India (“SBI”). Section 17 (2) of the Act requires the notified SBI branch and any other scheduled bank to inter alia furnish information such as amount, source and manner in which foreign remittance was received.

Thus, the Circular appears to fulfil the mandate under Section 17(2) of the Act by directing banks receiving foreign contribution to disclose information on foreign contribution received and is thus a welcome step ensuring that foreign contribution is not utilised for any unlawful activities.

ANNEX

A) FCRA Transaction Code in NEFT and RTGS Systems:

Originating banks to select following fields of NEFT / RTGS systems while remitting foreign donations to the FCRA account at SBI:

B) Format for providing Donor Details in 7495 and RmtInf fields of NEFT and RTGS Systems:

Originating banks are required to pass on donor details in following formats of ‘Sender to remitter information’ of NEFT and ‘RmtInf’ tag of RTGS: