Can we get donations from abroad?

One of the repeated enquiries I got during the COVID period (last 7 months) was about the Registration of Trusts. Many people were in a hurry to start a trust and their most common question was about how to get funds from abroad! By looking at them, I was also tempted to start a trust since it seemed so easy to find funds from abroad to dry the tears of poor Indians!

Assuming that you know a trust in the USA who want to donate money, can you get it easily to India? Like share the bank account details and ask them to transfer?

Before answering the above question, let me quickly summarize about charitable institutions –

Local Contributions

  1. There are three ways one can start a Trust/NGO/Charitable Institution, namely, (i)a Section 8 Company under the Companies Act, (ii)a Trust under the Indian Trust Act registering at a Sub-Registrar’s Office, (iii) a Society registering under the Co-operative Societies Act.
  2. There is no restriction in getting the money for the Trust from within the country.
  3. If the Trust’s income has to be exempt from tax, then registration under the Income Tax Act has to be obtained (12A Registration)
  4. If the donors have to get tax exemption for the donations made by them, then the Trust has to get a registration u/s 80G of the Income Tax Act
  5. The only condition for running the Trust is Trust! The Trustees should not use the money for their personal benefits. It should be a genuine and heartfelt service to mankind.

Foreign Contribution

Answering the main question – It is not easy to get money from abroad. The country wants foreign exchange, but the color of the money is also important before it is allowed to enter India. One such area where huge restrictions are in place is Foreign money coming to India for charity.

However, is it considered as Foreign Contribution, subject to FCRA registrations if M/s Annadhana Trust, Bangalore, to feed poor people, gets money from Mr. Ramesh of US, Kamalesh from Korea? NO. Any money received from a citizen of India living in another country, from his savings, through bank transfer, is not treated as a foreign contribution. If Stephan, a citizen of Canada wants to donate to Annadhana Trust, then FCRA registration is required.

Foreign Contribution (Regulation) Act 2010 and related Rules, administered by the Ministry of Home Affairs are monitoring and regulating NGOs getting money from abroad.  The Trusts who intend to get money from abroad have to get approval from the Ministry of Home Affairs (MHA). There are two types of approval (a) For a specific project (b) Permanent Registration. Getting approval is a time-consuming elaborate process. Once the Trust is registered, regular reporting, return filing, renewing, etc., is to be done like the way it is done in any other Tax regulations. The registration is to be renewed once in 5 years.

As such getting registration under FCRA was a marathon task and now, it has been made stricter through stringent rules via FCRA Amendment Act, 2020.

Who can’t get foreign money?

Public Services like individuals who are holding Public Offices or Government jobs, a candidate for election (like AAP candidate!!), a Judge, MP or MLA, a political party, etc., are not allowed to get foreign funding

Do It Yourself (DIY) Can’t transfer to another Trust – If Trust ABCD gets the registrations, gets the money from abroad, they only have to use it for Charitable purposes. Hitherto, it was allowed to transfer to other FCRA registered Trusts and thereby many intermediaries were associated with large NGOs for executing the work at grass root levels. At the same time, there were many unscrupulous people taking advantage of such funding and making a living out of it. A blanket ban on fund transfer may affect genuine institutions.

More for Charity and less for Managing the Charity There is a cap on spending money on administrative expenses. It shouldn’t exceed 20% of the total receipts (earlier it was 50% of the receipts). I have seen many high profile, English-speaking people getting hefty cheques from Trusts, which otherwise, should have been spent on charitable activities. Now through this amendment, such wasteful expenditure can’t be done!  Having said that, the trimming of admin costs will be a hindrance for genuine organizations to attract good talent to work.

Centralized Receipt of money – All the money received from abroad is to be routed through a specific branch of the State Bank of India, New Delhi. This means you can’t open an account in any bank and mix Indian donations with it. It has to be separately received and utilized. The utilization certificate has to be submitted to the regulator at regular intervals.

Violation of the Act – ready to face!

If the Regulations are not adhered to, the Government has the power to suspend the registration for a year.

The penalty ranges from Rs.1 Lakh to 100% of the money received. For example, offenses like transfer of funds to any other person attract Rs.1 Lakh or 10% of the contribution whichever is higher as a penalty. Whoever fails to comply with any provisions of the Act shall be punished with imprisonment for a term which may extend to one year or with fine or both!

Be watchful before getting foreign funding to do charity in India. Take the right steps to walk in the right direction.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant at Bangalore, India. He has 26 years of experience in the areas of NRI matters, Income Tax, Setting up Business. He is also an Insolvency Professional and Registered Valuer (F&SA)He can be contacted at [email protected]

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Commander Rao
Commander Rao
1 month ago

Dear Mr Prasad,It is so nice that you have dealt with this topic in such simple terms.Apart from Indian Citizens,can PIOs also donate to Charitable Indian Trusts, without hassles?Thanks in advance.

1 month ago

A well articulated writing touching upon the basics. Keep writing many more.

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