FCRA (Foreign Contribution Regulation Act) Registration with YathraFin

Tax Benefits Under FCRA: Section 12A and 80G of the Income Tax Act

• Tax Exemption for Donations (80G): When an FCRA-registered organization is also registered under Section 80G of the Income Tax Act, individual and corporate donors can claim tax deductions on their contributions. Section 80G allows for a 50% deduction on donations to eligible organizations.
  Example: If a donor contributes ₹1,00,000 to an 80G-certified FCRA-registered NGO, they can claim a deduction of ₹50,000, thus reducing their taxable income and tax liability.
• Exemption for Charitable Income (Section 12A): FCRA-registered entities that qualify under Section 12A are exempt from paying income tax on donations received. This exemption applies as long as the organization’s funds are used for charitable purposes as defined by FCRA and the Income Tax Act.
  Example: An NGO that receives ₹20,00,000 in foreign contributions under FCRA and is registered under Section 12A will not pay tax on this income if used for approved charitable activities.

Variations in Tax Benefits Based on Entity Type, State, and Country

• Entity Type: The tax benefits for FCRA-registered organizations are applicable only to trusts, societies, and Section 8 companies registered under Sections 12A and 80G of the Income Tax Act. These benefits are specifically tailored for non-profit entities; private companies are not eligible for the same exemptions.
• State Regulations: While FCRA registration is a federal regulation and its primary rules do not vary by state, certain states may impose additional compliance checks, especially if the foreign funds are used for sensitive activities such as healthcare or education. Additionally, some states have restrictions on specific activities supported by foreign funding (e.g., religious activities).
• Country of Funding: Contributions from certain countries may face additional scrutiny, especially if they come from nations where political or religious affiliations are a concern for the Indian government. The MHA may impose additional reporting requirements for such contributions.

Key Compliance Rules Under FCRA

• Administrative Expense Cap: As per FCRA regulations, no more than 50% of foreign contributions can be used for administrative expenses. The remaining funds must be dedicated to charitable activities. Example: If an NGO receives ₹30,00,000 in foreign contributions, up to ₹15,00,000 can be used for administrative costs, while the balance must go directly to programmatic or charitable activities.
• Annual Financial Reporting: FCRA-registered entities must file annual returns with the MHA. This report details all foreign funds received, expenditures, and the purpose for which the funds were used.
• Renewal Requirement: FCRA registrations are valid for five years, after which organizations must apply for renewal. Failure to renew results in the suspension of FCRA benefits.
• Mandatory Bank Account in SBI, New Delhi: All foreign contributions must be deposited into a dedicated FCRA account in State Bank of India, New Delhi, ensuring centralized tracking of foreign funds.

Example Scenario: Tax Benefits for an FCRA-Registered NGO

Scenario: A non-profit organization in Delhi, ABC Foundation, is registered under FCRA and holds certifications under Sections 80G and 12A. In one financial year, the foundation receives:

• Foreign Contribution: ₹25,00,000
• Indian Donation: ₹10,00,000 (from individual donors eligible for an 80G tax deduction)
• Administrative Costs: ₹5,00,000

Tax Benefits Breakdown

• Donor Benefit (80G): Indian donors to the ABC Foundation can claim a 50% deduction on their donation. Thus, a donor who contributes ₹1,00,000 can claim a ₹50,000 deduction.
• Foundation's Tax-Exempt Income (12A): The entire ₹25,00,000 in foreign contributions, if used for charitable purposes, is tax-exempt for ABC Foundation under Section 12A, ensuring full utilization of funds without income tax.