A primer on the key changes introduced by the Foreign Contribution (Regulation) (Second Amendment) Rules, 2019

The Ministry of Home Affairs (“Ministry”) has notified the Foreign Contribution (Regulation) (Second Amendment) Rules, 2019 (“Amendment”) on September 16, 2019. These rules amend the Foreign Contribution (Regulation) Rules, 2011 (“Rules”).

The key changes introduced by this Amendment are as follows:

  1. Gifts (Rule 6A): Articles gifted to a person for his personal use will not attract the provisions of the Foreign Contribution (Regulation) Act, 2010 (“Act”), when the value of the gift in India is up to INR 1,00,000/- (Rupees One Lakh only). This threshold has been revised upwards from INR 25,000/- (Rupees Twenty Five Thousand only).
  2. Emergency Medical Aid (Rule 7): In case of emergency medical aid received during a visit abroad, the person accepting foreign hospitality for the same shall be required to intimate the Central Government within a period of 1 month, providing complete details of the source of the hospitality, its value in INR and the purpose of its utilization. The time period for intimation has been reduced to 1 month from the earlier prescribed period of 2 months.
  3. Procedure for obtaining registration under the Act, prior permission for receipt of foreign contribution and renewal of registration certificate (Rules 9 and 12): Now, an affidavit needs to be executed by each office bearer, functionary and member of the registered entity individually. Such affidavit needs to be attested by a Notary Public or a Judicial Magistrate of the 1st Class. The affidavit shall be in the form prescribed in Proforma ‘AA’ of the Amendment. This ensures that office bearers of the entity are also held accountable for the entity’s compliance of the Act and the Rules from time to time. The objective of this affidavit is that the office bearers, functionaries and members of the entity may state on oath that they are compliant with the provisions of Section 12(4) of the Act detailing disclosures to be made. Among other things, Section 12(4) of the Act requires an individual to declare that he/she (a) is not fictitious, (b) is not involved in any act of religious conversion, (c) has not been prosecuted for communal disharmony, or (d) has not been found guilty of diversion of funds. Statements to the effect of implementing these affidavits have been included in the Forms 3A, 3B and 3C of the Rules. It is to be noted that these affidavits shall have to be furnished at the stage of applying for a certificate of registration by an entity under the Act, while seeking renewal of registration and while seeking permission for receipt of foreign contribution.

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Over the past few years, the Government has been tightening its scrutiny of those NGOs that receive foreign contributions. In the past year, the registration certificates of various Non-Governmental Organizations (NGOs) were sought to be suspended for non-compliance with the provisions of the Act. However, this decision was ultimately rescinded on subsequent compliance by the NGOs who had been served a show-cause notice by the Government. Between the years 2011 and 2017, the license of 18,868 NGOs was cancelled for violation of various provisions of the Act and the Rules. The revision in the threshold of Rule 6A will certainly make it easier for individuals receiving gifts in a personal capacity. However, the changes brought in by the Amendment, are intended to ensure increased accountability for the receipt of foreign contributions, not only for NGOs, but also for individual members of such NGOs.  Individuals as well as NGOs will be required to maintain a more comprehensive documentation of their overseas visits to ensure that they are in compliance with these provisions of the Rules. It may also be noted that the terms ‘office bearer’ and ‘key functionary’ have not been defined in the Act or the Rules, and the absence of these definitions renders the exercise of actually implementing the affidavit provision challenging.

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Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.


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