AccountAid Capsules 2002 (59-131)

According to FCRA rules, the form should be filed only once a year. The form should contain details of all donations (cash, kind, shares etc.) received during the year from April to March. The form should reach Ministry of Home Affairs by 31st July.

[FCRA means Foreign Contribution Regulation Act, 1976.

Also see:

- Rule 8 of FCRA Rules, 1976

- AccountAble 20 'How to Fill Up FC-3' at www.AccountAid.net]

60: Where is the new FCRA?

(7-Jan-02)

The new FCRA could not make it to the Parliament in this session also. Apparently, the bill was not even listed on the agenda. So the suspense

continues.

In the meanwhile, please note that the draft bill remains a state secret till it is tabled in the Parliament. So no one can really say what it contains, and whether it's good or bad for the voluntary sector.

[References:

Also see AccountAid Capsules 9, 10, 33, 53 and 54 at www.AccountAid.net]

61: Tax Exemption for NGOs

(9-Jan-02)

The Economic Times conducted an internet-based poll yesterday, with some strange results:

“Should the government scrap tax exemption for charitable bodies [in India]?

Yes 93%

No 7%

Can't Say 0%”

The Times of India, when reporting this, was charitable enough to add a disclaimer: ‘The poll reflects the opinions of Net users who chose to participate, and not necessarily of the general public.’

[References:

Economic Times ‘ET Insta Poll’ of 8-Jan-02 at http://economictimes.indiatimes.com/

The Times of India, New Delhi, 9-Jan-02, p.15]

62: Dual Citizenship and FCRA

(12-Jan-02)

The Government of India has recently promised dual citizenship to the Indian Diaspora. It is estimated that about 2 crore (20 million) Indians live abroad. This includes NRIs and PIOs.

What would this mean, so far as FCRA is concerned? Will donations of the dual-citizenship status Indians be treated as Indian funds? Or will FCRA still apply to their donations?

Surprisingly, a literal interpretation of the Act indicates that their money will still be foreign contribution. How?

Section 2(1)(e) lists a citizen of a foreign country as a ‘foreign source’. A person with dual-citizenship may be an Indian, but will also be citizen of a foreign country…!

[References:

Section 2(1)(e)(x) of FCRA, 1976

FCRA means Foreign Contribution (Regulation) Act, 1976. Applicable in India

NRI: Non-resident Indian; PIO: Person of Indian Origin.

The Straits Times, ‘India to allow dual citizenship’, Jan 10, 2002, http://straitstimes.asia1.com.sg/primenews/story/0,1870,95616,00.html ]

63: FCRA Registration Statistics

(11-Feb-02)

How many NGOs get FCRA registration each year? We have the figures for last seven years:

94-95: ~690

95-96: ~1300

96-97: ~800

97-98: ~760

98-99: 1336

99-00: 1419

00-01: 1613

The above trend possibly indicates a more liberal attitude to FCRA registration.

[References:

-MHA web-site http://mha.nic.in/

-MHA Annual Report for 2000-01

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India

Figures for 94-95 to 97-98 are approximations based on an MHA chart.]

64: Foreign Contribution in 99-00

(12-Feb-02)

According to the Home Ministry report for 99-00,

- 13,986 organisations filed their FC-3;

- These organizations received a total of Rs. 3,924.63 crores;

- 735 organisations in Delhi received Rs. 636.10 crores;

- USA contributed the maximum funds: Rs.1,086.32 crores;

- Among Islamic countries, Saudi Arabia gave Rs.17.27 crores.

- And even Iraq sent us Rs.3,000!

[References:

-‘Videshi chanda prapti mein aniyamitata rokne barey kade kanoon par vichar’. Punjab Kesri, Delhi. P.4. 13-Feb-02.

-AccountAid Capsule 13

-FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India

-A crore is equal to 10 million.]

65: More on the new FCRA Bill

(13-Feb-02)

According to the Home Ministry, the new FCRA is likely to have tighter provisions to reduce irregularities in accounting of foreign contribution.

[References:

-‘Videshi chanda prapti mein aniyamitata rokne barey kade kanoon par vichar’. Punjab Kesri, Delhi. P.4. 13-Feb-02.

AccountAid Capsule 10

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India.]

66: Foreign contribution and Hawala

(14-Feb-02)

According to the Home Ministry sources, separatists and terrorist groups mostly receive funds through hawala channels. The money often comes from Bangkok and Dubai.

The Ministry has instructed its intelligence agencies to crack down on Hawala agents to control this menace.

[References:

-‘Videshi chanda prapti mein aniyamitata rokne barey kade kanoon par vichar’. Punjab Kesri, Delhi. P.4. 13-Feb-02.

-AccountAid Capsule 10

-FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India

-‘Hawala’ literally means ‘reference’. This emerged as a popular mode of illegal transfer of money and foreign currency in the seventies.

-A crore is equal to 10 million.]

67: Top receivers of foreign contribution

(14-Feb-02)

According to the Home Ministry sources, some Hindu organizations are among the largest recipients of foreign contribution. These include Maharishi Ved Vigyan Vishwa Vidyapeeth (Rs.68.09 crores), Mata Amritanandmayi Mission (Rs.53.07 crores), and Sri Satyasai Central Trust (Rs.50.15 crores).

[References:

-‘Videshi chanda prapti mein aniyamitata rokne barey kade kanoon par vichar’. Punjab Kesri, Delhi. P.4. 13-Feb-02.

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India

A crore is equal to 10 million.]

68: Elections and foreign funding-1

(19-Feb-02)

The following comment appears in a report prepared by the ACE Project on Administration and Cost of Elections in April 1999:

“Secret Money Provided By Foreign Governments

Governments have traditionally used secret service funds to bribe (or, putting it differently, to assist) prominent foreign politicians and their election campaigns. Other political uses of secret service funds have included payments to foreign trade unions and to foreign newspapers.

Such payments have a long history. In modern times, the 'Reptile Fund' used by the German Chancellor, Otto von Bismarck, provided a precedent followed by subsequent German regimes. During the First World War, the German Foreign Ministry encouraged the Bolsheviks by sending them money through devious routes across the Baltic. Hitler used similar techniques. After the Second World War and at least until the 1970s, a secret 'Chancellor Fund' was at the disposal of successive West German Chancellors. Secret payments to Chilean politicians in the 1960s and to Portuguese and Spanish anti-Communists in the 1970s reportedly came from this source… ”

continued in capsule 69

[References:

The ACE project is titled ‘Administration And Cost Of Elections’. It is a joint endeavour of IFES, UN-DESA and IDEA. These comments have been taken from the draft report on the Internet http://www.aceproject.org/main/english/pc/pcd02h.htm. Copyright 1999]

69: Elections and foreign funding-2

(19-Feb-02)

The following comment appears in a report prepared by the ACE Project on Administration and Cost of Elections in April 1999:

“Secret Money Provided By Foreign Governments

Continued from capsule 68:

…As revelations following the fall of the Soviet regime have shown, the Soviet Union provided regular funds to foreign Communist parties and to pro-Communists organisations.

Soon after its formation in 1947, the Central Intelligence Agency of the United States also became active in making payments to anti-Communist politicians, parties, and trade unions in a large number of foreign countries. In the era of the Cold War, political parties in Africa and elsewhere reportedly received financial support from the Soviet Union and from China as well as from the United States. Some oil-rich countries such as Libya are also alleged to have been active in providing money for foreign political causes.”

[References:

70: Shades of FCRA in other countries

(20-Feb-02)

By 1997, at least 22 countries had placed restrictions on foreign funding of elections:

1. Albania

2. Algeria

3. Brazil

4. Canada (partial ban)

5. Egypt

6. France

7. Germany (partial ban)

8. India

9. Israel (partial ban)

10. Japan

11. Jordan

12. Malaysia

13. Moldova

14. Poland

15. Romania

16. Russia

17. Spain

18. Taiwan

19. Turkey

20. Ukraine

21. United States

22. Yemen

In India, these restrictions were imposed on 1976 through the FCRA.

[References:

Taken from the ACE draft report of April’99. ACE stands for ‘Administration And Cost Of Elections’. It is a joint endeavour of IFES, UN-DESA and IDEA. Copyright 1999 http://www.aceproject.org/main/english/pc/pcd04d03.htm

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India]

71: FCRA in United Kingdom?

(20-Feb-02)

In 2000, UK also joined a growing list of countries, which regulate or prohibit foreign donations to their political parties.

According to section 54 of the PPER Act 2000, political parties in UK can accept donations only from indigenous voters and organizations based in UK. Other donations must be returned within 30 days. Northern Ireland has been exempted from these provisions for the time being.

In India, foreign donations to political parties have been banned since 1976 through FCRA.

[References:

PPER Act stands for Political Parties, Elections and Referendums Act 2000 (c.41). Applicable in UK. This is not an expert comment but a general interpretation only.

‘NI parties 'exempt' from funding bill’; BBC News, 6-Feb-01, http://news.bbc.co.uk

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India]

72: Unspent funds for Gujarat Earthquake

(21-Feb-02)

If you have unspent funds for Gujarat Earthquake relief, should you deposit these with the Prime Minister’s Relief Fund?

Yes. But only the amount that remains unspent on 31-Mar-2002.

Secondly, this applies only to funds for which a receipt was issued under section 80G(2)(d).

In other words, this requirement does not apply to most of FCRA funds.

[References:

Sections 80G(2)(d), 80G(5C), tenth proviso to section 10(23C), section 12(3) of the Income Tax Act, 1961. Applicable in India

You may have issued an 80G(2)(d) receipt for a donation from a foreigner (or foreign company) taxable in India. If such funds remain unspent, then you should deposit these as well.

Interpretation of Income Tax law is an intricate matter. Please consult your income tax advisers before applying this in your case.

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India]

73: Or pay income tax on these…

(21-Feb-02)

What happens if you do not deposit unspent Gujarat Earthquake funds with PM Relief Fund?

You will have to pay income tax on these, despite your existing income tax exemption.

{This does not apply to most of FCRA funds].

[References:

74: Reassessing the Indian donor - 1

(22-Feb-02)

It is estimated that the Government lost Rs.1,100 crores in tax revenue due to deductions under section 80G/ 80GGA in F.Y. 99-00. What does this mean?

- - Indian taxpayers donated around Rs.6,000 crores under these sections in 99-00.

- - In the same year, foreign donations (FCRA) came to just Rs.3,925 crores.

- - Apparently, even a well-known organization like CRY has only touched the tip of this charitable iceberg. They received just Rs.7.97 crores (from Indian sources) in 99-00 (0.13% of 6000 crores).

[References:

Tax estimates taken from Parthasarthy Shome Committee Report, p.114 (Final Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan, May 2001. http://planningcommission.nic.in)

CRY Indian donations taken from p. 19 of CRY Annual Report for 1999-00

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable in India]

75: Reassessing the Indian donor - 2

(22-Feb-02)

On the other hand, a recent survey pegged total Indian donations to organizations at Rs.811 crores (in 99-00). This is just 13% of the amount based on income tax estimates.

Assuming that both the survey and the income tax figures are correct, what could be the explanation for this gap?

Possibly something quite innocent. Majority of Indian donors are shy about broadcasting their charity and seem to be following the ancient tradition of ‘gupt-daan’.

[References:

For results of survey referred above see p. 31 ‘Giving and Fund Raising in India’, 2000, Sampradaan ICP)

‘Gupt daan’ is a Hindi expression and means ‘secret donation’. In such a case, the donor keeps his / her identity secret. The donation is shown in the accounts merely as ‘gupt daan’. Such donations are traditionally considered better than open donations. Donations at public functions are considered, by some, to be the worst form of publicity-seeking behaviour.]

76: Shome Report – uniformity in exemptions

(23-Feb-02)

The Shome Committee was set up to advise the Government on Tax Policy and administration. It has made several important recommendations related to non-profit organizations.

The first one is related to differences in exemption between 10(23C) and section 12. Organisations registered under 10(23C):

§ Do not have to file a return,

§ Do not have a minimum spending requirement (75% of income for other non-profits), and,

§ Are not barred from distribution of surplus / payments to key-persons.

Shome Committee has suggested that this distinction should be removed. All organizations should meet the requirements of sections 11 to 13 (listed above).

[References:

Parthasarthy Shome Committee Report, p.115 (Final Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan, May 2001. The report draws heavily on ‘An Analysis of Tax Concessions for Charitable Contributions and Trusts / Institutions’ by NIPFP. http://planningcommission.nic.in)

Section references are to Income Tax Act, 1961. Applicable in India]

77: Shome Report – Commercial NPOs

(23-Feb-02)

Contd. From Capsule 76…

The second one talks about overall exemption policy for NPOs.

According to the Committee, commercial NPOs should not be entitled to income tax exemption. No one would argue with that.

However, the catch is in deciding who is a commercial NPO. According to the committee, any one who is not a donative NPO must be a commercial NPO.

The committee defines a ‘donative NPO’ as one who gets 90% of its income through donations.

One more ‘small’ twist: earmarked project grants are not to be called ‘donations’ for this purpose!

[References:

Parthasarthy Shome Committee Report, p.114 (Final Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan, May 2001. The report draws heavily on ‘An Analysis of Tax Concessions for Charitable Contributions and Trusts / Institutions’ by NIPFP. http://planningcommission.nic.in)

NPO: non-profit organization. Strictly speaking, the term ‘commercial NPO’ is a misnomer. Probably the committee is referring to commercial organizations disguised as NPOs.

Applicable to India]

78: Shome Report – Tax ALL NGOs?

(23-Feb-02)

Contd. From Capsule 77…

Now we come to the juicy part. If Shome Committee recommendations are accepted, 98% of the NGOs will end up paying Income Tax! How?

Most of the NGOs work with project grants. Many get income from sale of handicrafts etc. There are very few NGOs who get 10% or more as donations from public.

Same will be the fate of old corpus based trusts. They depend on investment income – not on public donations.

[References:

NGOs: Non-governmental organizations. The term usually excludes religious trusts.

Applicable to India]

79: Shome Report – Rs.3000 crores in NGO taxes…

(23-Feb-02)

Contd. From Capsule 78…

And why should the Finance Ministry accept these recommendations? Well, by exempting all NPOs, the Government is losing Rs.3,317 crores annually. By taxing most of them, the Government could raise about 3,000 crores in taxes.

Sounds like a lot of money? Well, 98% marginal rate of tax also sounded like big money in the 1960s. What did it get us? A national habit of evading taxes. We are still trying to figure out the size of ‘underground economy’, which it spawned.

Obviously, this suggestion seems to be based on the assumption that all NPOs are simply waiting breathlessly for an opportunity to pay tax on their grants.

[References:

Parthasarthy Shome Committee Report, p.10, 114 (Final Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan, May 2001. The report draws heavily on ‘An Analysis of Tax Concessions for Charitable Contributions and Trusts / Institutions’ by NIPFP. http://planningcommission.nic.in)

NGOs: Non-governmental organizations. The term usually excludes religious trusts.

Applicable to India]

80: Shome Report – Banish ALL Charity

(23-Feb-02)

Contd. From Capsule 79…

Will the Shome Committee report succeed in banishing charity from India?

Highly unlikely. First, the recommendations are not in tune with general public sentiment.

Second, the Government is quite intelligent and is unlikely to accept something so outlandish.

Third, even if the recommendations are implemented, the work will continue as before. Only the nomenclature of transactions will change: sales will be called donations; project-specific grants will be shown as lump-sum grants.

At this stage, it is good to remember this: What do you get by asking for the impossible?

Nothing.

[References:

Parthasarthy Shome Committee Report, pp.10, 111- 115, 131, 132, 134, 137, 142, 143, 149, 150 (Final Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan, May 2001. The report draws heavily on ‘An Analysis of Tax Concessions for Charitable Contributions and Trusts / Institutions’ by NIPFP. http://planningcommission.nic.in)

Applicable to India]

81: Budget 2002 – Gujarat Earthquake date to be extended

(1-Mar-02)

If the new Budget bill is passed, then:

§ The time limit for utilization of Gujarat Earthquake funds [received under section 80G(2)(d)] will be extended to 31^st March 2003.

§ Unspent funds as at 31-Mar-03 will go to PM’s Relief Fund.

§ Accounts will have to be submitted by 30-Jun-03.

[References:

Proposed amendment to Section 80G(5C).

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

Section references to Income Tax Act, 1961. Applicable to India]

82: Budget 2002 – 35CCB may end soon

(1-Mar-02)

35CCB relates to donations for organizations engaged in conservation of natural resources or afforestation. Presently 100% deduction is allowed under this section.

If the new Budget bill is passed, then:

§ No deduction will be provided for donations made to NGOs approved under section 35CCB after 31-Mar-02.

However, NGOs working in this area will be able to get approval under section 35AC instead.

[References:

Proposed amendment to Section 80GGA(2).

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

AccountAble 61: Tax Relief on Donations

Section references to Income Tax Act, 1961. Applicable to India]

83: Budget 2002 – Misusing 35AC made difficult

(1-Mar-02)

If a project approved under 35AC is not implemented properly, then approval can be withdrawn under sub-section 4 or 5 after a show-cause notice. However, the section does not provide any penalty for funds misused.

If the new Budget bill is passed, then:

§ The total amount raised under section 35AC will be added to the income of the NGO / company. The NGO / company will have to pay tax at the maximum marginal rate on the total amount added back.

This provision appears to be aimed at deterring some dummy organizations, which issue inflated receipts for donations.

[References:

Proposed amendment to Section 35AC.

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

AccountAble 17: Raising Funds in India

AccountAble 61: Tax Relief on Donations

Section references to Income Tax Act, 1961. Applicable to India]

84: Budget 2002 – NPOs need not publish accounts

(1-Mar-02)

Last year, section 10(23) and section 12A were amended. NPOs with income exceeding Rs.1 crore were asked to publish their abridged accounts in a local newspaper. This was meant to encourage transparency and accountability.

If the new Budget bill is passed, then:

§ NPOs will no longer be required to publish accounts. Accounts for 2001-02 also need not be published.

This amendment is proposed as many NPOs wrote to the Ministry saying that the information about their income can be misused by anti-social elements (extortion, black-mail etc.).

[References:

Proposed amendment to Section 10(23C) and 12A.

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

Crore= 10 million; Rs. 1 crore =~ 200,000 US Dollars

Section references to Income Tax Act, 1961. Applicable to India]

85: Budget 2002 – Spend 100% of your income

(1-Mar-02)

At present NPOs exempt under section 10(23C) or registered under section 12A must spend 75% of their income each year. The rest can be accumulated for an indefinite period.

If the new Budget bill is passed, then:

§ All NPOS will have to spend 100% of their income each year.

However, the NPO will still be allowed to accumulate part of its income for spending over next five years. This must be for a specified project / purpose.

[References:

Proposed amendment to Section 10(23C) and 11.

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

Section references to Income Tax Act, 1961. Applicable to India]

86: Budget 2002 – Section 10(23) NPOS must file return

(1-Mar-02)

Presently NPOs exempt under section 10(23) need not file an annual tax return. NPOs registered under section 12A have to file a return.

If the new Budget bill is passed, then:

§ NPOs exempted under section 10(23C) will also have to file annual income tax return.

This is in line with the Shome Committee recommendations.

[References:

Proposed amendment to Section 10(23C).

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

AccountAid Capsules 76-80

Section references to Income Tax Act, 1961. Applicable to India]

87: Budget 2002 vs. Shome Committee Report

(1-Mar-02)

What happened to the much-feared Shome Committee report? Here’s a quick status report:

Shome Committee recommended that:

1. NPOs getting less than 90% of their income as donations should be taxed as ‘commercial NPOs’. [Status: Not accepted]

2. Donors should get only 10% tax credit for 80G / 35AC donations. [Status: Not accepted]

3. NPOS exempt under sec. 10(23C) should also file return. [Status: Accepted]

[References:

Proposed amendment to Section 10(23C).

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

‘Not accepted’ here only means ‘not accepted so far’

AccountAid Capsules 76-80

Section references to Income Tax Act, 1961. Applicable to India]

88: Foreign Contribution and Government Servants

(20-Mar-02)

Section 4 of FCRA bars people in sensitive positions from accepting foreign contribution. In such a case, can a serving Government officer accept salary payments from a foreign source?

Yes. Section 8 allows such payments without prior approval or reporting.

However, all Government officers must meet standard service rules. Accordingly, the Officer has to obtain permission from the Government to take up such a job on deputation.

[References:

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

89: Organisations of a political nature

(25-Mar-02)

Organisations of a political nature (not being political parties) must seek prior-permission before accepting foreign funds. What is the basis for declaring an organization as being of political nature?

The Government must make up its mind about this, based on the organisation’s:

§ Activities;

§ Programme;

§ Ideology [propagated by it]; or,

§ Relationship with activities of a political party.

By May’98, some 128 organisations had been notified under this provision.

[References:

Also see AccountAid Capsule 36 for a list of the organizations notified under this provision.

See Capsule 16 for Congress (I) plans to set up a foundation for political education.

Section 5 of FCRA

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

90: The Infamous FCRA notices of Sep-99 (part 1)

(25-Mar-02)

In September 1999, Ministry of Home Affairs (MHA) issued notices to 11 NGOs under section 5. These organizations had signed some press advertisements issued by ‘Communalism Combat’ during the Lok Sabha election campaign (Aug-Sep ’99).

MHA asked these NGOs to explain why they should not be listed as organizations of a political nature. Some BJP members argued that money had come from foreign sources.

After a heated debate in NGO circles and the Press, the furor died down after a while. No one lost their FCRA either.

[References:

See Praful Bidwai: ‘Stifling dissent and debate‘ in Frontline, Volume 16, Issue 22, Oct. 23 - Nov. 5, 1999 http://www.flonnet.com/fl1622/16221000.htm

Communalism Combat: Oct ‘99 http://www.sabrang.com/cc/comold/oct99/campaign.htm

Irrepsective of hair-splitting, the advertisements clearly had a political purpose and were released during elections. They carried more weight because they were ‘issued’ by NGOs and not a political party. – Ed.

Also see AccountAid Capsules 9 for Mr. Vidyasagar Rao’s statement; AccountAid Capsule 89 for explanation of section 5 of FCRA.

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

91: The Infamous FCRA notices of Sep-99 (part 2)

(25-Mar-02)

However, the ad campaign had cost a lot of money. The question remained: where did the money come from?

For an answer to this, we turn to Humanscape of November 1999. Meher Pestonji interviewed Javed Anand and Teesta Setalwad, editors of ‘Communalism Combat’:

Question: The ad campaign is reported to have cost approximately 1.5 crores. Who funded it?
Answer: The Congress, CPI, CPM and about ten prominent individuals.

[References:

Humanscape, Nov-99. Article available on request.

Communalism Combat: Oct ‘99 http://www.sabrang.com/cc/comold/oct99/campaign.htm

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

92: The Infamous FCRA notices of Sep-99 (part 3)

(25-Mar-02)

This story has an important insight into how FCRA works.

We all know that it restricts political activity with foreign funds.

But now we know that FCRA also restricts organizations funded by foreign sources from getting into election politics at all.

Does this mean that NGOs cannot get involved in politics? No.

It means that NGOs getting foreign funds should not get involved in election politics or related campaigns.

[References:

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

93: Budget 2002 –No grants from accumulated funds (Part 1)

(23-Apr-02)

Many NPOs in India make grants to others. These organisations are allowed a deduction for the grants (made) from their taxable income. The NPOs are also allowed to accumulate up to 25% of their income for future use.

The new Budget has proposed that NPOs must spend 100% of the income in the year of receipt. If this is not possible, then they can accumulate it for a specific project. The accumulated amount must be spent within the next four years. Spent, on what?

If the new Budget bill is passed, then:

§ The expenditure from accumulated funds must be direct expenditure (spent by the NPO itself). This means that accumulated funds can not be used to make grants to other organisations.

This does not make a difference to most implementing NPOs. However, grant-making agencies will be in great difficulty. They must make their grants in the first year itself. Or pay 35% tax on the grants made next year!

….contd.

[References:

Proposed amendments to Section 10(23C) and 11.

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

Section references to Income Tax Act, 1961. Applicable to India]

94: Budget 2002 –No grants from accumulated funds (Part 2)

(23-Apr-02)

… contd.

Why has the Government proposed such a change? It may have thought that people will be able to avoid the 100% expenditure requirement by passing the unspent balance around*. This change will help the Government put a stop to it. However, in this process, Indian grant-making agencies may fold up. Financial networks** will become unviable. However, foreign grant-makers will remain unaffected.

One is reminded of a Panchatantra story at this point: A king had a faithful monkey for a bodyguard. One day the monkey was fanning the king while he slept. Just then a small fly started buzzing around the king. The monkey tried to wave the fly away using his fan. When this did not work, he picked up the king’s sword and slashed at the fly, which had now settled on the king’s chest. The fly flew away, and the king was …

So as Kartak, the jackal says to his friend Damanak in Panchatantra, it is better to have an intelligent enemy rather than a foolish friend…

[References:

Proposed amendments to Section 10(23C) and 11.

Union Budget 2002-03 http://indiabudget.nic.in/ub2002-03/bill.htm

The above are budget proposals, presented here for discussion only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

NPO: Non-profit organization

Section references to Income Tax Act, 1961. Applicable to India

* LJM passes on its unspent balance to XYZ as a grant in year 3, who in turn gives to ABC in year 5, who in turn passes it back as a donation to LJM in year 7.

** Where one NPO receives a consolidated grant and in turn makes grants to 10-20 other smaller NPOs.

Nrap-sevak-vanar Katha, P. 229, Panchatantram. Motilal Banarasidas, 1975

Faithful but Foolish, P. 184. The Pancatantra, Penguin Books,1993]

95: Are you using the latest FC-3?

(8-May-02)

Form FC-3 was last revised on 26-July-2001. When you file this year’s FC-3, make sure you are using the latest one.

How to check whether you are using the latest form? This one has a list of 56 activities – the previous one only had 27. Also, the new form asks you to show the amount of interest earned on FC funds.

[References:

Form FC-3. Revised 26-July-2001. Foreign Contribution (Regulation) Rules, 1976. Available at www.AccountAid.net

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

96: Rural Development and FC-3

(8-May-02)

The new FC-3 has at least 55 heads of expenditure. It appears quite confusing. Instead of using so many heads, can you classify all your expenditure under one head such as ‘Rural Development’?

Some NGOs follow this procedure. It is simple and convenient.

However, FCRA Department does not appreciate this.

Their argument is that the activity must be specified more clearly. You should use as many heads as required, depending on the nature of expenditure.

But if you can’t find a suitable heading at all, use number ‘56: Activities other than those mentioned above’.

[References:

Form FC-3. Revised 26-July-2001. Foreign Contribution (Regulation) Rules, 1976.

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

97: Tax exemption for churches in USA

(10-May-02)

Under the US Tax laws, churches are exempt from income tax. Further, they are not required to file any return of income with the authorities. This exemption extends to other church-related organizations also.

Under Indian Tax laws, all ‘public religious organizations’ are also exempt from tax. However, they are required to file tax returns, just like other NPOs in India.

[References:

AccountAid Capsule 1: Public Disclosure in USA

Under US tax laws, all religious organisations (mosques, temples, synagogues, gurudwaras, etc.) are called ‘churches’. This benefit is, therefore, available to all faiths. Indian tax laws use the term ‘for public religious purposes’ instead of a faith-specific term.

US religious organisations have an advantage over other NPOs who have to file form 990 each year. Form 990 is also open to public. – Ed.

Section 11, Income Tax Act, 1961. Applicable to India]

98: Election Candidates and FCRA

(10-May-02)

An NGO has FCRA registration. Can the Chief Functionary of this NGO fight elections to the Assembly or Parliament?

Yes. The NGO is distinct from its office-bearers. Therefore, there is no need to resign from the NGO before filing nomination papers.

A clear example of this principle is Rajiv Gandhi Foundation, which is chaired by Mrs. Sonia Gandhi, leader of the opposition.

[References:

Section 4 of FCRA

Rajiv Gandhi Foundation at http://www.rgfindia.com/rgf2/about.htm. The Foundation is registered under FCRA (see http://www.indiaconnect.com/rgfindia/donforgn.htm).

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

99: Accumulation upto 15% allowed

(10-May-02)

The Finance Minister has modified the proposed amendments to section 10(23C) and section 11. NPOs can now accumulate upto 15% of their income.

Till last year (March 2002), this figure stood at 25%. The Budget suggested bringing this down to 0%. Now it appears that the figure will settle down at 15%.

Narrow shave, wasn’t it?

[References:

Amendments proposed to Section 10(23C) and 11 in Union Budget 2002-03

The above is based on news reports, presented here for information only. The final law may be different. The interpretation may also vary somewhat on a deeper study / in a specific case.

The above amendment also proves Einstein’s Theory of Relativity. 15% accumulation sounds much better than 0%, though actually it is much worse than 25%. – Ed.

AccountAid Capsules 85, 93 and 94

NPO: Non-profit organization

“Trusts can accumulate 15% of income”
Times News Network. Saturday, April 27, 2002. Economic Times Website http://economictimes.indiatimes.com/articleshow.asp?art_id=8097512&sType=1

Section references to Income Tax Act, 1961. Applicable to India]

100: Barrett’s Believe it or not…Corruption world-wide

(22-June-02)

Many think Indians are a corrupt lot. This is quite contrary to what you and we may experience in the street or in a village. So let’s look at it from another angle. How corrupt are others? David Barrett worked out the following figures for the world in 1990:

· Computer crime $44 billion (Rs. 2,20,000 crores)

· Credit Card fraud $500 million (Rs. 2,500 crores)

· Ecclesiastical crime $1.1 billion (Rs. 5,500 crores)

· Shoplifting $90 billion (Rs. 4,50,000 crores)

· Tax cheating $180 billion (Rs. 9,00,000 crores)

If we look carefully at the nature of cheating above, ‘ordinary white-collar citizens’ would have siphoned off most of this money.

Secondly, the figures are from late eighties, when computers and credit card had just entered India. Few shops, if any, employed shop detectives or closed-circuit surveillance.

So India’s share of the above figures would be very nominal.

Where does that leave us: feeling better,…or trying hard to catch up with the world?!

[References:

David Barrett, ‘Our Globe and How to Reach It’ (Birmingham, Alabama, New Hope, 1990), pp. 19, 54-69. Reproduced at http://www.stalbans.org.nz/Teachings/RobYule/TenCommandments/tencomm8.htm

The above listing does not include international organised crime ($700 billion; Rs. 35,00,000 crores) or money-laundering through banks ($1.3 trillions; Rs.65,00,000 crores).

This perception about India is reinforced by publications like “Index of Corruption”, (Transparency Internatioanl) which placed India as 62, on a list of 1-100 (1 being least corrupt). It is our submission that the Index gives a distorted picture because it does not take honesty levels of ordinary citizens into account. – Ed.

In 90-91, India’s GDP was Rs.535,000 crores at current market prices. – Ed. ]

101: The Peacemaker

(28-June-02)

The word ‘payment’ is a noun. It comes from the verb ‘pay’.

And where does ‘pay’ come from? It’s been used in English for more than 800 years.

It seems that the original root of ‘pay’ was the Latin word ‘pax’. ‘Pax’ means ‘peace’ (as in Pax Romana or the current ‘Pax Americana’…).

One of the Latin forms of ‘pax’ was ‘pacare’, which meant ‘pacify’. The idea was that you could pacify an angry creditor by paying him!

The French changed ‘pacare’ to ‘payer’. From there, it reached English in the 12th century as ‘pay’. (‘Well, he weened with this tiding for to pay David the king, ‘Cursor Mundi 1300 CE).

‘Pay’ was often used in the sense of ‘pacifying’ people till the 16th century. After that, this meaning died out.

For the last 500 years, ‘payment’ has been used only to mean ‘the act of giving money’.

And we all know, what a great peacemaker that can be!

[References:

John Ayto, ‘Dictionary of Word Origins’, 1990]

102: Establishment Expenses and FCRA

(16-July-02)

The new FC-3 form has a separate item called ‘Establishment Expenses’. What should be included under this?

In our view, the 'Establishment Expenses' in form FC-3 mean the expenses required to maintain the establishment. These would include salary of administration staff, rent for main office, telephone, audit fees etc., which are not related to a particular activity.

Salary of the program staff can be shown as part of the relevant program / activity itself.

[References:

Form FC-3, revised 26-July-2001

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

103: Local Contribution and FCRA

(7-August-02)

Does your FCRA funded project require local contribution also? Be careful how you account for it.

Any local contribution, whether cash or in kind, can not be brought into FCRA account books.

This should be accounted in the General or Indian cash book and posted to another sub-ledger maintained for concerned project. Please note that this sub-ledger is part of the Indian set of books and is different from the FCRA project ledger.

Also do not include this local contribution in the FCRA Receipts & Payments Account when you file your FC-3. If you do, you may get a notice from FCRA ‘for mixing up local and FCRA funds’.

[References:

Rule 8(1)(b) of Foreign Contribution (Regulation) Rules, 1976

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

104: FCRA flows in 2000-01

(8-August-02)

A total of Rs. 4,535.23 crores was received in 2000-01. In the previous year, this was Rs.3,925 crores. The flow has been growing at 13.84% annually since 91-92, when it was just Rs.1,412 crores.

[References:

MHA web-site http://mha.nic.in/

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

105: FC-3 filed in 2000-01

(8-August-02)

Only 14,598 associations filed their returns in 2000-01. The figure includes those who filed Nil return as well. This is about 60% compliance.

Average funds received per NGO came to Rs.31 lacs. In 92-93, this figure was Rs.15.5 lacs. This amounts to a compounded annual growth of 9% over the last nine years.

[References:

MHA web-site http://mha.nic.in/

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

106: Biggest FCRA donor countries in 2000-01

(11-August-02)

USA tops the list of donor countries with Rs 1,492.62 crores. This is a huge jump from Rs.1,086.32 crores in 99-00. Inflows from USA have been growing at over 26% annually for the last five years.

Next comes United Kingdom with Rs 677.59 crores. In the previous year, this was Rs.662.73 crores. Growth in flows from UK appear to have slowed down this year – till last year the funds were growing at 30% annually (96-97 to 99-00).

Third on the list is Germany with Rs 664.51 crores. Growth in these funds is practically at a stand-still (5% annually for the last five years).

[References:

MHA web-site http://mha.nic.in/

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

107: Surety Money Deposit

(12-August-02)

An NGO asks for an investigation into a purported ‘Aluminium Scam’. It offers to deposit Rs.1 crore as surety. The money will be forfeited if nothing is discovered.

The investigation may take a couple of years. In the meanwhile, what is the tax implication of this. Will the amount of deposit be allowed by the Income Tax people as application of funds?

If it is not allowed, then will the NGO have to pay income tax, as its application of funds is less than 85% (minimum required expenditure to maintain tax-exempt status)?

[References:

Advertisement by NGO named ‘Patriot’ in The Pioneer’ dated 12-August-02. Full Text of the advertisement at www.AccountAid.net. Click on ‘Scrap Book’.

Section 11 of the Income Tax Act, 1961. Applicable to India. Text of the section at www.AccountAid.net. Click on ‘Scrap Book’]

108: Biggest FCRA donors in 2000-01

(13-August-02)

The top three donors were all from USA:

1. World Vision International: Rs 80.43 crores. This is a big jump from the Rs.51.93 crores donated in 99-00. As a result they have moved up from the fourth place to first. Their contributions to India are now growing at 23% annually.

2. Foster Parents Plan International: Rs. 76.37 crores. Their grants had peaked at Rs.70.78 crores in 96-97, but now seem to be picking up again. However, they have lost the first place to World Vision International this year.

3. Watch Tower Bible and Tract Society: Rs. 68.11 crores. A new addition to the big league. This is the first time in five years that their name has appeared in the top 25 donors’ list.

More information about the first two is given in AccountAble 68, available for viewing at www.AccountAid.net.

[References:

MHA web-site http://mha.nic.in/

Information about top donors is dependent on the receivers filing the FC-3 by the time MHA compiles its annual report. Funds from Watch Tower, USA are mainly given to its associate with the same name in India. See Capsule 108 for more.

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

109: How safe are ‘account payee’ cheques?

(14-August-02)

Most people think that a cheque crossed as ‘account payee’ can not be misused. Unfortunately this is not true.

An account payee cheque remains negotiable. It is within the discretion of a banker to collect or encash the cheque for someone else, provided it is endorsed to him or her.

Using this loophole in the Negotiable Instruments Act, there is a thriving scam in which people steal cheques from couriers or mail-boxes. These are ‘sold’ to others, who collect the money through connivance of some bank officers.

To prevent this from happening to your cheque, cross it as ‘account payee, not negotiable’. In such a case, you will be able recover the money from the collecting bank (if your cheque is encashed fraudulently).

[References:

AccountAble 9, 12, 66 at http://mywebpage.netscape.com/acontaid/AccountAble_Web/AccountAble_Listing.htm

Section 13 of The Negotiable Instrument Act, 1881. Applicable to India

Also see section 4 of Cheques Act, 1957 (applicable in Britain). However, in Britain, an account payee cheque loses negotiability (amendment made in 1994).]

110: Biggest FCRA Receivers in 2000-01

(23-August-02)

The top three recipients of foreign contribution:

· Sri Sathya Sai Central Trust, Andhra Pradesh: Rs 88.18 crores. Received Rs.50.2 crores in the previous year. Annual growth rate (5 years): 17%

· World Vision of India, Tamil Nadu: Rs 85.42 crores. Received Rs.55.1 crores in the previous year. Annual growth rate (5 years): 26%.

· Watch Tower Bible and Tract Society India, Maharashtra: Rs. 74.88 crores. Received 14.6 crores in 97-98. Annual growth (4 years): 72%. Associate of Watch Tower Bible and Tract Society, USA. According to MHA annual report, it seems that they did not file the FC-3 in 98-99 or 99-00.

More information about these three is given in AccountAble 64 and 65, available for viewing at www.AccountAid.net.

[References:

MHA web-site http://mha.nic.in/

FCRA stands for Foreign Contribution (Regulation) Act, 1976. Applicable to India]

111: And now … Pyramid Charities!

(26-August-02)

Pyramid Schemes are highly controversial ‘get-rich-quick’ schemes where older members gets a percentage of the membership fees of new members. All pyramid schemes survive on positive cash flow. Sooner or later all crash.

Pyramid Schemes were invented in America. These resurfaced in India a few years ago. Pyramid schemes try to look like multi-level marketing (MLM) schemes by using a non-product as an anchor. No one really makes any money buying or selling the product. Everyone gets rich by slicing money from the entry fees of newer members.

The latest non- product, it seems, is charity. Pyramid Companies are now asking you to ‘donate’ to them and encourage others to donate. You get a percentage of whatever your downstream members donate!

After all, ‘Charity begins at home.’ is an old saying. In this case, it really does.

[References:

The ‘donation’ may be simply buying a non-product like a membership pack or may involve buying some low-value, high-price food product with a fancy name.

Also look for NourishTheChildren.com, HelpingHands.com, HumanitarianEffort.com, and American Cancer Aid Foundation. These organisations may or may not be involved in multi-level marketing. This is a complex legal question about which we are unable to express an opinion. – Ed.

Source: worldwidescam.com mail dated 25-Aug-02. More on this at http://www.worldwidescam.com/ntcalt.htm]

112: Grant makers -- Switch your grants to accrual basis…NOW!

From financial year 2002-03, you will have to spend at least 85% of your income. What happens if you are not able to pay out all your grants by 31st March '03?

The solution may be to switch the books to accrual basis. If you do
this, then you can account for an outward grant in full, the moment your Board or Committee approves the grant and the grant agreement is signed.

Ideally this switch should be done for financial year 2001-02 itself, as
there is no effect on tax this year. Switching the basis in 2002-03 will
allow the Income Tax Department to recompute the income on the ground that there is a loss of tax revenue due to the switch.

Remember, you can still make the switch easily if your audit for the
consolidated Balance Sheet for 2001-02 has not yet been completed. It does not matter that your FCRA books are on cash basis.

[References:
Section 11 of the Income Tax Act, 1961. Applicable in India]

113: FCRA and Royalty payments - 1

(4-Sep-02)

Section 4 of the FCRA prohibits some type of individuals from accepting payments from foreign sources. These include politicians, judges and journalists.

However, there is an exception to this in section 8. Any of these persons can accept foreign funds, if these are made in the ordinary course of business. And the payments come through normal banking channels.

Former Chief Justice of Mumbai High Court, Shri A.M. Bhattacharjee has written a book titled ‘Muslim Law and The Constitution’. The book has been published in India by Eastern Law House and is available for Rs.190. Apparently, Shri Bhattacharjee sold the publishing rights for Arabian countries to a UK-based publisher for $80,000 (Rs. 40 lacs at current exchange rates). Two problems arose with this: (i) The ‘publishing house’ was reportedly not really publishing any books. (ii) How would the publisher recover this money from publishing this highly specialised book to the Arabs?

The matter came up before the Supreme Court. Due to controversy over this, the Chief Justice resigned his position in 1995.

Contd….

[References:

C. Ravichandran Iyer v. Justice A.M. Bhattacharjee, (1995) 5 SCC 457

“Judging the judges” Frontline, Vol. 14, No. 20, Oct. 4 - 17, 1997

http://dspace.dial.pipex.com/town/square/ev90495/lawyers.htm

Foreign Contribution (Regulation) Act, 1976. Applicable in India]

114: FCRA and Royalty payments - 2

(4-Sep-02)

It now seems that Shri Anirudh Bahl, a journalist (became known for his work with Tehelka.com) has received Rs. 1.75 crores (75,000 British pounds + $ 250,000 at current exchange rates) as advance and royalties for a novel titled ‘Bunker 13’. The book is not yet available in the market.

The receivers would have to pay around 30% in income tax.

Do either of these transactions violate FCRA? Prima-facie, no. Judges and journalists are covered by restrictions in section 4. However, both the above payments fall within the exception in section 8.

Still, if it is proved that the payments were a conspiracy to bypass provisions of FCRA, then there can be problems for the receivers.

[References:

“Why no tehelka over the birth of a new literary sensation?”, Virendra Kapoor, The Free Press Journal; August 4, 2002

http://news.indiainfo.com/spotlight/tehelka/20020723tehelka.html

Foreign Contribution (Regulation) Act, 1976. Applicable in India]

115: Foreign Aid through Ministry of Finance?

(13-Sep-02)

According to press reports from Kerala, the Central Government has made some changes in the way foreign aid is received:

q All organisations receiving foreign aid should apply to the respective state Governments.

q The bylaws, names and addresses of office bearers, brief history of the organisation, present area of operation, and FCRA clearance should be attached with the application.

q The state Government will forward the application to the Union Ministry of Finance. Ministry of Finance will then issue an NOC in deserving cases.

q The funds should be remitted to the Central Government’s account with RBI.

q The aid utilisation will be monitored by the Government and will be subject to audit by CAG.

The above is apparently based on an official release. The provisions apply across India, and not just to Kerala.

FCRA Department is not aware of this.

Can this be true? Out of a clear, blue sky? Strangely, this appears to have been reported only in Kerala.

[References:

“Fresh norms for foreign aid”, The New Indian Express, Cochin. 29-Aug-02

Also see Malayala Manorama of 29-Aug-02

NOC: No Objection Certificate

FCRA: Foreign Contribution (Regulation) Act, 1976. Applicable in India]

116: Lost funds / kickback shares / windfalls from Africa

(13-Sep-02)

Have you recently received such an e-mail message from Nigeria or another African country? Or this may be a fax or even a letter.

If you have, please do not, repeat, DO NOT, respond at all. Not even out of curiosity. Just press ‘Delete’.

This is a long standing, notorious scam operated by some criminal gangs mainly from Nigeria. They lure people into parting with sensitive financial information and misuse it. Sometimes people even go over to Africa to ‘sign the papers’ and then have to be ransomed.

The story and the e-mail addresses keep changing. But the windfall bait does not.

[References:

AccountAid Capsule 21: Fraud Warning for Charities. 21-Jun-01

Recently, a highly reputed Indian non-profit narrated to us how they had received such a message regarding an inheritance and wrote back, turning it down. – Ed.]

117: Bribe Payers’ Index 2002

(16-Sep-02)

In May-02, Transparency International launched a new index: Bribe Payers’ Index.

In part, this was due to constant criticism that the Corruption Index was not fair. It showed the developing countries in a poor light. Transparency International decided to do something about it.

The following Bribe Payers’ Index is based on perception surveys in 15 emerging markets of Asia, Africa South America etc. (including India). The more honest are on top, the least honest at the bottom.

1. Australia: 8.5

2. Sweden: 8.4

3. Switzerland: 8.4

4. Austria: 8.2

5. Canada: 8.1

6. Netherlands: 7.8

7. Belgium: 7.8

8. United Kingdom: 6.9

9. Singapore: 6.3

10. Germany: 6.3

11. Spain: 5.8

12. France: 5.5

13. USA: 5.3

14. Japan: 5.3

15. Malaysia: 4.3

16. Hong Kong: 4.3

17. Italy: 4.1

18. South Korea: 3.9

19. Taiwan: 3.8

20. People's Republic of China: 3.5

21. Russia: 3.2

22. Domestic companies: 1.9

Curiously, an index intended to make the developing countries feel better, ends up making them feel worse. As you can see, they are still at the bottom. The phrase domestic companies represents, in one lump, firms from the 15 countries that were surveyed!

One wonders why the bribe-seekers give out any contracts to foreign companies at all, when their own swadeshi companies are so much more obliging?

It is also heard that the index is proving very popular among bribe-seekers: it is helping them focus their bribe-seeking behaviour more accurately…

[References:

http://www.transparency.org/pressreleases_archive/2002/2002.05.14.bpi.en.html

See also AccountAid Capsule 100: Barrett’s Believe it or Not…Corruption Worldwide]

118: The World Bank’s Blacklist

(21-Oct-02)

As part of its campaign against corruption, the World Bank has put up a list of firms on its web-site. These are firms / individuals who will not be allowed to work with the World Bank for the period of debarment.

In most cases, they were debarred because they tried to bribe or influence World Bank officials.

A total of 71 firms / individuals have been listed. Following is a country-wise summary of the ineligible firms:

1. Ireland: 1

2. Netherlands: 1

3. Singapore: 1

4. India: 2

5. Canada: 2

6. UAE: 2

7. Uzbekistan: 2

8. Japan: 4

9. Nigeria: 6

10. USA: 7

11. Sweden: 8

12. United Kingdom: 37

Looks as if someone had turned the Bribe Payers’ Index upside down, doesn’t it?

[References:

The list can be seen at http://www.worldbank.org/html/opr/procure/debarr.html Total exceeds 71 as 2 firms have offices in two countries each.

Some of the names from Nigeria (3), UK (6) and USA (1) appear to belong to persons of Indian origin.

119: Kelkar Committee – a sweeter 80G

(8-Nov-02)

At present donors get 50% deduction from taxable income u/s 80G for most of the donations to NGOs. The maximum marginal rate of tax is 30%. This means that presently the maximum tax benefit to a donor may range from 5% to 15%. Secondly, there is a ceiling of 10% of gross income on total donations u/s 80G.

Donations to priority segments (armed forces welfare funds, government relief funds, etc.) offer 100% deduction. Here the effective tax rebate ranges from 10% to 30%.

Kelkar Committee has suggested that everyone be offered the same tax rebate of 20%. The ceiling on donations should also be removed.

[References:

Consultation Paper: Task Force On Direct Taxes (Kelkar Committee; Nov-2002; http://finmin.nic.in/kelkar/Full_Report.pdf; Extracts can be viewed at www.AccountAid.net]

120: Kelkar Committee – whittling down 80GGA

(8-Nov-02)

The same treatment has been suggested for 80GGA, 35(1)(ii)/(iii) also. This will result in some loss to bigger donors who may be paying tax at 30%

[References:

Consultation Paper: Task Force On Direct Taxes (Kelkar Committee; Nov-2002; http://finmin.nic.in/kelkar/Full_Report.pdf; Extracts can be viewed at www.AccountAid.net]

121: Kelkar Committee – delete 10(23C)

(8-Nov-02)

Several people complained to the Task Force that approvals under section 10(23C) take a long time. The Task force has noted that this is a natural problem with specific approvals. Therefore, section 10(23C)(iv)/(v) should be deleted. Instead all trusts should get the same treatment under section 11 to 13.

Remember Marie Antoinette of France? The story goes that someone told her that people have no bread to eat. She responded with becoming innocence: ‘Why don’t they eat cakes then?’

[References:

Consultation Paper: Task Force On Direct Taxes (Kelkar Committee; Nov-2002; http://finmin.nic.in/kelkar/Full_Report.pdf; Extracts can be viewed at www.AccountAid.net

The Marie Antoinette story may or may not be true. – Ed.]

122: Kelkar Committee – the grading system

(8-Nov-02)

All charities will be required to file tax returns. Some will be selected for scrutiny. This will be done using a computerised risk assessment method.

The assessing officer will examine the case. If he/she feels that the charity may not be charitable, the case will be referred to a specialist rating agency.

The rating agency will be selected from a panel drawn up by the C&AG. The rating agency will examine the case. It will grade the charity.

There wil be only three grades: A+, A, B. What do these mean?

A+: Definitley charitable.

A: Charitable this year, but may not be charitable next year.

B: Not charitable.

A+ can rest on its laurels. A should tread with care. B will lose its tax exemption.

[References:

Consultation Paper: Task Force On Direct Taxes (Kelkar Committee; Nov-2002; http://finmin.nic.in/kelkar/Full_Report.pdf; Extracts can be viewed at www.AccountAid.net

123: FCRA and private companies

(13-Nov-02)

Does a private limited company need FCRA registration, if they are carrying out development activities?

The answer seems to be ‘yes’. These are ‘associations’ within the meaning of section 2(1)(a). Further, if they have a program which falls within one of the five categories of section 6(1), then they may need FCRA registration.

There are several examples where private companies have been granted FCRA registration:

1. Development Services (India) Pvt. Ltd., Chennai

2. The Siloam Youth And Children's Aid Mission Pvt. Ltd., Chennai

3. Services Association Of SDA Pvt. Ltd., Hosur

4. Sigma Resource Development Consultant Pvt. Ltd., Patna

5. Progressive Research Aids Pvt. Ltd., Pune

6. The Poona Catholic Educational Association Pvt. Ltd., Pune

7. Good Books Trust Association Pvt. Ltd., Ranchi

8. Theosophy Company India Pvt. Ltd., Mumbai

9. The Bombay Xavieran Corporation Pvt. Ltd., Mumbai

10. The Vizagapatam Diocesan Corporation Pvt. Ltd., Vishakhapatnam

[References:

FCRA means Foreign Contribution (Regulation) Act, 1976. Applicable in India.

Five categories of section 6(1) are: cultural, economic, educational, religious or social.]

Computerised Risk Assessment Method: CRAM?]

124: FCRA and cooperatives

(16-Nov-02)

Does a cooperative society also need FCRA registration, if they plan to receive foreign funds?

The answer is ‘yes’. These are ‘associations’ within the meaning of section 2(1)(a). Further, their program normally falls within the definition of ‘economic’ programs listed in section 6(1) of FCRA..

Some examples where cooperatives have obtained FCRA registration:

1. Indian Farm Forestry Development Cooperative Limited, Delhi

2. National Federation Of Fishermen's Cooperatives Ltd., Delhi

3. Dharampur Tal Carpet & Handicraft Cooperative Society, Valsad

4. St. Joseph’s Cooperative Farming Society Ltd., Rampur

5. Tibetan Multipurpose Cooperative Society, Distt. Lohit

6. Sikkim Co-Operative Milk Producers' Union Ltd., Gangtok

7. Malabar Region Co-Op Milk Producers Union Ltd., Kozhikode

8. Sri Gopal Milk Producers Sahakari Mandali Ltd., Bhavnagar

9. National Dairy Development Board (NDDB), Anand

[References:

FCRA means Foreign Contribution (Regulation) Act, 1976. Applicable in India.

National Dairy Development Board is associated with the Amul gorup of cooperatives. Other group cooperatives apparently do not have FCRA.

Five categories of section 6(1) are: cultural, economic, educational, religious or social.]

125: FCRA and MACCS

(18-Nov-02)

Does a mutually-aided credit cooperative society (MACCS) also need FCRA registration, if they plan to receive foreign funds?

The answer to this also appears to be ‘yes’. These are ‘associations’ within the meaning of section 2(1)(a). Further, their program may fall within the definition of ‘economic’ programs listed in section 6(1) of FCRA..

[References:

FCRA means Foreign Contribution (Regulation) Act, 1976. Applicable in India.

Five categories under section 6(1) are: cultural, economic, educational, religious or social.]

126: Charities, auditors and terrorists

(4-Dec-02)

The Saudi Government has decided that auditors are an invaluable weapon in fighting terrorists. Terrorists are sometimes funded through charity conduits. So they have set up a High commission to oversee charities. From now on, all charities in Saudi Arabia will have to get their accounts audited.

Earlier this was not the case. There is no income tax in Saudi Arabia, so no one files a return of income. Charities are also not required to file any return or financial statements.

So we once again have the setting for the classic question, which remains unanswered till date: “Which is mightier: [a bunch of coloured pencils] or the sword?”

[References:

“Saudis detail tracking of terrorists, donations”, CNN.com 3-Dec-02; http://www.cnn.com/2002/WORLD/meast/12/03/saudi.report/index.html

127: FATF Report on abuse of non-profits

(11-Dec-02)

The FATF (Financial Action Task Force on Money Laundering) was set up in 1989 by G-7. It currently has 28 member countries.

Recently it has come out with an 8-page document titled ‘Combating the Abuse of Non-profit Organisations’. The document details International Best Practices in this area.

The document focuses on abuse of non-profits for channelling terror funds. It also gives an idea of the international attention that this subject has drawn. In our view, it is likely to generate significant changes in the way Governments look at non-profits.

Another related document (Typologies) points out that Trusts (as compared to societies or non-profit companies) are preferred for money-laundering, as these can be set up easily in most countries, with little or no identification trail.

[References:

AccountAid Capsules 54, 66, 126. www.AccountAid.net

‘Combating the Abuse of Non-profit Organisations’ is available at http://www1.oecd.org/fatf/pdf/SR8-NPO_en.pdf. We thank Prof. Karla Simon at IJNL for sending us this link.

Also see FATF ‘Report on Money Laundering Typologies 2000-01’, 1-Feb-01, pp. 8-12, available at http://www1.oecd.org/fatf/pdf/TY2001_en.pdf ]

128: Foreign Aid through Ministry of Finance – for Govt. NGOs only!

(23-Dec-02)

Remember the confusion over news-reports regarding the above? At least two newspapers from Kerala had reported that foreign contribution to Indian NGOs would now be routed through the Ministry of Finance.

The news reports did not carry any file reference – Ministry of Finance and Ministry of Home Affairs both were unable to help without a definite reference.

The matter has now been cleared up. The changed procedure applies only to societies, trusts etc. sponsored or set up by the Government.

It does not apply to any other NGO or non-profit organisation.

[References:

AccountAid Capsule 115 at www.AccountAid.net

Ministry of Finance letter reference: F.No. 3/16/2000-EEC VI dated 7^th June 2002, reproduced in Christian Manager, Dec’02-Jan’03, pp.12-14.

129: New US Guidelines to prevent terror funding

(24-Dec-02)

U.S. Government has recently issued new guidelines for U.S. based charities.

These call for increased scrutiny of grantees’ background and finances before a grant is made. The guidelines are ‘voluntary’ – compliance may reduce chances of a charity’s funds being blocked by the U.S. Government.

These are likely to affect NGOs around the world, including India. U.S. based charities sent Rs.1,493 crores to Indian non-profits in 2000-01 – this comes to 33% of the total FCRA flows during the year.

The move may also generate a ‘chilling effect’ in U.S. fund-raising, as individual donors may become more worried about where their funds might end up.

[References:

AccountAid Capsules 126 and 127. www.AccountAid.net

U.S. Treasury Press release dated 7-Nov-02: “Response to Inquiries from Arab American and American Muslim Communities for Guidance on Charitable Best Practices” http://www.ustreas.gov/press/releases/po3607.htm

Actual guidelines at http://www.ustreas.gov/press/releases/docs/tocc.pdf

130: Charities and funding of terror

(24-Dec-02)

Are charities really used for financing terror? There is not much clarity.

There have been isolated instances where funds meant for charity have been diverted to fund terror or pseudo-charities have been used as conduits for financing terror operations.

One such case appears to be that of Benevolence International Foundation, based in Chicago, which apparently was passing on funds to Al Qaeda. In India also, there have been some cases where charities were used to pass funds to terrorist networks in J&K.

On the other hand, International Development Foundation, an Islamic NGO based in UK, was recently cleared by the British Charity Commission of similar allegations.

However, it is becoming clearer that one way of the other, charities are caught in this crossfire. They may, therefore, have to be prepared for closer regulation and scrutiny of their accounts. They may also have to become more careful about selection of their partners…. The resulting uncertainty and press coverage may also have a negative effect on their fund-raising from private sources.

[References:

AccountAid Capsules 54, 66, 126, 127, 129. www.AccountAid.net

“Muslim charity chief 'funded terror',” BBC News, 9-Oct-02 http://news.bbc.co.uk/2/hi/americas/2314951.stm

“Charity Commission - Charity cleared of terror links”, Aug-02 http://www.cfdg.org.uk/topic82.asp

131: FATF report and Risk Management

(26-Dec-02)

How should donor agencies respond to these developments?

Should they close down their international programs? Or shrink their funding to give only where they are absolutely certain of the grantees? This way they can avoid the risk of their funds falling in wrong hands. This is called Risk Minimization.

Fortunately, there is a middle path, called Risk Management.

This involves accepting the fact that grant-making involves risk-taking. Latent risk exists in every grant. Therefore, you can set up procedures to assess the risk of a particular grant at the beginning.

You should also design procedures to manage or optimise the risk.

Finally, you should know how to handle the latent risk if it crystallises into evident risk.

[References:

AccountAid Capsules 54, 66, 126, 127, 129, 130. www.AccountAid.net

Risk-management will be discussed in detail at the AccountAid Workshop for donor agencies on 11^th and 12^th February ’03. More details about the workshop at www.AccountAid.net. – Ed.

AccountAid Capsules in 2001 (1-58)

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