An NGO has a donation button on its website. A supporter sitting in London makes a small payment by card. The money reaches the NGO’s ordinary bank account.

Nobody at the NGO thinks much about it. It is only a donation.

Under Indian law, however, the problem is not how small the donation is or how genuine the donor is. If the payment is a foreign contribution, the NGO generally cannot accept it unless it has FCRA registration or prior permission from the Central Government.

This is where many NGOs get into trouble. The organisation may be properly registered as a trust, society or Section 8 company and may have valid tax registrations, but none of those registrations by themselves allow it to receive foreign contribution.

So what exactly counts as foreign contribution? Are there any exceptions? And what should an NGO do if the money has already reached its account?

The basic rule is simple

Section 11 of the Foreign Contribution (Regulation) Act, 2010 requires a person having a definite cultural, economic, educational, religious or social programme to obtain FCRA registration before accepting foreign contribution. An organisation without registration can instead obtain prior permission for a specific foreign contribution.

The Ministry of Home Affairs also makes clear that an association should not receive or utilise foreign contribution without registration or prior permission.

This means an NGO cannot take the approach of receiving the money first and applying for FCRA later.

If the organisation does not have FCRA registration or the required prior permission, the safer position is not to accept the foreign contribution in the first place.

What actually counts as foreign contribution?

The important question is not whether the payment is called a donation. The first question is who is making the payment.

Section 2(1)(h) covers a donation, delivery or transfer made by a foreign source of currency, securities or certain articles. The currency can also be Indian rupees. In other words, receiving foreign contribution in rupees does not take the transaction outside FCRA.

A foreign source can include a foreign government, foreign company, foreign trust or foundation, foreign society and a citizen of another country.

So an NGO should not assume that only large international grants are covered.

For example:

• A £50 online donation from a foreign citizen can be covered.

• A grant from a foreign charitable foundation can be covered.

• Money received from a foreign university for a project may be covered, depending on the nature of the payment.

• Equipment donated by a foreign source can also fall within the definition.

The amount does not create a general exemption. A small foreign donation does not become permissible simply because it is small.

But not every payment from abroad is a foreign contribution

This is where the analysis becomes more interesting.

The FCRA definition contains specific exclusions, and the source and nature of the payment have to be examined.

Payment for a genuine service

A genuine commercial payment is different from a donation.

The Ministry’s FCRA FAQ clarifies that earnings from a foreign client for goods sold or services actually rendered are not treated as foreign contribution because they arise from a commercial transaction.

So if an NGO provides a genuine training programme or consultancy service to a foreign client for an agreed fee, the receipt is not automatically foreign contribution merely because the client is overseas.

But the label matters less than the substance.

Calling a donation a “consultancy fee” will not change its legal character. There must actually be a service or other genuine commercial transaction.

An NRI donating from personal savings

There is an important exception for an Indian citizen living abroad.

The Ministry’s FAQ states that a contribution made by an Indian citizen living outside India from personal savings through normal banking channels is not treated as foreign contribution. The donor’s Indian citizenship is therefore important. The Ministry advises organisations to obtain passport details when accepting such donations.

This is different from a person of Indian origin who has acquired foreign citizenship. A foreign citizen remains a foreign source for FCRA purposes, even if that person has Indian ancestry or holds an OCI or PIO card.

For an NGO, the practical lesson is simple: do not classify a donor as an NRI merely because the donor says they are an NRI. Check the person’s citizenship.

An Indian company with foreign shareholders

This is another area where NGOs can easily make the wrong assumption.

An Indian company is not automatically a foreign source merely because it has foreign shareholders. Section 2(1)(j)(vi), read with its proviso, requires the foreign shareholding position to be examined along with the limits prescribed under FEMA.

Therefore, if an Indian company offers an NGO a CSR contribution and the company has significant foreign ownership, the NGO should not simply conclude that the payment is foreign contribution.

The better approach is to obtain confirmation of the company’s shareholding and relevant FEMA position before accepting the money.

FCRA registration or prior permission?

For an NGO expecting regular foreign funding, registration is generally the relevant route.

The current FCRA portal states that registration is available where the association has been in existence for more than three years and has spent at least Rs 15 lakh on its chosen field. Registration is valid for five years. The application is made in Form FC 3A.

A younger NGO that does not satisfy the registration conditions can consider prior permission.

Prior permission is tied to a particular donor, amount and purpose. The FCRA portal describes it as a one time permission for receiving foreign contribution for the specified purpose and from the specified donor. The application is made in Form FC 3B.

The distinction matters.

Suppose a newly established NGO receives a confirmed grant of Rs 8 lakh from a particular foreign foundation for one education project. It may consider the prior permission route rather than waiting three years for registration.

But the donor should not transfer the money before the required permission is obtained.

The paperwork changed in 2025

The prior permission process also became more detailed from 26 May 2025.

The Foreign Contribution Regulation Amendment Rules, 2025 require an applicant for prior permission to submit, among other things, a commitment letter from the donor matching the amount stated in the application, a project report containing the proposed expenditure, a declaration regarding the 20 percent administrative expense limit, a letter from the chief functionary and an undertaking relating to FATF good practice guidelines.

This makes one point particularly important: the donor, amount and project should be clearly identified before the application is made.

A donor cannot simply transfer the money and ask the NGO to sort out the paperwork afterwards.

What mistakes should an NGO avoid?

Some problems arise not because the NGO deliberately violated FCRA, but because its internal process was too casual.

Leaving international donations switched on

If the NGO’s website or payment gateway accepts payments from foreign cards, the organisation should know how those payments will be classified before allowing them.

If the NGO does not have FCRA registration or prior permission, international donations should not simply be accepted and dealt with later.

Using a personal bank account

A founder receiving foreign money in a personal account on behalf of an NGO does not solve the FCRA problem. It can create an additional accounting and compliance problem.

Calling a donation something else

A foreign donation does not become a service fee, loan or reimbursement merely because the receipt is described that way.

The substance of the transaction matters.

Routing the money through another NGO

This is not a safe workaround. Section 7 restricts the transfer of foreign contribution by an organisation registered or granted prior permission under FCRA to another person. The 2020 amendments made this restriction stricter.

Mixing foreign and domestic funds

Foreign contribution must be separately accounted for and received through the FCRA banking arrangement. The FCRA framework requires an FCRA account for receipt of foreign contribution, with SBI’s designated branch at New Delhi serving as the first exclusive point of receipt.

What if the money has already arrived?

This is where the NGO should stop treating the issue as an ordinary accounting mistake.

First, do not spend the money.

Second, preserve the transaction trail. Keep the donor details, payment records, bank statement, date, amount and purpose.

Third, do not move the money between accounts or transfer it to another organisation simply to make the receipt disappear from the original account.

Fourth, obtain professional advice on the appropriate reporting, return or other corrective action based on the exact facts.

The consequences of an FCRA violation can be serious. Section 35 provides that accepting foreign contribution in contravention of the Act or rules can attract imprisonment of up to five years, or fine, or both. Foreign contribution or other material received in contravention of the Act can also become subject to confiscation under the statutory process.

The fact that the amount was small or that the NGO used it for a genuine charitable purpose does not automatically remove the compliance issue.

FCRA registration is only the beginning

Obtaining FCRA registration does not mean that an NGO can treat foreign funds like its ordinary donations.

The organisation must maintain the required records, use the money for permitted purposes and comply with the FCRA banking and reporting requirements.

Form FC 4 is the annual return for foreign contribution and is generally filed within nine months from the end of the financial year, which means 31 December for a financial year ending on 31 March.

There is also an important current change that NGOs should know about. The 2026 amendment rules introduced more detailed requirements concerning the purposes and geographical areas for which FCRA registration is granted, along with enhanced reporting requirements. The new framework came into force on 22 June 2026.

One older compliance point also needs correction. NGOs should not rely on articles stating that they must continue publishing details of every quarterly foreign contribution on their website within fifteen days. That quarterly disclosure requirement under Rule 13(b) was removed in 2022. The current framework instead retains the requirement relating to annual audited statements on the website.

The administrative expense limit, however, remains important. Section 8 of FCRA restricts administrative expenses funded from foreign contribution to 20 percent, subject to the statutory rules and applicable provisions.

The practical test before accepting foreign money

Before an NGO accepts money from someone outside India, it should ask three questions:

1. Who is actually making the payment?
2. Is this a genuine donation or a payment for goods or services?
3. If it is foreign contribution, does the NGO have valid FCRA registration or prior permission covering this receipt?

If the answer to the third question is no, the safest step is to pause the transaction.

A three year old NGO with continuing plans to receive overseas donations may need to examine FCRA registration. A younger NGO with one identified foreign donor and one defined project may need to consider prior permission.

The most important point is that FCRA compliance should be checked before the money reaches the bank account, not after.

For an NGO, one small overseas donation can look harmless. Legally, however, the identity of the donor, nature of the payment and status of the organisation can change the entire position. A simple check before accepting the money is usually far easier than trying to explain the receipt after it has already arrived.

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