Relaxation under GST RCM

• Forty-six amendments are proposed under the GST law. 
• Amendment on Reverse Charge Mechanism (RCM) would be of consequence to NGO.
• As per Section 9(4) of CGST Act 2017, any supply of goods or service from an Unregistered Supplier to a Registered Supplier requires the Registered Supplier to Pay GST to the Government in the form of RCM. 
• Section 9(4) which has been deferred till 30-09-2018 is likely to be repealed and substituted by the new section 9(4) as: “The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of taxable goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

RCM is sought to be applied only to “class of registered persons” and not all the registered persons.

The class of registered persons may be:

a) persons receiving goods or services falling under specific headings

b) persons engaged in specified outward supplies

c) Persons having inward supplies more than specified percentage

Conclusion:

• Don’t worry about payment of GST under Reverse Charge Mechanism till end of September
• Hope and pray charitable institutions will not fall under “class of registered persons”

NGOs asked to remove ‘Human Rights’ or ‘Corruption’ from registered name

Maharashtra State Charity Commissioner Shiv kumar Dige has issued an order directing around 400 NGOs and trusts registered in the state to remove the words “corruption” and “human rights” from their names or risk suspension under the Maharashtra Public Trusts Act 1950.

Earlier the charity commissioner’s office in Pune had taken similar action against 16 NGOs with the word “corruption” in their names, including Anna Hazare’s Bhrashtachar Virodhi Jan Andolan, which has been suspended. The NGO’s case to regain its registration is pending in court.

According to press reports, the State Charity Commissioner is of the view that the government has the machinery to prevent corruption and protect human rights. “There were complaints that a few organisations were misusing these words and cheating people”, Mr. Dige is reported to have told the press. He also told the press: “eradicating corruption is the government’s duty and the government authorities have those rights. However, a few organisations are misusing the word ‘corruption’ and targeting an individual or some officials. But, they do not have the right to do this. This is misleading for the common people. Also, according to a high court judgment, the eradication of corruption cannot be the social objective of an organisation”.

Objecting to the use of the word “human rights” by organisations, Mr. Dige reportedly said the state Human Rights Commission can take care of issues of violation. “Many organisations use the words ‘human rights’ in their names. But, the state Human Rights Commission has written to us to take action against these organisations. Only government authorities can deal with human rights violations, and not private institutions. Therefore, I have issued the order to remove the words from these organizations’ names,” Mr. Dige told the press.

According to press reports, the charity commissioner’s office will issue notices to organisations to remove the words from their names. “If they do not follow the order, we will have to suspend the trustees of the organisation,” the Charity Commissioner has said.

Article 19(1) (c) of the Constitution of India guarantees to all its citizens the right “to form associations, or unions or Co- Operative Societies.” Under clause (4) of the Article 19, however, the State may by law impose reasonable restrictions on this right in the interest of public order or morality or the sovereignty and integrity of India.

The right to form association includes the right to form companies, societies, trusts, partnerships, trade union and political parties. The right guaranteed is not merely the right to form association but also to continue with the association as such. The freedom to form association implies also the freedom to form or not to form, to join or not to join, an association or union.

Several NGOs have objected to the State’s move, arguing that the charity commissioner’s office should have raised objections while registering their organisations. All India Anti-Corruption Committee which has two million members and has been working against corruption for 20 years has said that it will challenge the order in court!

Penalties for FCRA offences – Is there cause for Worry? Simply remember the Nine Commandments of FCRA!

This is further to our Blog post of 7^th June 2018 titled “New Penalties to compound FCRA offences”. 

We have received a number of calls and messages from individuals who are naturally feeling very concerned regarding potential offences like: “what if a foreign donor accidentally credits funds into our local account” or “what if an Indian donor accidentally credits funds into our FCRA account”? 

“Does this mean penalty of minimum INR 100,000 will be imposed if an Indian donor accidentally sends INR 500 to our FCRA account? 

The Irish lawyer and politician John Philpot Curran in a speech in Dublin on July 10, 1790, had said: “The condition upon which God hath given liberty to man is eternal vigilance.” In the Indian context one could rephrase this as: “The condition upon which Ministry of Home Affairs (MHA) hath given FCRA registration or prior permission to NGOs is eternal vigilance.”. 

Exercise vigilance and due diligence everyday and at all times … there is no other way!

Let’s look at the potential offences once again and how best one can avoid penalties.

One may call these the Nine Commandments of FCRA 2010!

Commandment No. 1: If Thou art a politician, bureaucrat, judge etc., thou shalt not accept any ‘foreign hospitality’ without prior permission of MHA.

Thus, if you are a politician or bureaucrat and accidentally or knowingly relish foreign hospitality without prior permission of MHA, there will be a penalty of INR 10,000!

As NGOs let’s not concern ourselves much with this commandment, except wonder why this is the only offence with a penalty of just INR 10,000 while all other offences attract a minimum penalty of INR 100,000!

Commandment No. 2: Thou shall pass on or transfer your foreign contribution funds only to NGOs having FCRA registration or prior permission.

In other words, if you are the primary recipient of foreign funds and are routing foreign contributions to other program partners (NGOs) make sure the second recipient/s also has/have FCRA registration or prior permission to receive these funds and that too only in their FCRA Bank account, even though the second recipient/s will be receiving the funds in India, from an Indian NPO in Indian Rupees. 

The Banks here need to be given all the necessary details regarding why these funds need to go into the FCRA account.

Failure to comply with this regulation will be treated as an offence attracting penalty of INR 100,00 or 10% of the funds transferred to the second recipient, whichever is higher. 

In other words, even if the first recipient transfers INR 10,000 from its FCRA account to an NGO not having FCRA registration or prior permission, the penalty would be INR 100,000!

Commandment No. 3: Thou shalt not incur more than 50% of your foreign funds received during any financial year on administrative expenses.

As per Rule 5 of Foreign Contribution Regulation Rules 2011 under "Administrative expenses". - The following shall constitute administrative expenses: -

• salaries, wages, travel expenses or any remuneration realised by Members of the Executive Committee or Governing Council;

• all expenses towards hiring of personnel for management of activities and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel;

• all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organization or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment;

• cost of accounting for and administering funds;

• expenses towards running and maintenance of vehicles;

• cost of writing and filing reports;

• legal and professional charges;

• rent of premises, repairs to premises and expenses on other utilities;

Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses:

Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare-oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc.

This ‘offence’ can be compounded by coughing up penalty of INR 100,000 or 5% of such foreign contribution so defrayed beyond the permissible limit, whichever is higher.

Commandment No. 4: Thou shalt not receive any funds from any ‘foreign source’ unless you have FCRA registration or prior permission.

NGOs not having FCRA registration or prior permission should be ultra-careful if they have a payment gateway on their own website or receive funds from other payment gateways, (e.g. crowd funding platforms) which invite funds from both local and international donors.

If your NGO is not registered under FCRA, please let your crowdfunding service provider know this and instruct them to receive funds on your behalf only from local sources, though even here there is scope for potential offence if an overseas citizen of India (OCI) is contributing. 

Hence, where ‘retail fundraising’ from unknown individuals is concerned, one must ascertain their Nationality first, failing which, if an OCI transfers a sum of just INR 1,000 to your account and you do not have FCRA registration or prior permission under FCRA, this would be an offence attracting penalty of INR 100,000.

Commandment No. 5: Even if your NGO has FCRA registration please ensure that foreign funds are received only in your FCRA Bank account specified in your registration or prior permission certificate issued by MHA.

If your NGO maintains FCRA utilisation accounts please ensure that funds from foreign sources are first deposited in your specified main FCRA account and then to your specified FCRA utilisation account.

Any change in FCRA specified bank account or specified utilisation account must be immediately intimated to MHA in online form FC 6.

But, now what if the foreign donor accidentally credits funds to your utilisation account or your local account? 

Well, first of all, one hopes your Bank is vigilant enough and will block the payment till you clarify. 

However, if this does not happen, it would be best for your NGO to instruct the Bank in writing that the funds have inadvertently been credited to the wrong bank account and that the bank should immediately transfer funds to the right bank account or simply return the funds to the donor with instructions from your NGO and/or your bank to re-transfer funds to the correct specified FCRA Bank account.

Any, lapse in this regard would attract penalty of INR 100,000 or 5% of the amount credited to the wrong bank account.

Moral: Check your bank statements regularly or daily or face large penalty!

Commandment No. 6: Thou shalt not deposit local funds in your specified FCRA Bank account.

As stated in our response to Commandment No. 5, if such an inadvertent mistake occurs, one would hope that your Bank would be vigilant. However, if not, please request the bank to immediately correct the mistake or return the money to the donor with a request to re-transfer to the correct Bank account.

This offence can set your NGO back by INR 100,000 or 2% of the amount which was meant to go in your FCRA Bank account but, inadvertently got credited to your specified FCRA Bank account.

Commandment No. 7: If thou art a bank or an ‘authorised person’, thou shalt report or provide intimation to MHA regarding the prescribed amount of foreign remittance and the source and manner of such remittance.

The onus of compliance is mainly on your Bank, but, don’t forget to upload intimation of quarterly receipts of foreign contribution, preferably on MHA’s (FCRA) online portal.

Commandment No. 8: Thou shalt file your FCRA annual returns online before 31^st December.

Most NGOs file their tax returns by 30^th September but, it’s strange why so many wait, till December to file their FCRA returns. 

Be diligent. Filing your annual return is mandatory even during the year or years that you do not receive any foreign contribution.

Filing your return in FC 4, even during the year or years that you do not receive any foreign contribution is indicative to MHA that you wish to keep your registration alive. 

If you miss the due date, be prepared to shell out a minimum penalty of INR 100,000.

Commandment No. 9: Thou shalt maintain proper books of account (or proper company account or cost centre in your accounting software like Tally) and records of foreign contribution received and manner of its utilisation.

Non-compliance would attract penalty of INR 100,000 or 5% of the foreign contribution received during the relevant period of not maintaining accounts, whichever is higher.

End Note

Remember, managing compliance takes resources, but, it’s nowhere near as expensive as the costs associated with a breach!

Noshir H. Dadrawala

New Penalties to compound FCRA offences

Ministry of Home Affairs has issued Notification dated 5^th June, 2018 S.O. 2291(E) listing offences which hitherto were not compoundable (e.g. defraying of foreign contribution beyond fifty per cent of the contribution received for administrative expenses). 

For virtually every offence (save the offence of accepting any foreign hospitality in contravention of FCRA where penalty is Rs. 10,000/) the minimum penalty is a sum of Rs. 100,000/-. 

The Notification also lists officers competent for compounding such offences. In all cases it is the Director, or as the case may be, the Deputy Secretary in-charge of the section responsible for the administration of the Act.

The Notification can be seen or downloaded at:

https://mha.gov.in/sites/default/files/Compoundingnotification06062018.pdf

This latest Notification of 5^th June 2018 is in suppression of the notifications of the Ministry of Home Affairs Numbers S.O. 1976(E), dated the 26th August, 2011 and S.O. 2133(E), dated the 16th June, 2016. Under these earlier Notifications offences which could be compounded were limited. However, penalties were lower, especially with regard to late filing of returns.

Implications

1. Whoever accepts, or assists any person, political party or organization in accepting, any foreign contribution or any currency or security from a foreign source, in contravention of any provision of FCRA or any Rule or Order made there under, shall be punished with imprisonment for a term which may extend to five years, or with fine, or with both.

This offence can now be compounded with a penalty of Rs. 10,000/-

2. No person who is registered and granted a certificate under FCRA or has obtained prior permission under this FCRA and receives any foreign contribution, shall transfer such foreign contribution to any other person unless such other person is also registered and had been granted the certificate or obtained the prior permission under this Act.

Contravention of this provision can be now compounded with a penalty of Rs. 1,00,000/- or 10% of such transferred foreign contribution, whichever is higher.

3. Organisations registered under FCRA or having prior permission are required not to defray as far as possible such sum, not exceeding fifty per cent of such contribution, received in a financial year, to meet administrative expenses, without prior permission of MHA.

Contravention of this provision can now be compounded with penalty of Rs. 1,00,000/- or 5% of such foreign contribution so defrayed beyond the permissible limit, whichever is higher.

4. No person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution without either having prior permission or registration under FCRA.

Contravention of this provision can now be compounded with penalty of Rs. 1,00,000/- or 10% of the foreign contribution received, whichever is higher.

5 a. All foreign contributions must be received only in the FCRA Bank account specified in the application for grant of prior permission or registration certificate under FCRA. Receiving foreign contribution in any account other than the specified account is an offence.

This offence can now be compounded with penalty of Rs. 1,00,000/- or 5% of the foreign contribution received in such account, whichever is higher.

5b. Not reporting the prescribed amount of foreign remittance or source and manner of such remittance by banks and authorized persons too is an offence but now compoundable with penalty Rs. 1,00,000/- or 3% of the foreign contribution received or deposited in such account, whichever is higher.

5c. Receiving & depositing any fund other than foreign contribution (local or non FC funds) in the account or accounts opened for receiving foreign contribution or for utilizing the foreign contribution is also an offence, but, now compoundable with penalty of Rs. 1,00,000/- or 2% of such deposit, whichever is higher

6. Organisations are required to intimate the amount of each foreign contribution received and the source from which and in the manner in which, such foreign contribution is received both quarterly as also by filing annual return in Form FC 4.

Failure to comply can now be compounded with penalty of Rs. 1,00,000/- or 5% of the foreign contribution received during the period of non submission, whichever is higher.

7. Every organization which has prior permission or registration under FCRA is required to maintain books of account and records of foreign contribution received and manner of its utilization.

Contravention of this provision can now be compounded with penalty of Rs. 1,00,000/- or 5% of the foreign contribution during the relevant period of not maintaining accounts, whichever is higher.

In case of multiple offences

MHA has clarified that in case more than one offence has been committed by a person/organisation, the total amount of compounding for such offences shall not be more than the value of the foreign contribution involved.

‘Online Analytical Tool’ to keep eye on flow of foreign funds!

There are news reports that Ministry of Home Affairs (MHA) has launched an 'Online Analytical Tool' “to keep a close eye on foreign funded NGOs”. 

This is nothing new nor something that some of us in the voluntary sector were not already aware of!

On 21^st December 2017, Ministry of Home Affairs had issued a notice that organisations having prior permission or registered under the Foreign Contribution Regulation Act (FCRA) 2010 should maintain their FCRA Bank account only with banks integrated with the Public Financial Management System (PFMS). At that time 32 Banks were in the list of PFMS integrated Banks. Currently the list has grown to 55.

The Public Financial Management System, earlier known as Central Plan Schemes Monitoring System (CPSMS), is a web-based online software application developed and implemented by the Office of Controller General of Accounts (CGA).

According to media reports MHA launched the “Online Analytical Tool” on Friday, 1^st June 2018 “to analyse in real time the source, destination and the actual usage of the fund.”

Reportedly, the online analytical tool will also give government “the capacity to take data-driven and evidence-based decisions regarding the compliance of the provisions of the Foreign Contribution (Regulation) Act, 2010.” It has analytical features to conduct big data mining and data exploration. Its dashboard will be integrated with the bank accounts of the FCRA-registered entities through the Public Financial Management System for updating of transactional data on a real-time basis.

MHA’s obsession with NGOs

MHA’s obsession with NGOs and FCRA has always fascinated us. 

Significantly more foreign funds flow into India through Foreign Direct Investment (FDI) and through Foreign Institutional Investors (FIIs). However, these are regulated under a much softer and user-friendly Foreign Exchange Management Act (FEMA).

Foreign Direct Investment in India has averaged US $ 1,294.03 Million from 1995 until 2018, reaching an all-time high of US $ 8,579 Million in August of 2017. India has also received net investments of US $ 19.79 million from Foreign Institutional Investors (FIIs) between April to December 2017.

In contrast, there are only approximately 25,000 active organisations registered under the FCRA receiving foreign contributions worth Rs. 18,065 crores from foreign donors for various social, cultural, economic, educational and religious activities.

Does MHA and the Government of India really believe that 25,000 NGOs with aggregate receipts of Rs. 18,065 crores from foreign donors for various social, cultural, economic, educational and religious activities can be a “threat to National interest” or “affect prejudicially the sovereignty and integrity of India”?

In any case, remember, we, the NGOs are being watched and closely monitored, 

But, then again, if you are legally compliant, you have little to worry. Let, them watch us. Let them monitor us. And, let us prove to MHA that far from being a threat or of nuisance value, NGOs play a critical part in developing society, improving communities and promoting citizen participation within the sovereign democratic republic of India.

General Data Protection Regulation (GDPR)

Organisations that handle user data of any sort are required to comply with ‘General Data Protection Regulation’ or the GDPR. 

If your nonprofit or charitable institution has even one constituent in the European Union (EU), this regulation is something you need to be aware of and comply with. This law has come into effect from 25^th May 2018 and it protects certain kinds of data inside the European Union and data that flow across EU borders, including establishments in other countries that use personal data for transactions involving services or goods within the EU.

The GDPR covers privacy as it relates to individuals resident in the European Union, but companies and nonprofits everywhere in the world must be in compliance. Even if your organization is based in India, but, if you have any kind of constituent (an alumna, donor, student, volunteer, past or current patient, donor) living in the EU, then your organization must be in compliance.

Specifically, GDPR defines personal data as:

• Names
• Addresses
• Social Security numbers
• Photos
• Email addresses
• Banking information
• Social media posts
• Medical information
• IP addresses

Charities and nonprofit organizations collect a lot of personal data, such as the data that’s detailed in the list above. Nonprofits and charitable organizations have the same obligation to abide by GDPR as any other business or for-profit company.

The rules for GDPR require organisations to obtain consent from individuals and to collect information without using forceful means. NPOs cannot require individuals to give details that are unnecessary or unrelated to the transaction or donation. 

Nonprofits and charities must clearly communicate their intentions and inform their prospects accurately. 

Marketing efforts by nonprofits and charities must plainly instruct their prospects on how to opt in or out of communications.

What is GDPR?

GDPR is an omnibus regulation by which the European Union (EU) intends to strengthen and unify data protection regime thereby enabling EU citizens to have more control over their personal data.

It enshrines data protection and privacy rights for European users, and holds establishments handling their data, wherever they may be, liable for violations.

GDPR has introduced strict regulations and has included new rights such as ‘right to be forgotten’, ‘right to data portability’ etc.

This law will directly impact data controllers and data processors.

Non-compliance will lead to huge penalties, as high as 20 million Euros or 4% of annual global revenues, whichever is greater.

The law

This EU law has come into force on May 25 2018 and decrees that consumers or “data subjects” have right to erasure of their data and a right to port their data from one place to another.

It also places a premium on the consumer’s or data subject’s consent to collection and processing of data.

Although the law is being introduced in the EU, its ramifications extend the world over. This is because it is not focused on regulatory measures for tech companies, but rather on the protection of EU citizens and their data.

Impact on India

Indian users of internet-based services or products may continue to use online products and services the way they did. The EU law is not designed to protect citizens outside the European Union.

However, Indian businesses (including non-profits) handling EU user data, however, will have to take a deeper look at the way they collect and use data or face massive fines.

Compliance

There are many ways for nonprofits and charities to prepare for GDPR compliance. 

To begin with, nonprofits need to be able to explain how and why they process personal data. They must also be able to explain any data that they share with third parties, and who the third parties are.

Nonprofits need to make sure they and their workers, volunteers and representatives don’t contact supporters or donors after they’ve withdrawn their consent or asked the nonprofit not to use their personal data.

Many charities and nonprofit organizations find that the best way to refrain from contacting people on their “do not contact” list is to use a Customer Relationship Management (CRM) system. 

A CRM helps to keep lists organized and will automatically remove individuals who’ve opted out or revoked their consent. A CRM system works well for organizations that have multiple volunteers working on marketing campaigns because the CRM updates the system in real time.

CAP's Advisory

If your NGO has ‘data subjects’ (e.g. those who receive your e-newsletters, regular updates, reports or appeals for donations) in the European Union, Article 4 and 7 of the GDPR require you (the NGO) to obtain consent from your ‘data subject’ (recipient of information) to be included on your mailing list.

Should the ‘data subject’ choose to withdraw, or not give consent, you should provide an “Unsubscribe” option.

MHA’s Latest Notice Regarding Online Annual Returns!

Have you received a Notice from the Ministry of Home Affairs (MHA) by email in your inbox with the subject line: “Non-submission of mandatory Annual Returns from 2011-12 to 2016-17”? 

We, at CAP, just did, this afternoon and of all days, on ‘Labour & Maharashtra Day’ holiday! 

It ruined plans for an afternoon nap. 

But, on a more serious note, those who may have been napping on their FCRA compliance, may have reasons to lose sleep for many more days to come!

However, conversely, unless your association has been delinquent, don’t panic! 

It’s just a general wake-up call for all those registered under FCRA 2010, but, have not yet filed their Annual Returns ONLINE from the fiscal year 2011-12 to 2016-17.

Same Notice also on MHA's Website

Those who regularly visit https://fcraonline.nic.in (and if you don’t, we recommend that you do visit it regularly) may have also seen the same notice at:

https://fcraonline.nic.in/home/PDF_Doc/FC_Notice_26042018.pdf

3,292 Associations in default

MHA has listed as many as 3, 292 associations in default, though many of them appear to be in default only for the fiscal year 2016-17.

How to check if your association is named?

• There is no need for you to scan the entire list to see if your association is in this list.
• On your keyboard, simply click Ctrl and F simultaneously and a search box/window will appear in the right-hand corner. 
• In this box type either your organization’s name or your FCRA registration number and if your organization is unfortunately on this list it will open on that page with your organization’s name highlighted. 
• You may then find that on MHA’s system you have not filed returns for either one or more years out of the listed financial years between FY 2010-11 to FY 2016-17.

What next?

If your association is named in the list, your immediate next step should be to log into your FCRA account and file the missing return/s online in Form FC 4. 

Scanned copes of the Income and Expenditure Statement, Receipt and Payment Statement, Balance Sheet etc., must also be uploaded along with the Annual Return.

In case of difficulty …

If your association is faced with any technical difficulty in uploading the Annual Return, please write to support-fcra@gov.in

Conclusion:

• In our opinion MHA has provided NGOs registered under FCRA 2010 with yet another opportunity to regularise any irregularity in filing online accounts.
• Hurry, MHA will review your association’s status 15 days after the date of the Notice issued on 24^th April 2018.
• Lapse on the part of your association to comply may lead to penalty (to compound the offence of late filing of the Annual Return/s) or subsequently, deregistration!

Just about a year ago MHA had provided NGOs with a similar opportunity to file FCRA Returns from FY 2010-11 to 2014-15.