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FCRA – GAME OVER ?

The Foreign Contribution (Regulation) Amendment Bill, 2020, introduced in Lok Sabha by Home Minister Amit Shah today at 3 pm, says the need to strengthen the Act has arisen due to several organisation “misutilising or misappropriating” the funds leading to the government cancelling 19,000 such registrations in the past few years.

1) Mandatory to open FC Bank in SBI-Delhi Branch

Amendment of section 17 of the ACT has sought to provide that every person who has been granted certificate or prior permission under section 12 shall receive foreign contribution only in an account designated as ‘‘FCRA Account’’ which shall be opened by him in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify. It has, however, allowed the organisation to transfer these funds to another account for utilisation.

2) Slashing Administrative Expenses further

It is proposed to slash administrative expenses further from 50% to 20%. This will be the harsh step for NGOs. Already the definition of Administrative Expenses is very vague and no clarity over which expenses should be include or not.

3) AADHAR CARD for Board / Office Bearer

It is proposed now that AADHAR is mandatory for all the office bearer and board members. Earlier FCRA has already introduced to submit an affidavit by each board members. That affidavits is almost like a had-cuffs. One more step by making AADHAR mandatory to demotivate person to be on the board of the NGO.

4) No more Transfer of FC Funds to other NGO

Now, no more transfer of FC funds to any other organisation. Means, no Networking no sub-grant. However, more clarity is required on this.

5) And some more restrictions

Also, a “Summary Inquiry” is proposed by government, wherein FCRA department can freeze your funds even in the middle of the Project.

Full Blog

Read Full blog here

FCRA-Amendment-2020Download

The Conclusion

The important question here is – Is this beginning of the end?

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Sale to Foreigner deposited in FC or NonFC Bank?

Example

One of the NGOs is making handicraft items and exporting it out of India. Also, sometime foreigner visits their campus and buy such articles. Where should we deposit the sale proceeds of such transactions ? FC Bank or NonFC Bank?

Solution

So, when sales made to foreigners or exporting to foreign countries, such is purely a commercial transaction. Here there is no charitable transaction. As per the Explanation 3 of Section 2(1)(h) of FCRA, 2010 while defining “Foreign Contribution”, this type of commercial transactions are clearly excluded.

“Explanation 3 ‒ Any amount received, by an person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.”

Thus whatever received from sale of product to foreigner must be treated as revenue under the NonFC Books and deposited in NonFC Bank Account

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Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Can NGO issue Bill / Invoice to Corporate for CSR porject?

If you are implementing CSR project and at the time of releasing instalment, corporate asked you to raise a Bill / Invoice and only after that instalment will be released, can you issue Bill or Invoice as a Non Profit Organisation?

The Corporate Process

Corporate Financial Process do not allow any payments without bill. And thus the person handling finance and accounts in corporate would force Non Profit Organisation to issue invoice or bill in support of release of the first instalment. They do not get it why NGO can not issue bill if they are in receipt of money.

So, What is the Solution?

First thing first, you need to convince the corporate that NGO can not raise the bill for the grant instalment. Secondly, CSR agreement is enough for the supporting document to release the instalment.

However, NGO can issue Claim Statement or Money Receipt Statement or any such kind of documents demanding instalment of CSR but do not issue Bill, Invoice, Credit/debit Note etc..

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Is it mandatory to quote Voucher Number on Each Voucher in NGO Accounting

Voucher Number

A number serially entered on any voucher is much help in the accounting system. As a Fundamental of Accounting, it is required that all vouchers must be properly numbered in the physical vouchers as well in the books of accounts.

System of Numbering

There are various methods for numbering vouchers – serially numbered – 1,2,3….., monthly numbered – Apr1, Apr2 , nature wise numbering – for Cash Payment CP1, CP2, …. etc.. However, the objective of having voucher number is more of control purpose. Once entered in the books, it prevents any change into it.

Problems of Voucher Numbers in NGO Accounting

The major problem is faced when NGO maintains accounting Project-wise. Means, for each project separate Tally, is maintained. Also, when cost-centres or cost-categories are used in Tally for Project Accounting, same kind problems are faced. Also, in NGO Accounting, vouchers and supporting come from field and if voucher numbers used serially, it creates pronblem in sequncing.

Video

Check out my below video to find out the answer.

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Cancellation of FCRA registration – New List

FCRA department has recently issued the new list of organizations whose registraion have been cancelled due to non filling of FCRA return for FY 2017-18

Cancellation of Registration

On 28.11.2019, FCRA department has issued a notice dated 19th October stating list of the organizations who have not filled FCRA return in Form – FC4 for FY 2017-18. There are 1808 organization all over India. Click here to view the full list.

It is now clear that, department do not accept paper return and thus it is mandatory since many years to file FCRA return in online mode.

Check out our video on how to file FC-4 return online.

Opportunities for being heard have been given

As mentioned in the notice, department had already given the oppertunity of filling onine FC return to the organizations who have not filled despite of due date was over. Thereafter, a SMS or emails were sent to remaining organizations as final oppertunity and after thatn those who had not comply, the registratinons were cancelled.

Now the way out

Once registraton stands cancel, organization can not apply for the fresh application of FCRA for 3 years. However, in the notice, it was mentioned that FC-4 return can be filled with the penaly after due date. Thus, in my opinion, organisations whose registraions are cancelled should request the department allow them to file FC return along with penalty and therby request to restore their registraion.

For other organisatoins

Now, the violation / negligence of compliance has been taken very seriously by FCRA department. Thus word of advie is to file FCRA return online well within deadline. So, for FY 2018-19, last date for filling FCRA return online is 31.12.2019.

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Location wise expenditures in FCRA return

As we are aware that a new format of FCRA return has been out in Form FC4.

Check out this tutorial video on how to file FCRA return.

The major change in this return is that it asked for the information Project-wise Expenditures. See below image.

Also, when you add activity or project, it asked to provide the address/location of the activity or project. Check it out.

Let us discuss some of the practical points related to this.

One Project – One Location

Easy-peasy. Nothing to worry. Full project expenditures go here, with opening balance, the grant received, utilization and the closing balance of that project or activity.

One project – Two locations

Bu the problem is here. When a project is implemented in more than one location. So, it is advisable to bifurcate the expenditures as per the location – drill down to district level will be okay.

However, generally, it is very difficult to fetch data from the Tally. If your chart of accounts are not capable of bifurcating locations, one has to check each and every vouchers and have to bifurcate. The easiest method is to create the location as cost categories in Tally so that one can get this data at one click.

How to configure this cost-category? – Check out this blog of mine

Head Office Location

Do not mention all the activity location as a head office, if your field area is different. Head office is for administrative work. Here the logic behind this to get activities in various geographic locations.

Administrative Expenses and Purchase of Fixed Assets

Apart from program expenses, there are administrative expenses and purchase of fixed assets also from the Foreign Funds received. However, there is no clarity to put these expenses in this portion of the FC-4 Form. In my opinion, however, it is better to show administrative expenses and fixed assets related to the projects under here. So, you can get correct balance as at the end of the year for that activity or project.

Conclusion

The bottom line is that give accurate and correct information. Also, to provide detailed information is always better than providing less information. Best of luck for FCRA return filling.

Remember

The last date for filling FCRA return in Form FC-4 for FY 2018-19 is 31.12.2019.

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Revised Annual Return FC-4 Form – FCRA Update

At the beginning of the Financial Year, FCRA department has made changes to FCRA Annual Return, which is in Form FC4. The more detailed, more refined format has been introduced. Let us have a look at new changes.

Activity/Project wise utilization

Earlier:- Only total figures of utilization.
New:- You need to give details of opening balance, receipts, utilization and closing balance of each activity/project.

Each Donor Details

Earlier:- Only details of donors who had given more than Rs. 20,000 to be given.
New:- Now, details of each and every foreign donor (1st recipient and 2nd recipient) is to be given.

Fixed Assets Details

Earlier:- Only a total of fresh assets purchased during the year was to mention.
New:- Now, details of each fixed assets purchased during the year from foreign contribution is to be mentioned. e.g. Type of assets, project name, amount etc..

FD Details

Earlier:- Earlier it was not cleared which amount should be displayed. FD closing balance or matured or utilized, bit confusion was prevailing.
New:- Now, very clear tabs given to write the opening balance of FD, new FDs made, the maturity of FD and Closing Balance of FD.

How to file FC-4 return?

Check out below video showing detail presentation on the procedure of FC-4 Form.

 

 

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How to remove GHOST FIXED ASSETS – Fixed Assets Management in the NGO

Scenario

30 computers were purchased out of funding agency fund during 5 years of projects. Now in the current date, almost every computer is not usable. How do you remove these assets from the  Balance Sheet? This is very important query asked by participants every time I take Training on Accounting and Financial Management of NGO.

As we know NGO is a special type of Entity and rules and regulations governing them are not very clear. Also, there are no accounting standards issued by ICAI specifically related to NGO covering each and every aspect. All these make more confusions. (Why it is very important to clean your Balance Sheet – Read Here).

Let us discuss today how to remove ghost assets from the Balance Sheet.

When Assets should be removed?

Fixed Assets can be removed in the following cases :

  1. if Fixed Assets are not in use
  2. if maintenance expenses are very high
  3. due to change in technology requirements
  4. if Funding Agency instructed to return it back or transfer to another partner

Procedure to remove Fixed Assets

Before that, we need to know the source from which it is acquired. Fixed Assets are generally acquired by NGO in two ways.

1) From Restricted Funds. (Funding Agency Budget etc…)

2) From Unrestricted Funds. (Corpus, General Donation, Interest etc..)

Step 1 Identification

Before 31st March every year, a committee should be formed comprise of Accountant and other two people who then take the stock of Assets and decide which can be scraped or removed or discarded.

Step 2 Approval

On their recommendation, Head of the organisation decides whether to go ahead and remove fixed assets or not. In case of assets acquired from the Funding Agency Fund, written approval must be obtained from the Funding Agency.

Step 3 Passing Resolution

It is highly advisable to put an agenda in the General Meeting regarding removal/scrape/sale of fixed assets. Once approved, a resolution to remove Fixed Assets should be passed in the board/general meeting.

Step 4 Accounting Entries

After passing the resolution, an accountant should pass appropriate journal entry in the books of accounts for removal/scrape/sale of fixed assets recognizing profit or loss if any. Journal entries depend upon how it was recorded originally and depends upon many aspects – whether Fixed Assets Fund created or not? – whether depreciation provided or not? – whether assets are maintained as a Block or Individual items etc…

If your accountant is not capable of passing such entries, email your query at contact@kcjmngo.com or write it in the comment section.

Conclusion

At any point in time, the Balance Sheet should reflect the correct pictures of the economic position of your organization. And Fixed Assets are one of such crucial items in the Balance Sheet. Thus, utmost care should be taken to identify and removal of Fixed Assets.  Also, special attention should be given to such fixed assets purchased from FC funds and how journal entries passed in the book and reflected in the FCRA Returns.

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NGO Audit Report Revise Format in Form 10B

Every NGO, whether be it Trust, Society or Sec 8 Company, which is registered u/s 12AA, has to get their accounts audited with the Chartered Accountant. He has to give his Audit Report in Form 10B. (Checkout our video on how to file Audit Report of NGO). This report need to be filled online on Income Tax Website. This form is going to be changed with coming Financial Year. Earlier Form 10B Audit Report is just for 3 page which now change and become 8 pages. All the information from FCRA to 80G Donations to Expenses to Dis-allowances to TDS deductions – everything need to be certified by Auditor now.

Suggestions are welcome

Income Tax Department has issued a draft notification on May 21, 2019 (download it from here) for revising Form 10B. Also, department has asked suggestions from general public, NGOs and chartered accountants for such changes. Let us discussed such changes in Brief.

Donations

Till now, there was no mechanism in Income Tax to cross verify Donation receipts issued u/s. 80G by NGO and exemptions claimed by Individual Tax Payer for 80G. Here in this new form, Auditor has to certify total donation receipts issued by organization u/s 80G.  And it is mandatory now to take PAN of the donor.

The format is as under :-

Anonymous Donations

If PAN is not available from the donor, it will considered as Anonymous Donation. This also need to report and certify by Auditor in specific format. Thus to eliminate anonymous donation, even a small amount of donation mus be backed by PAN and donor details.

Donations in kind

Also, a separate information is to be provided for Donation in kind. However, in one of the point No I – 1, the form asked the detail whether this donation in kind is invested properly as per sec 11(5). There is some confusion here. Suppose you got a Car in Donation, how do you invest the same as sec 11(5)?

FCRA Details

Earlier only FC registration number was to mention. But in new form, auditor has to give all the details regarding FC Contribution received with Name, Address and Country Code of Foreign Donor.

Business Receipts

Even, auditor has to certify about the receipts from business or professional activities of NGOs. Thus all those income received by NGOs for providing goods or service need to be reported by Auditor.

Other Changes

There are many other notable changes where auditor has to certify about Loan taken or given by NGO, Non-Deduction of TDS, Late filling of TDS returns, other penalty paid, Depreciation detail, Investment made by NGO etc..

NOTE –  This is a draft report format. If you have any doubt, query or suggestions, income tax department has given email address – niraj.kumar82@nic.in

You can email your suggestions to above email address or write to us.

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