FCRA Prohibited Expenses (2025): What Indian NGOs Must Never Spend Foreign Contributions On
Introduction
Foreign funding can power transformative social impact-but only when it’s used within the strict limits of India’s Foreign Contribution (Regulation) Act, 2010 (FCRA). Many NGOs run into trouble not because of intent, but because they’re unclear about what is expressly off-limits. This article crisply explains prohibited and restricted uses of foreign contribution (FC) so leadership teams, finance heads, and auditors can prevent violations that lead to frozen bank accounts, suspensions, or cancellation of registration.
Why this matters
Prohibitions under FCRA are legal boundaries, not administrative preferences. Breaches can trigger serious consequences, including scrutiny of office bearers and reputational damage. Use the guidance below to align spending with your organisation’s approved objectives and the conditions attached to your FCRA registration.
1) Political Activities
- No FC use for political parties, campaigns, rallies, or movements with political intent.
- Do not fund activities aimed at influencing elections, policy, or public servants.
- Avoid indirect political advocacy that supports or opposes candidates—this invites scrutiny.
2) Personal or Private Benefits
- FC must not pay for personal expenses of trustees, directors, or staff.
- No luxury purchases, non-project travel, family entertainment, or private hospitality.
- Excessive salaries or honoraria without board approval are prohibited.
- Example: Settling a trustee’s personal travel or home renovation from FC is a direct breach.
3) Investment and Speculative Use
- FC cannot be invested in mutual funds, equities, or speculative assets.
- Lending/advancing FC to individuals or entities is not permitted.
- Only simple interest-bearing savings or term deposits in designated FCRA accounts are allowed.
4) Religious or Communal Propagation (If Not an Approved Object)
- Unless explicitly stated in your approved objectives, you cannot use FC to promote a religion, support conversion activities, or fund inter-faith disputes.
- Avoid any activity that could create communal disharmony or undermine secular character.
5) Administrative Expenses Beyond the 20% Cap
- Administrative costs (e.g., non-project staff salaries, rent, utilities, general legal/professional, compliance, and audits) must not exceed 20% of total FC in a financial year without prior written MHA approval.
- 2025 update: Unspent administrative allowance may be carried forward once, with disclosure and justification in Form FC-4.
6) Transfers to Other NGOs Without Eligibility
- Transfer FC only to organisations with valid FCRA registration or prior permission.
- Record and disclose such transfers in Form FC-4 (Schedule 2).
- Transfers to unregistered/non-compliant entities are treated as major violations.
7) Cash Payments Above ₹2,000
- Avoid cash outflows beyond ₹2,000.
- Use bank transfer, cheque, or digital modes and maintain clear audit trails.
8) Expenses Outside India (Without Prior Approval)
- FC cannot be utilised for any activity or beneficiary outside India without specific prior MHA approval.
- Prohibited without approval: foreign travel unrelated to approved projects, grants/donations to overseas entities, or participation in international training/conferences not pre-approved in the sanctioned proposal.
Consequences You Risk by Breaching These Rules
Violations can lead to suspension or cancellation of FCRA registration, freezing of FC bank accounts, confiscation of funds, compounding fees, or even prosecution. Auditors must also certify in Form FC-4 that no prohibited expenditure was incurred—raising accountability for both NGOs and professionals.
Staying on the right side of FCRA isn’t about paperwork—it’s about ethical stewardship of donor funds. By understanding (and avoiding) prohibited expenses, NGOs protect their registration, preserve credibility with donors, and keep mission-critical programmes running without disruption. If you need help aligning policies, documentation, and approvals with the law,