KPMG report: Changes to Indian FCRA prohibit sub-grants, further limit administrative expenses
Changes to Indian FCRA prohibit sub-grants
The Indian government this week enacted amendments to the Indian Foreign Contribution Regulation Act (FCRA)—the law that regulates the receipt of and use of foreign funding of Indian nonprofit organizations.
The new amendments prohibit Indian nonprofit organizations from “sub-granting” funds received from foreign organizations to other Indian charities and limit the nonprofit’s overall administrative expenses to 20% of its overall foreign grants (as compared to 50% under prior law). Read a brief summary [PDF 63 KB] of the provisions of the FCRA amendments prepared by KPMG LLP.
Implications for U.S. private foundations
U.S private foundations that have made grants to Indian charities may discover that the Indian grantees may no longer be able carry out their grant agreements as initially stipulated. For example, the grant agreement may have anticipated that the Indian grantee would make sub-grants to smaller, local Indian charities to carry out the charitable purposes of the grant—that is, sub-grants that under the amended FCRA can no longer be made.
In such a case, the U.S. foundation and the Indian grantee may need to identify new ways for the grantee to accomplish the charitable purposes of the grant—not just to be in compliance with Indian law, but also to determine that the grant will continue to be a “qualifying distribution” that counts toward the foundation’s required payout and is not a “taxable expenditure” under U.S. tax law.
Grantors also should refrain from sending new funds to Indian organizations pending review of the grantee and the grant terms to determine that they will still comply with all requirements of the amended FCRA and the grantee’s compliance with new FCRA bank account requirements. Longer term, U.S. grantors may need to reconsider their grantmaking strategies in India in light of the new law.
U.S. companies operating in India have often established company foundations to make grants for charitable purposes in India. If the Indian company foundation has been funded by Indian operating companies exclusively, the FCRA is not implicated. However, to the extent the Indian foundation is funded by the U.S. parent company or a U.S. company foundation (or other entities outside India), the FCRA would apply and the Indian company foundation will not be able to make grants to Indian charities with those funds.
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Ruth Madrigal | +1 202 533 8817 | firstname.lastname@example.org
Preston Quesenberry | +1 202 533 3985 | email@example.com
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