Using foreign money: the 20% cap, no transfers and other rules

Foreign contribution may be spent only on the purpose it was given for and, since 22 June 2026, only within the purposes and states named in the organisation’s FCRA registration, on activities in India. No more than 20% of it may go on administration, none of it may be passed to another person or organisation, and none may go into speculative investments.

These rules come from Sections 7 and 8 of the Foreign Contribution (Regulation) Act, 2010 (FCRA), as amended in 2020, and Rules 4, 5 and 9 of the FCRA Rules. Breaking them can lead to compounding fines, suspension or cancellation. This guide explains each rule with worked examples. It is for programme heads and finance staff at FCRA-registered NGOs, and for donors designing grants to them.

Only for the purpose, and only where you’re registered

Since 22 June 2026, three further limits apply:

• Registered purposes. Each certificate now names the purposes it covers, chosen from a schedule of 105. Spend foreign contribution only on those.
• Registered states. The certificate also names the states or union territories where the organisation works. Foreign-funded work belongs only in those.
• Activities in India. The Rules now say foreign contribution may be used “only for activities carried out in India”.

So every grant must fit three things at once: what the donor gave it for, what your certificate allows, and where your certificate says you work. To add a purpose or a state, file Form FC-6F, with a governing body resolution and the fee, before the new work begins. See compliance and renewal.

The 20% cap on administrative expenses

The 2020 amendment cut the share of foreign contribution that can go on administration from 50% to 20% of what is received in the financial year (Section 8(1)(b)). Spending more needs the central government’s approval in advance.

Rule 5 decides what counts:

Where a cost serves both administration and the programme, such as a vehicle used for both, split it on a reasonable basis and record how you did it.

Carrying the allowance forward. Since 1 January 2025, an organisation may carry the unspent part of its allowable administrative expenses in one financial year into the immediately following year, giving its reasons in Form FC-4.

Exceeding the cap without approval is compoundable at ₹1 lakh or 5% of the excess, whichever is higher. Budget administration below the cap, not at it.

No transfers, to anyone

Before 2020, an organisation could pass foreign contribution to another registered organisation with approval. Since the 2020 amendment it can’t, even to an FCRA-registered partner, an affiliate or a member of the same network. Sub-grants, re-grants and pass-through arrangements are out. Compounding a transfer costs ₹1 lakh or 10% of the amount, whichever is higher, and can be done only once.

What isn’t a transfer. Paying for goods and services that your own project needs is using the money, not passing it on. Lawyers read the Supreme Court’s judgment of 8 April 2022, which upheld the ban, as drawing this line: paying a vendor, contractor or consultant at a fair price for work on your own foreign-funded project is utilisation, while handing money to someone else to do the work, without receiving goods or services in return, is a transfer. Keep the link between each payment and your project clear in the contract and in your records.

Grey areas need advice. If your programme gives money directly to people or community groups, such as scholarships or support to self-help groups, or pays another non-profit to deliver a service, take advice on how to structure and record it. The Act doesn’t draw those lines for you.

What partners can do instead. A partner can apply for its own registration or prior permission and receive foreign contribution directly from the donor. In a consortium, each member can sign with the donor and receive its share into its own FCRA account. Or you can deliver the work yourself, with your own staff, in a state on your certificate. For CSR teams designing shared projects, see collaborating on CSR.

Investments: secure, not speculative

Foreign contribution can’t be used for speculative business. Rule 4 defines that as market-linked investments, “including investment in mutual funds or in shares”, and schemes that promise high returns, such as chits, or land not linked to the organisation’s aims. Debt-based secure investments, such as bank fixed deposits, aren’t speculative.

Keep a register of investments. Interest and other income earned on foreign contribution is foreign contribution too: it stays in your FCRA accounts and is reported in your returns.

Assets bought with foreign contribution

• In the organisation’s name. Land, buildings, vehicles and equipment bought with foreign contribution must belong to the organisation, never to an office-bearer.
• Reported every year. Since 2023, Form FC-4 has asked for tables of the movable and immovable assets created from foreign contribution, and since 2025 for fresh assets project by project.
• Used for FCRA work. If you counted capital spending towards registration, you gave an affidavit that the assets would be used only for activities the FCRA covers.
• On cancellation or surrender, the foreign contribution and the assets created from it vest in an authority the government prescribes (Section 15). See suspension and cancellation.

Where an asset is paid for partly with foreign contribution and partly with local money, record each share from the start.

Keeping the money apart

Foreign contribution must never be mixed with local money. Keep it in FCRA accounts, with separate books and records. Since 22 June 2026, Form FC-4 asks for the use of foreign contribution project by project, split into activities, fresh assets and administration, with a detailed activity report, so your books need to produce those figures. Our guide to the FCRA bank accounts explains how the accounts fit together.

Allowed or not: common cases

The Academy’s Starting an NGO course practises these rules in its FCRA lesson.