Regulatory Landscape for Non-profits | Insights from Charcha 2020
A case for improving the Ease of Doing Good
The panel in the opening session of Charcha 2020’s“Regulatory Landscape for Nonprofits” track presented an overview of existing challenges pertaining to foreign funding, taxation laws and CSR regulations, noting that India’s outdated, bureaucratic and overly complex regulations restrict NGOs from achieving their desired impact. The ‘ease of doing good’ inIndia needs to keep up with the ease of doing business in the country. These challenges are even more visible and frustrating in a time of crisis, such as the COVID-19 pandemic and lockdown, when a balance of rapid response funding, accountability and transparency is needed.
Efforts to discuss the need for regulatory reforms are hampered by the lack of an updated, accessible database for coordination for the sector; no one even seems to know how many NGOs are currently operating in India. In addition to the burdensome FCRA, confusing taxation, and proposedCSR amendments, government restrictions and vague legislation regarding social justice work create bottlenecks for the sector. A better system aimed at harmonizing the registration, taxation, regulation and legal oversights —recognizing and addressing the unique and various narratives of charitable and nonprofit institutions — is urgently required.
The panel called for comprehensive reform of the social sector, through a combination of self-regulation, a separate representative body for nonprofits, and a new institutional mechanism to implement the law and reform existing institutions.
Action Items or Recommendations arrived at
- India’s social sector needs to adopt a self-regulation model, similar to other industries
- An association is needed to represent the needs and interests of nonprofits
- Regulatory reforms are needed to remove bottlenecks and simplify rules for nonprofits
Understanding CSR landscape
India’s Corporate Social Responsibility (CSR) mandate has driven more than ₹47,000 crore charitable contributions since 2014. The panel explored existing and proposed CSR regulations, and addressed concerns and confusion about how the economic slowdown and proposed CSR rule changes may affect the social sector.
Any NGO seeking CSR funds in India should be at least 3 years old, pitching a specific project or programme with a clear and realistic budget and prepared to accept specific terms and conditions. Most CSR funding has already been committed to Covid-19 related activities, including participation in the PMCares fund. The economic slowdown will further reduce the capital available, making FY21 a year for NGOs to tighten their belts and do more with less.
Understanding FCRA law
The Foreign Contributions Regulation Act (FCRA)allows Indian charitable organizations to legally receive donations from foreign sources. The FCRA requirements date back to 1976, first aimed at regulating foreign contributions to India’s politicians, but later expanded to inhibit outside influence on political, social, and economic activities. As the act has intensified to regulate foreign funding to NGOs — including donations from Indians who hold foreign passports — and global economic growth and fundraising technology has made foreign funding more accessible, it has become increasingly difficult for NGOs to avoid compliance issues.
Foreign sources are a combination of foreign donors, currency and non-commercial transactions. NGOs and corporations many times fail to understand FCRA regulations by not fully understanding all the types of donations that fall under “foreign source,” which puts them at risk of violating compliance requirements.
Action Items or Recommendations arrived at
- If you are receiving both domestic and foreign funding, keep your bank accounts separate and updated.
- Keep the Ministry of Home Affairs updated on any changes to your board membership and banking.
- Communicate regularly with your auditor to ensure you remain in compliance.
Several misconceptions exist regarding the right way to deal with income and expenditure. Experts also touched upon the topics on the preconditions that a nonprofit entity needs to ensure for receiving tax exemptions, the applicability of tax on certain transactions, inter-charity donations, cash payments and tax deductions on cash withdrawals and specified payments. The session resolved misconceptions regarding the approach to account and report anonymous donations.
Challenges and the way ahead
During Covid - NGO’s are the first responders in many cases and the only responders in some cases. The Nonprofit sector is yet to have an Identity and seat at the table, commensurate with the value it delivers. By bringing CSR as a statute within the Indian Companies Act, India has actually done a disservice to the entire philosophy and concept of CSR.Fundamental reforms are required to create a truly enabling environment for nonprofits to flourish in, and achieve the goals of common good and equitable development, where no Indian is left behind.
- Civil society organizations have filled critical gaps in government action during Covid
- The nonprofit sector needs an industry body to represent its voice
- Critical infrastructure gaps include data, intermediaries and ancillary services
- Additional bottlenecks created by recent amendments to CSR law, regulatory requirements; need for ease of doing good
- Need for greater trust, andtransparency for nonprofit sector to flourish
Download the full Insight report on Charcha 2020, covering 16 events and 150+ hours of discussion.