FCRA in 2026: The Bill, the Rules and the Questions They Raise
The Foreign Contribution (Regulation) Amendment Bill, 2026 was introduced in the Lok Sabha on 25 March 2026. Following widespread opposition, it now sits with a Joint Parliamentary Committee. The Bill may be in storage for the moment and is not law yet. The Foreign Contribution (Regulation) Amendment Rules, 2026 (S.O. 3272(E)), however, were notified on 22 June 2026 and are already in force.
We covered the Rules when they were notified in our note, MHA Notifies FCRA Amendment Rules, 2026 – Key Changes for NGOs, Trusts and Societies. This piece looks at how the Rules and the Bill work together in greater detail.
We have set out below what we consider the main changes across the two, and our view on each:
Lapse of the certificate can result in a takeover of assets.
Assets built partly with foreign funds find no protection.
There is no mechanism for appeal or hearing upon denial of renewals.
Key functionaries are potentially exposed.
Penalties are reduced, but investigations need prior approval.
The Rules fix purposes, states and a minimum spend.
Defunct organisations holding assets built with foreign money could certainly be a legitimate regulatory worry. But do legitimate organisations need to surrender their assets just because they no longer want to take foreign contributions? Should a failure in compliance lead to such heavy costs?
Lapse of the certificate and loss of assets
As the law stands today, assets created out of foreign contribution vest in a prescribed authority when a certificate is cancelled or surrendered. The Bill proposes to add a third critical event: “cessation”. An organisation’s registration ceases if it is not renewed before the five-year term ends—that is, if no renewal application is made, or if renewal is applied for but denied for whatever reason.
Vesting is provisional at first and becomes permanent if the certificate is not renewed or restored within a prescribed period. A Designated Authority may then transfer the assets to a government body or sell them, with the proceeds going to the Consolidated Fund of India.
The sad nuance here is that the Bill does not distinguish between an NPO that has misused foreign funds and one that simply stopped needing foreign funds.
Consider a trust that built a hospital with foreign grants decades ago and has since run it on domestic donations or its own accruals. If it lets its certificate lapse because it no longer needs the additional compliance overhead of FCRA registration, the hospital could vest in the Designated Authority. Does that serve the objective of the Act, which is to regulate the receipt and use of foreign funds? The consequence is that an NPO cannot leave the FCRA framework without risking its assets. To keep them, it must continue renewing and meeting the compliance conditions indefinitely.
Assets built partly with foreign funds
Where an asset was created even partly with foreign contribution, the Bill mandates that the entirety of the asset vest with the Designated Authority, regardless of the percentage of foreign contribution in it. There are provisions allowing the NPO to recover a “distinct or ascertainable” portion funded domestically by making a separate application. That is partially workable where such assets are separately ascertainable, such as a separate wing or floor. It stops working where an asset is funded from a common pool of domestic and foreign donations and no portion can be identified.
There is also an inconsistency. Entities that received foreign funds through the prior-permission route do not face this vesting on non-renewal. Two organisations doing identical work would therefore be treated differently purely because of the route they chose to receive the money.
No hearing or appeal on denial of renewal
Under the Act, an NPO whose certificate is cancelled has an opportunity to be heard and may appeal to the High Court. Neither is available when renewal is denied. Yet denial will now produce the same outcome as cancellation, namely loss of assets.
Key functionaries
The Bill defines “key functionaries” to include directors, partners, trustees, the karta of an HUF, office bearers, members of the governing body and any other person responsible for management. They are presumed liable for the organisation’s offences unless they establish lack of knowledge or due diligence. If the organisation becomes defunct, the last key functionaries must inform the government; failing this, the foreign contribution vests permanently.
A reverse onus is not unusual in regulatory statutes. However, an unpaid trustee of a small charity now carries a burden that was earlier assumed to rest with those who actually managed the funds. NPOs may find it harder to attract credible trustees unless their compliance functions are strengthened further.
Penalties and investigation
The maximum imprisonment for contravention reduces from five years to one, and prior approval of the Central Government is needed before an investigation can begin. This is a welcome moderation.
The 2026 Rules
Unlike the Bill, the Rules are already in force, as noted in our earlier article on the Rules. They do the following:
Require organisations to choose from 105 specified purposes under the five statutory categories of cultural, economic, educational, religious and social, at ₹300 for each additional purpose.
Require organisations to declare the States or Union Territories in which they operate, at ₹300 each. A change of purpose or State needs fresh approval.
Define “reasonable activity” as utilisation of at least ₹10 lakh of foreign contribution in the previous two financial years.
Define “key functionaries”, and make an organisation with a foreign national who is not of Indian origin in such a role ineligible for registration, unless the Government specifies otherwise.
Require social-media accounts and three years of activity and utilisation details in application forms.
The ₹10 lakh threshold deserves particular attention. A small organisation running a library or a school on modest foreign grants may fall short. Given the Bill, a failed renewal could now put its assets at risk.
There is also a legal question. The Supreme Court has held repeatedly, in Kerala State Electricity Board v. Indian Aluminium Co. and State of Karnataka v. Ganesh Kamath, among others, that Rules cannot go beyond the parent Act. The Act does not define “key functionaries” or “reasonable activity”, and does not restrict an NPO to a list of purposes or particular States. Whether the Rules overreach is a point on which we expect litigation. Until then, they must be complied with.
CNK Comment
FCRA registration is seemingly going to become Hotel California: “you can check out any time you like but you can never leave”.
In our view, the prudent course is to map existing activities against the 105 purposes and amend where needed, and to declare every State of operation before starting work there. NPOs would do well to monitor foreign-contribution utilisation against the ₹10 lakh threshold on a rolling two-year basis. Where an asset has mixed funding, the source of funds should be documented now, while the records still exist.
An increased focus on compliance is another task that NPOs need to complete, as of yesterday, given that the cost of non-compliance with FCRA provisions—which are, quite honestly, very easy to get wrong—can impose a pretty steep cost on the operations of the organisation.