What do 'banned' NGOs do?

Some enter into service agreements with compliant NGOs to route money and ensure that work goes on, others go for fresh registrations

In April, the ministry of home affairs cancelled the registration of 8,975 non-governmental organisations (NGOs). This was followed by another round of cancellation of 4,470 licences in June. While the cancellation meant these organisations would no longer be able to receive grants from foreign donors, which are their bread and butter, NGOs adopt different methods to ensure life goes on.

Under the Foreign Contribution Regulation Act (FCRA), there are only two ways to receive contributions from abroad. While registered NGOs are able to receive contributions without restriction, a second 'prior permission' route allows specific transactions, where the contributions are allowed for a specific period and up to a specified amount. The donor is also fixed under the second route. Contributions from people other than the specified donor are not permitted.

A chartered accountant (CA) of a Mumbai-based NGO, which faced a similar cancellation a couple of years earlier, explained how he handled the issue. His organisation tied up with another friendly NGO, which had an active FCRA licence as an implementation partner."Instead of a grant agreement, this would be a service agreement. The costs would be higher because this becomes a for-profit operation and will be liable for service tax. In addition, if you show any profit, that will attract income tax," the CA said. Such service contracts do not fall under FCRA, he added.

Donors also agree to such arrangements to ensure work on ground doesn't get disturbed. Sometimes, employees of NGOs whose licences have been cancelled also get deputed to the NGO acting as go-between. The staff draw their salaries directly from the latter, thereby saving some tax outgo.

Another method is to float a new entity and apply to the home ministry for a fresh licence. People familiar with the processes said applications are normally handled in bulk, as the ministry has still not fully computerised the registration processes. Given the huge volumes, ministry follows a tick the box approach and clears these in batches.

Therefore, it is not difficult to register a new entity even if licences of some of your other ones have faced cancellations, provided the norms with respect to nationality, bank accounts, etc, are complied with, "unless you are blacklisted and there are specific instructions not to permit you".

Often, Section 25 companies or trusts are floated with the same directors. "If you want to be careful, you can designate a different person as a 'chief functionary'. The chief functionary is responsible for filing of returns," the CA said.

Most cancellations are due to failure to file returns. Another option for banned NGOs is to clean up their books, file the returns and approach the ministry for renewal of licences.

There is also speculation even among the 'development industry' people that a number of entities are using the FCRA route to transfer money into the country. For example, for the first lot of cancellations, the home ministry sent notices to 10,343 associations for not filing returns. About 500 of these returned undelivered, giving credence to such suspicions. However, ironically, the many professional ones who are into these kinds of operations often have better paper work and are among the NGOs that file returns regularly, a worker said.

The CA quoted earlier added the ministry would be in a better position to handle the burgeoning NGO industry once it is able to make all filings online.

In July, the ministry had put out a circular, saying it was in the process of making all FCRA services online "within the next 15-20 days". The services proposed to be made fully online included applications for registration, prior permission, renewals, filing of annual returns and even uploading of documents.

"This would allow better supervision of the sector. Once data is in the public domain, it would also enable independent verification of the work done on ground and whether this matches with the papers filed, by media and others," he added.