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FCRA 20% administrative cap - what counts, what doesn't

Section 8(1) of the FCRA Act 2010, as amended by the FCRA Amendment Act 2020, caps administrative expenses at 20% of total foreign contribution received in the FY. Exceed it, and your FCRA registration is at risk of cancellation. This is the single biggest compliance trap for FCRA-active NGOs. Here's exactly what counts, what doesn't, and how to stay safely under.

The law

Section 8(1) reads: "Every person who has been granted a certificate or given prior permission shall use the foreign contribution received by him only for the purpose for which it has been received; provided further that not more than twenty per cent of such contribution shall be used in administrative expenses."

Rule 5 of the FCRA Rules 2011 defines what falls under "administrative expenses". The list is exhaustive - anything not on the list is, by default, programme expense (the 80% bucket).

What counts as administrative (the 20% bucket)

Per Rule 5, administrative expenses include:

  1. Salaries, wages, travel expenses, or any other remuneration of board members, executives, paid office bearers
  2. All expenses on rent, repairs, maintenance, running and maintenance of vehicles used for office
  3. Cost of accounting, secretarial services, professional fees (CA fees, legal fees)
  4. Office stationery, postage, telephone, internet, electricity (office only)
  5. Bank charges, audit fees
  6. Cost of furniture and fittings of office
  7. Cost of office equipment, printing of letterheads, visiting cards
  8. Annual subscriptions to professional bodies
  9. Travel costs of office staff on official work

What does NOT count (stays in the 80% programme bucket)

Per the Rule 5 proviso, the following are explicitly excluded from administrative expenses:

  1. Salaries of staff directly engaged in research / training / programme activities. A doctor at the NGO's free clinic, a teacher at the NGO's school, a counsellor at the NGO's helpline - their salaries are programme, not admin.
  2. Cost of materials directly distributed as part of the programme - books for students, medicines for patients, food for relief distribution.
  3. Travel of programme staff for field work. If the doctor travels to a remote village clinic, that's programme. If they travel to a board meeting, that's admin.
  4. Construction of programme assets - a school building, a hospital ward, a community water tank.
  5. Operating costs of programme facilities - electricity at the clinic, repairs at the school, fuel for the mobile health unit.
  6. Volunteer reimbursements for programme work.

The grey area - and how to defend it

The Programme Officer (the FCRA team at MHA) tends to be conservative when reviewing your FC-4. They'll often try to reclassify borderline expenses as admin. Common grey areas:

How the 20% is computed

20% is a ratio, not a fixed amount. The denominator is foreign contribution received in the FY. The numerator is administrative expenses paid from foreign-contribution funds in the same FY.

Example: NGO receives ₹50 lakh foreign contribution. 20% admin cap = ₹10 lakh. Admin expenses must be ≤ ₹10 lakh from foreign-contribution funds.

If admin is ₹12 lakh from foreign funds, you're over by ₹2 lakh - that ₹2 lakh has to be reclassified, reimbursed from local funds, or you're in violation.

Foreign contribution carried forward - how it affects the cap

If you carried forward ₹20 lakh from prior FY and received ₹50 lakh this FY, the denominator for the 20% calculation is ₹50 lakh (current year receipt), not ₹70 lakh (year-end balance). The CFY (carried forward) doesn't expand your admin cap.

Years with zero foreign contribution receipt but pending CFY: admin cap is ₹0 - you cannot spend foreign funds on admin in a year you didn't receive any. This trap catches NGOs whose donor renewal slipped a quarter.

What MHA looks at in audit

  1. FC-4 admin-expense schedule. Itemised. Each line classifiable per Rule 5.
  2. Salary allocation between admin and programme. If you claimed 70% of the programme director's salary as programme, MHA may ask for the time-allocation policy + 12 months of timesheets.
  3. Pro-rated overheads. Rent, electricity, telecom - does the split match the floor-area / headcount basis you've documented?
  4. Programme-staff salary inclusion in the 80% bucket. Their employment contract should say "programme officer / clinic doctor / field nurse" - not "office assistant" or "administrative officer".
  5. Per-rupee reasonableness. If admin is 18% but breakup shows ₹6 lakh of "miscellaneous office expenses", expect a Section 23 inquiry. Granularity is your friend.

How to stay safely under 20%

  1. Reclassify mixed-purpose salaries. Use a documented time-allocation policy. Don't fudge it - board-approved with timesheets is defensible.
  2. Pay admin from local (Indian) contributions wherever possible. Admin paid from Indian funds doesn't count toward the cap. Many NGOs deliberately route CSR + 80G donor money to admin and foreign money to programme.
  3. Bank-account discipline. The designated FCRA bank account (SBI Main Branch, New Delhi) receives all foreign contribution. From there, transfers go to utilisation accounts. Tag every transfer with admin or programme purpose.
  4. Quarterly review. Don't wait until 31 December (FY-close) to audit your admin %. Review quarterly. If Q2 shows admin at 22%, you have Q3 and Q4 to bring the ratio down.
  5. Programme-asset capitalisation. A laptop bought for a programme officer is programme. The same laptop bought for the accountant is admin. Procurement records should specify intended user.
  6. Donor-restricted vs unrestricted allocation. If a donor restricted their grant to programme only, that grant cannot go to admin at all. Track restrictions per grant.

What happens if you breach

  1. Show-cause notice (Section 14). MHA issues a notice within 30 days asking why the admin spend exceeded 20%. You have 30 days to reply.
  2. Inquiry (Section 23). If the reply is unsatisfactory, MHA may launch an inquiry. The inquiry can lead to suspension of FCRA registration for 180 days.
  3. Cancellation. Repeat or severe breach can lead to cancellation under Section 14. Cancelled registration means: no fresh foreign contribution, existing funds must be transferred to a govt-designated account, and reapplication is barred for 3 years.

Cure path: if you self-disclose the breach in your FC-4 with a corrective-action plan (e.g., "We have refunded ₹2 lakh of admin expense from local funds and will rebalance by Q2 next FY"), MHA tends to accept the correction. Don't hide the breach - they'll find it in the bank trail.

Frequently asked questions

Is the 20% per-grant or aggregate? Aggregate. All foreign contribution in the FY pooled, then 20% of the pool.

Are CA fees admin? Yes - explicitly listed in Rule 5(c).

Are donor-mandated audit fees admin? Statutory audit fees are admin. Donor-mandated audits of specific programmes are programme.

What if we have multiple FCRA accounts? Doesn't change the cap calculation. All foreign contribution from all sources rolls into one denominator.

Can volunteers' food / lodging count as programme? If the volunteers are directly executing programme work (e.g., a free-health-camp), yes. If volunteering is for admin / fundraising support, no.

How is the cap audited in FC-4? FC-4 has a Schedule III that asks you to break down expenses into admin and programme. MHA reviewers cross-check this against your audited financials. Mismatch = inquiry.

Donateazy's FCRA admin-cap tracking

Stay under 20% - track admin-% in real time

Donateazy's FCRA module classifies every expense and computes your running admin-% so you catch breaches in week 12, not week 52.

See FCRA module
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