In Brief
The Companies Act, 2013 and the Foreign Contribution (Regulation) Act, 2010 apply independent tests. Where a company incorporated outside India makes a CSR grant through its Indian branch office or project office, the donor ordinarily remains a 'foreign company' and therefore a 'foreign source' for FCRA purposes. The recipient implementing agency must separately satisfy the CSR Rules and, before accepting the grant, hold valid FCRA registration or source-, purpose- and amount-specific prior permission and receive the money through the account structure prescribed under Section 17. The position of an Indian-incorporated subsidiary with FEMA-compliant foreign investment is materially different.
I. Executive Summary
A foreign company with a branch or project office in India may be subject to Section 135 of the Companies Act, 2013 if it meets the required thresholds. The company can carry out its CSR spending directly or through an eligible implementing agency, as described in Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014. Following these rules addresses the company's CSR obligations, but does not automatically mean the recipient can legally accept the payment under the Foreign Contribution (Regulation) Act, 2010 (FCRA).
For FCRA, the main issue is who the donor is legally. A branch or project office is not a separate Indian company; it is part of a company incorporated outside India. This overseas company is defined as a 'foreign company' in Section 2(1)(g), and is included as a 'foreign source' under Section 2(1)(j)(iii) of FCRA. This status does not change just because the CSR funds were earned in India, kept in an Indian bank, or paid in Indian rupees.
So, a grant from the Indian branch or project office of an overseas company is usually considered a 'foreign contribution' for the recipient. This article explains why, compares this with the situation for Indian-incorporated subsidiaries with foreign shareholders, and covers compliance changes from the Foreign Contribution (Regulation) Amendment Rules, 2026 and the compounding notification from 22 June 2026.
II. Legal and Regulatory Background
Section 135(1) of the Companies Act, 2013, read with Rule 3(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, applies to a foreign company as defined in Section 2(42) that has a branch or project office in India and meets prescribed thresholds based on financial statements for its Indian business. Under Rule 4, CSR may be undertaken by the company itself or through an eligible Section 8 company, registered public trust, registered society, government-established entity, or statutory entity. Depending on the category, the implementing agency must also satisfy applicable Section 10(23C) or Sections 12A and 80G conditions, the three-year track record, and mandatory registration through Form CSR-1.
FCRA operates independently and is administered by the Ministry of Home Affairs. Section 2(1)(h) defines 'foreign contribution' to include donation, delivery, or transfer of an article, currency, or security made by a 'foreign source'. Section 2(1)(j)(iii) includes a 'foreign company' within 'foreign source', while Section 2(1)(g) covers a company, association, or body of individuals incorporated outside India. Unless a statutory exclusion applies, an eligible recipient may accept such contribution only after obtaining registration under Sections 11 and 12 or specific prior permission under Section 11(2).
The Ministry of Home Affairs notified the Foreign Contribution (Regulation) Amendment Rules, 2026 through S.O. 3272(E) dated 22 June 2026. Among other changes, registration and prior-permission approvals are now linked more specifically to approved purposes and States or Union Territories. Existing registrants must intimate the relevant purpose and territorial scope in Form FC-6F within one year. Second and subsequent instalments under prior permission require Form FC-3BB, prescribed utilisation of the earlier instalment, and field verification. The new 'reasonable activity' test requires utilisation of at least Rs. 10 lakh of foreign contribution during the preceding two financial years for Sections 14 and 16. A separate notification, S.O. 3287(E) of the same date, revised compounding amounts for specified FCRA contraventions.
III. Key Provisions — Professional Analysis
3.1 Two Statutes, Two Different Questions
Whether an expenditure qualifies as CSR for the paying company and whether the recipient may accept that payment without FCRA authorisation arise under different statutes. A branch office may validly approve and account for a Schedule VII project under Section 135 and the CSR Rules. However, the recipient may still contravene FCRA if the payment is foreign contribution and the recipient lacks registration or prior permission. CSR-1 registration is not a substitute for FCRA authorisation, and FCRA registration alone does not establish eligibility as a CSR implementing agency under Rule 4.
3.2 Is a Branch or Project Office a 'Foreign Source'?
Section 2(1)(g) of FCRA defines a 'foreign company' as one incorporated outside India. A branch or project office is not a separate Indian company; the company making the payment is still the one incorporated abroad. The office may be set up under FEMA and RBI rules and must follow registration and filing requirements under Chapter XXII, including Section 380, of the Companies Act, 2013. These requirements do not make it an Indian-incorporated company.
Practice Note
The strongest statutory basis is the overseas incorporation of the donor itself. Because the branch or project office is only an Indian place of business of that donor, a CSR grant paid through the office ordinarily comes from a 'foreign company' under Section 2(1)(g) and therefore from a 'foreign source' under Section 2(1)(j)(iii). The source test is not displaced merely because the money was generated in India or transferred domestically in Indian currency.
3.3 Contrast: Indian Subsidiaries with Foreign Shareholding
An Indian-incorporated subsidiary is a separate Indian legal entity and is treated differently. Section 2(1)(j)(vi) applies to an Indian company where certain foreign persons own more than half the share capital. The Finance Act, 2016 added a rule that such a company is not a foreign source if its foreign investment stays within FEMA limits or related rules. As a result, CSR contributions from the own funds of a FEMA-compliant Indian-incorporated subsidiary are usually considered domestic, even if the company is fully foreign-owned.
3.4 Indian Subsidiaries: A Limited Textual Caveat
There is still some overlap because Section 2(1)(g)(ii) includes a subsidiary of a foreign company as a 'foreign company', which is then included in Section 2(1)(j)(iii). The more specific rule in Section 2(1)(j)(vi) was added to exclude Indian companies whose foreign investment is within FEMA limits. Unless a court or the Ministry says otherwise, it is best to follow this specific rule. However, this should be checked carefully if the ownership, investment route, sector, downstream investment, or payment source is unusual.
Practice Note
For an ordinary Indian-incorporated subsidiary with FEMA-compliant foreign investment, the mainstream position is that its CSR payment is not foreign contribution merely because its parent is foreign. This conclusion should be presented as the prevailing statutory interpretation, while retaining a narrow caveat for exceptional structures and any future Ministry of Home Affairs or judicial clarification.
3.5 Why the 'Fee for Services' Exclusion Usually Does Not Apply
Explanation 3 to Section 2(1)(h) says that money received from a foreign source as fees or for goods or services in the normal course of business is not covered. A real CSR grant is usually given to support a Schedule VII social project and is not payment for goods or services provided to the donor. So, this exclusion usually does not apply. However, the details matter: the agreement, deliverables, invoices, GST treatment, and the real nature of the arrangement should be checked if it is called a service contract instead of a grant.
3.6 FEMA and the Branch or Project Office
FCRA decides if the recipient needs authorisation, while FEMA covers how the overseas entity is set up, what it can do, and its bank accounts and remittances in India. Even if both bank accounts are in India, it is still necessary to check the branch or project office's RBI or authorised dealer approval, the relevant Master Direction, and the allowed debit conditions. This is especially important for a project office, since its account and activities may be limited to the specific project it was set up for. Before making a payment, the payer should make sure the CSR payment matches its Companies Act duties and the rules for its Indian office and accounts.
3.7 Receipt Accounts and the Prohibition on Onward Transfer
If the grant is a foreign contribution, Section 17 says the recipient must first receive it in the designated 'FCRA Account' at the State Bank of India branch in New Delhi. After that, it can be moved to other allowed FCRA or utilisation accounts, but domestic funds cannot be mixed in. Section 7 also bans an FCRA-registered or prior-permission recipient from passing foreign contribution to someone else. Buying goods or services for the recipient's own project must be clearly different from making an improper sub-grant or acting as a conduit.
IV. Comparative Position by Payer Type
| Payer | 'Foreign Source' Under FCRA? | Principal Statutory Basis | Recipient's Compliance Position |
|---|---|---|---|
| Indian company with no relevant foreign-source characteristic | No | No applicable limb of Section 2(1)(j) | Rule 4 eligibility, including CSR-1 and applicable tax-status/track-record conditions; no FCRA authorisation solely because of this payer. |
| Indian-incorporated subsidiary with foreign investment within FEMA limits | Generally no | Proviso to Section 2(1)(j)(vi), inserted by Finance Act, 2016 | Rule 4 eligibility applies. Retain a limited caveat for unusual ownership, investment or funding structures. |
| Foreign company's branch or project office in India | Yes, ordinarily | Section 2(1)(g) read with Section 2(1)(j)(iii) | Rule 4 eligibility plus FCRA registration or prior permission, Section 17 receipt-account compliance and project/purpose conditions. |
| Indian citizen residing abroad, contributing personal savings through normal banking channels | No, on MHA FAQ position | Contributor remains an Indian citizen; documentary conditions apply | Keep citizenship and banking evidence. An OCI cardholder or foreign citizen is treated differently. |
V. Practical Guidance
5.1 For Implementing Agencies and NGOs
- Identify the payer's exact legal identity before accepting funds: obtain incorporation and establishment documents and determine whether the payer is an Indian company, an Indian-incorporated subsidiary, or an Indian branch or project office of an overseas company.
- Verify complete CSR implementing-agency eligibility, not CSR-1 alone: check the entity category under Rule 4, valid CSR Registration Number, applicable Section 10(23C) or Sections 12A and 80G status, the three-year track record where required, and the approved project and monitoring framework.
- Treat FCRA authorisation as a precondition where the payer is a foreign source: the recipient should not accept or utilise the grant until its registration or prior permission covers the donor, purpose, amount, approved activities and territorial scope. Consequences may include prohibition on receipt or utilisation, seizure or confiscation, penalty, compounding or prosecution; suspension or cancellation additionally applies to registered recipients.
- Use prior permission only for a properly identified grant: prior permission is source-, purpose- and amount-specific and is not an abbreviated form of general registration. Under the 2026 Rules, receipt of second or subsequent instalments requires Form FC-3BB and satisfaction of the prescribed utilisation and verification conditions.
- Route the money through the prescribed FCRA account and control downstream spending: receive foreign contribution through the designated SBI New Delhi Main Branch FCRA Account, maintain separate records and utilisation accounts, and avoid onward grants or transfers prohibited by Section 7.
5.2 For Foreign Companies and Their Branch or Project Offices
- Before making a contract or payment, check the implementing agency's FCRA status. Ask for their registration certificate or prior-permission order, confirm its validity and scope on the FCRA portal, and make sure the agreement, donor name, amount, instalments, purpose, locations, and reporting match the authorisation.
- Do not use an Indian entity as a way to avoid foreign-source status. Using a Section 8 company, trust, or society does not change the source. If that entity gets money from a foreign branch or overseas company, it may also need FCRA authorisation and cannot transfer foreign contributions further if Section 7 forbids it. A group entity can only run a project directly after meeting all CSR, FCRA, tax, and FEMA requirements on its own.
- Check FEMA and authorised-dealer rules as well as CSR approval. Record why the Indian office can spend the money, especially if a project office account is limited to a specific project. Keep Board or authorised-person approvals, CSR calculations, project documents, and banking records.
VI. Business Implications
6.1 For Corporate CSR Teams
CSR due-diligence checklists are not complete if they only check CSR-1, income-tax registrations, and NGO Darpan details. If the payer is or could be a foreign source, the checklist should also cover the payer's legal identity, FCRA registration or prior permission, allowed purpose and location, designated bank account, instalment rules, Section 7 restrictions, and whether the project agreement fits both CSR and FCRA rules.
Risk
An implementing agency that accepts a CSR grant from the Indian branch or project office of an overseas company without the required FCRA authorisation may face statutory restrictions on receipt and utilisation, seizure or confiscation, monetary consequences and prosecution. If it already holds registration, suspension or cancellation may also follow. The payer may simultaneously face project disruption, inability to substantiate proper implementation and reputational or governance consequences.
6.2 For Practising Professionals Advising Both Sides
Professionals advising the foreign company and those advising the implementing agency look at the same transaction from different legal perspectives. A joint review before payment should match up the payer's CSR calculations and approvals, the recipient's Rule 4 and FCRA status, FEMA and authorised-dealer rules, the funding agreement, bank account route, GST treatment if needed, project monitoring, reporting, and limits on further spending. Each side must make sure it meets its own legal duties and not rely on the other party's registration.
VII. Key Takeaways
- CSR compliance by the payer and FCRA compliance by the recipient are separate statutory questions; approval under one framework does not satisfy the other.
- A branch office or project office is not a separate Indian-incorporated company. The donor remains the overseas company and is ordinarily a 'foreign source' under Sections 2(1)(g) and 2(1)(j)(iii).
- India-sourced income, payment in rupees and transfer between Indian bank accounts do not by themselves convert a foreign-source grant into a domestic contribution.
- An Indian-incorporated subsidiary is generally outside 'foreign source' where the specific proviso to Section 2(1)(j)(vi) applies because its foreign investment is within FEMA limits, subject to review of unusual structures.
- CSR-1 is only one component of Rule 4 eligibility. Applicable tax status, track record and project-governance requirements must also be satisfied.
- A recipient of foreign contribution must obtain registration or prior permission before acceptance, receive the grant through the Section 17 account structure and comply with Section 7's prohibition on onward transfer.
- The 2026 Rules introduced purpose- and geography-linked approvals, Form FC-6F transition requirements, Form FC-3BB for later prior-permission instalments and a Rs. 10 lakh two-year 'reasonable activity' utilisation test.
VIII. Conclusion
The right FCRA outcome depends on the payer's legal status, not just how the payment is described or where the bank account is. If a company set up outside India pays a CSR grant through its Indian branch office or project office, it is safest to treat the grant as coming from a foreign company and as a foreign contribution for the recipient. The implementing agency should get the required FCRA authorisation before accepting the grant and follow all rules for receipt, purpose, location, use, and reporting.
A different result generally applies where the payer is a genuinely Indian-incorporated company whose foreign investment remains within FEMA limits and the proviso to Section 2(1)(j)(vi) applies. Even in that case, the recipient must independently satisfy Rule 4 of the CSR Rules. Because the consequences of an incorrect classification fall primarily on the recipient but can disrupt the payer's CSR programme, both parties should resolve the source, authorisation, account route and implementation structure before signing the grant agreement or releasing funds.
Disclaimer
This article is for general informational and professional-education purposes only. It does not constitute legal advice, a legal opinion, tax advice or a recommendation for any particular transaction. FCRA, CSR, FEMA, income-tax and banking consequences depend on the exact legal identity of the parties, the source and character of the funds, the governing approvals and the project documents. Readers should obtain advice based on their specific facts before accepting, paying, structuring or utilising any contribution. This material is intended solely for professional knowledge dissemination and is not an advertisement or solicitation of professional work.
Key statutory references: Section 135 of the Companies Act, 2013; Rules 3 and 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended; Sections 2, 7, 11, 12 and 17 of FCRA, 2010; Foreign Contribution (Regulation) Amendment Rules, 2026, S.O. 3272(E) dated 22 June 2026; compounding notification S.O. 3287(E) dated 22 June 2026; and the applicable FEMA regulations and RBI Master Directions governing branch and project offices.