Rule 5 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 8(1)(b) of the Act limits the sum that may be defrayed from foreign contribution on administrative expenses. Rule 5 says what counts as an administrative expense: eight heads, from salaries of key functionaries to rent. It excludes two kinds of expenditure, and a proviso added from 1 January 2025 allows the unspent part of the allowable amount to be carried forward to the next financial year, for reasons mentioned in Form FC-4.
This article reads rule 5 as per the Rules as amended by the notifications named in this article: G.S.R. 790(E) dated 31 December 2024 (in force from 1 January 2025) and S.O. 3272(E) dated 22 June 2026, the latest consulted. The base text is the third-party consolidation of 17 September 2019, which this article reads together with the 2011 notification, and the 2026 words replace the earlier text of clauses (i) and (iii). Later amendments should be checked. For help classifying your spending, see our books of accounts and compliance service.
Rule 5 lists eight heads of administrative expenses, including salaries and remuneration of key functionaries, hired personnel, office consumables, accounting costs, vehicle costs, report costs, legal and professional charges and rent. Two provisos exclude research or training field staff and expenses directly furthering the objectives of a welfare organisation. A third proviso, effective 1 January 2025, gives an option to carry forward the unspent part of the allowable amount, with reasons in Form FC-4. The percentage limit is in section 8: twenty per cent.
Where rule 5 fits
Section 8(1)(b) as read after paragraph 4 of the Amendment Act, 2020 says a person "shall not defray as far as possible such sum, not exceeding twenty per cent. of such contribution, received in a financial year, to meet administrative expenses", and the proviso allows more only with prior approval of the Central Government. Section 8(2) lets the Central Government prescribe "the elements which shall be included in the administrative expenses and the manner" of calculation. Rule 5 prescribes the elements. See the article on section 8 for the limit itself.
Rule 5: the eight heads
"The following shall constitute administrative expenses":
| Clause | Head |
|---|---|
| (i) | Salaries, wages, travel expenses or any remuneration realised by the key functionaries of the person |
| (ii) | All expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel |
| (iii) | All expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premises from where the organisation or association is functioning, stationery and printing charges, transport and travel charges by the key functionaries and expenditure on office equipment |
| (iv) | Cost of accounting for and administering funds |
| (v) | Expenses towards running and maintenance of vehicles |
| (vi) | Cost of writing and filing reports |
| (vii) | Legal and professional charges |
| (viii) | Rent of premises, repairs to premises and expenses on other utilities |
The change to "key functionaries"
The consolidation consulted reads clause (i) "by the Members of the Executive Committee or Governing Council of the person" and clause (iii) "by the Members of the Executive Committee or Governing Council". Paragraph 3 of S.O. 3272(E) dated the 22nd June, 2026 substituted "key functionaries of the person" in clause (i) and "key functionaries" in clause (iii). "Key functionary" is defined in rule 2(1)(ca); see rules 1 and 2.
Example (invented). The Disha Jan Vikas Samiti pays travel costs of its secretary, who sits on its governing body, to attend a meeting. Clauses (i) and (iii) cover the remuneration and travel of its key functionaries. The Samiti also pays the salary of a project coordinator it hired: clause (ii) treats that as an administrative expense unless a proviso excludes it.
The provisos
The rule has three provisos.
- First proviso: research or training. "The expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses."
- Second proviso: welfare organisations. "The expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc."
- Third proviso, in force from 1 January 2025. Paragraph 2 of G.S.R. 790(E) dated the 31st December, 2024, which came into force on the 1st day of January, 2025, inserted after the second proviso: "Provided also that the association shall have the option to carry forward the unspent part of allowable administrative expenses in a financial year to the immediately succeeding financial year, for reasons to be mentioned in Form FC-4."
Observations:
- The first two provisos are exclusions. They remove the named expenditure from the count, so it does not use up the limit in section 8.
- The second proviso turns on expenses "incurred directly in furtherance of the stated objectives". The examples (hospital doctors, school teachers) are introduced by "such as" and are not a complete list.
- The third proviso is an "option". It carries forward the "unspent part of allowable administrative expenses" to "the immediately succeeding financial year", that is, one year. The rule gives no formula; the formula is the table in Form FC-4.
The carry-forward table in Form FC-4
Paragraph 3(b) of G.S.R. 790(E) inserted into serial number 4 of Form FC-4, after clause (iii), a clause (iv) headed "Carry forward of unspent part of allowable administrative expenses in a financial year". It is a table of particulars with amount in rupees:
| Line | Particulars |
|---|---|
| A | Brought forward unspent part of allowable administrative expenses |
| B | Total foreign contribution received during the year |
| C | Allowable administrative expenses of current financial year [20 per cent. of B] |
| D | Total administrative expenses incurred during the current year |
| E | Administrative expenses of current year utilised out of A above |
| F | Administrative expenses of current year utilised out of C above |
| G | Unspent part of C above available to be carried forward |
| H | Out of G above, amount to be carried forward to next financial year |
| I | Reason for carry forward of unspent part of allowable administrative expenses to next financial year |
Line C prints "20 per cent. of B", matching the limit in section 8(1)(b). Lines E and F separate what is spent out of the brought-forward amount from what is spent out of the current year's amount. The Form is explained in the article on Forms FC-1, FC-2 and FC-4.
What follows from exceeding the limit
Rule 5 sets no penalty. In the compounding table notified under section 41, serial number 3(a), as substituted by S.O. 3287(E) dated 22 June 2026, covers an offence punishable under section 37 for defraying foreign contribution beyond twenty per cent. of the contribution received for administrative expenses in contravention of section 8: one lakh rupees or five per cent. of the foreign contribution so defrayed beyond the permissible limit, whichever is higher. See the article on section 41.
Need help classifying expenses?
The way an expense is classified decides whether it counts against the twenty per cent. limit. Our books of accounts and compliance team can review your ledger heads, your utilisation statement and the Form FC-4 table with you.
Key takeaways
- Rule 5 lists eight heads of administrative expenses; clauses (i) and (iii) now speak of "key functionaries" (S.O. 3272(E)).
- Training or field-data personnel of a research or training association, and expenses directly furthering a welfare organisation's objectives, are excluded.
- From 1 January 2025 an association may carry forward the unspent part of allowable administrative expenses to the next financial year, giving reasons in Form FC-4.
- Form FC-4 carries a nine-line table for the carry forward; line C prints "20 per cent. of B".
- The limit is in section 8, not in rule 5.
Read next
- Section 8: utilisation of foreign contribution and administrative expenses
- Rule 4: speculative activities
- Rules 1 and 2: short title, commencement and definitions
- Rule 17: annual return in Form FC-4
Disclaimer: Based on the Foreign Contribution (Regulation) Act, 2010 as enacted, read with the Amendment Act, 2020 and the other amendments named in this article, and on the Foreign Contribution (Regulation) Rules, 2011 as amended by the notifications named (latest consulted: S.O. 3272(E) dated 22 June 2026), as consulted on 2 October 2026. No consolidated official text was available; some provisions rest on a third-party copy and are identified as such. Later amendments, notifications and Ministry of Home Affairs orders should be checked. This article is general information, not legal advice; check the official text before acting.