Section 2 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 2(1)(h) tells you what counts as "foreign contribution", and section 2(1)(i) tells you what counts as "foreign hospitality". Almost every other provision of the Act turns on one of these two terms, so an organisation that misreads them can breach the Act without meaning to.
This article reads the definitions as per the Act as enacted, read with the Foreign Contribution (Regulation) Amendment Act, 2020 (33 of 2020); neither definition was changed by that Act. Later amendments should be checked.
"Foreign contribution" is the donation, delivery or transfer, made by a foreign source, of an article, of currency (Indian or foreign) or of a security. A second recipient who got it from a foreign source is covered, interest and other income earned on it are also foreign contribution, and fees or the cost of goods or services in the ordinary course of business are excluded. "Foreign hospitality" is a non-casual offer by a foreign source of travel costs, or of boarding, lodging, transport or medical treatment provided without charge.
Section 2(1)(h): the three things that can be foreign contribution
The clause says "foreign contribution" means the donation, delivery or transfer made by any foreign source of:
- an article, not being an article given to a person as a gift for his personal use, if the market value in India of the article on the date of the gift is not more than such sum as the Central Government may specify from time to time by rules;
- currency, whether Indian or foreign; or
- a security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, which also includes any foreign security as defined in clause (o) of section 2 of the Foreign Exchange Management Act, 1999.
Who is a "foreign source" is the subject of the next article on foreign source and foreign company. The foreign exchange terms the clause borrows are explained on our site in the post on foreign exchange, foreign security, currency and security under the Foreign Exchange Management Act, 1999.
Organisations that also plan income-tax and CSR-related registrations should settle which receipts are foreign contribution first; our 12A, 80G and CSR registration service covers those registrations alongside this work.
Note on the article limb. Read as printed, sub-clause (i) turns on the market value being "not more than" the specified sum, while section 25 speaks of an article "exceeding the value specified in sub-clause (i)". The wording is the Act's own. The value is left to rules; the rule that fixes the value of a personal gift is dealt with in rules 6 and 6A on relatives and personal gifts. Check the official text before taking a decision on a gift of goods.
The three Explanations
| Explanation | What it adds or removes |
|---|---|
| 1 | Brings in a second or later recipient |
| 2 | Brings in interest and other income |
| 3 | Takes out fees and the cost of goods or services |
Explanation 1: passing it on. A donation, delivery or transfer of any article, currency or foreign security by any person who has received it from any foreign source, "either directly or through one or more persons", is also deemed foreign contribution. This closes the route of routing money through an intermediary. Money that reaches your organisation from a local donor but began with a foreign source can still be foreign contribution, and the later articles on section 3 and section 7 show why that matters.
Explanation 2: interest and other income. The interest accrued on foreign contribution deposited in any bank referred to in sub-section (1) of section 17, or any other income derived from the foreign contribution or from that interest, is also deemed foreign contribution. Section 17 was substituted by the Amendment Act, 2020; it is read in the article on section 17 and the FCRA Account. Explanation 2 itself stands as enacted, so the text keeps its reference to "any bank referred to in sub-section (1) of section 17". The practical point is plain from its words: a fixed deposit made out of foreign contribution, and the interest on it, do not become ordinary money.
Explanation 3: fees and cost. Any amount received by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from a foreign student) or towards cost in lieu of goods or services rendered by that person in the ordinary course of his business, trade or commerce, whether within India or outside India, or any contribution received from an agent of a foreign source towards such fee or cost, is excluded from the definition. The exclusion rests on three features of the text: the amount is a fee or a cost in lieu of goods or services, the goods or services were rendered by the receiver, and this was in the ordinary course of the receiver's business, trade or commerce.
Example (invented). Kaveri Learning Trust runs a school and charges tuition from a student from abroad. The tuition is a fee within Explanation 3 and is excluded. A foreign foundation's separate gift to the same trust for a building fund is not a fee; it is a donation by a foreign source, and the trust must deal with it under the provisions on registration and prior permission discussed in section 11.
Section 2(1)(i): foreign hospitality
"Foreign hospitality" means any offer, not being a purely casual one, made in cash or kind by a foreign source for providing a person with:
- the costs of travel to any foreign country or territory; or
- boarding, lodging, transport or medical treatment provided without charge.
Three points follow from the words. The offer must come from a foreign source; a purely casual offer is outside the definition; and the offer may be in cash or in kind. Who needs prior permission before accepting such hospitality is dealt with in section 6 on foreign hospitality.
Why the definition matters in practice
If an item is foreign contribution, the Act's regulation follows it. Under section 11(1), a person with a definite cultural, economic, educational, religious or social programme may not accept it without a certificate of registration, save as the Act otherwise provides; a registered person must receive it through the designated account and utilise it for the purpose for which it was received; and contravention carries the consequences set out in Chapter VIII. A trust that treats a transfer from an overseas relative organisation as an ordinary receipt, or leaves interest on a foreign remittance in a general account, is the typical case.
When a receipt is doubtful, trace it back one step at a time. Ask who first gave it, whether that person is a foreign source, whether any part is a fee or cost, and whether it is currency, a security or an article. If it is an article, ask what the market value in India was on the date of the gift.
Need help with FCRA registration planning?
Foreign money often arrives alongside other registrations and reporting duties, and the order in which they are done matters. Our team can look at your receipts and registrations together. Write to us about the foreign contribution you expect, and we will point you to the right registration route through 12A, 80G and CSR registration.
Key takeaways
- Foreign contribution is a donation, delivery or transfer by a foreign source of an article, currency (Indian or foreign) or a security.
- Under Explanation 1, passing foreign contribution through one or more persons does not change its character.
- Under Explanation 2, interest and other income derived from foreign contribution are also foreign contribution.
- Under Explanation 3, fees and the cost of goods or services in the ordinary course of business are excluded.
- Foreign hospitality is an offer that is not purely casual, made by a foreign source in cash or kind.
- Check the personal-gift limit in the Rules and the text of sub-clause (i) of section 2(1)(h) before relying on it.
Read next
- Section 1: short title, extent, application and commencement
- Section 2: foreign source and foreign company
- Section 3: who cannot accept foreign contribution
- Section 6: foreign hospitality needs prior permission
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.