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.
Whether money is "foreign contribution" depends on who sends it. Section 2(1)(j) lists the ten kinds of "foreign source", and section 2(1)(g) defines "foreign company", one of them. Getting this right decides whether a donation from a company, a trust or an international body attracts the Act at all.
This article states the provisions as per the Act as enacted, read with the Foreign Contribution (Regulation) Amendment Act, 2020 (33 of 2020), which did not change these clauses, and with the proviso to section 2(1)(j)(vi) inserted by the Finance Act, 2016 as amended by section 220 of the Finance Act, 2018. The wording of that proviso was read from the Finance Bill, 2016 and should be confirmed against the Finance Act, 2016. Later amendments should be checked.
A "foreign source" includes foreign Governments and their agencies, most international agencies, foreign companies, foreign corporations, multi-national corporations, a company in which more than one-half of the nominal value of share capital is held by foreign holders, foreign trade unions, foreign trusts and foundations, foreign societies and clubs, and any citizen of a foreign country. A proviso says a company whose share capital is within the limits specified for foreign investment under FEMA is not a foreign source.
Section 2(1)(j): the ten limbs
The clause says "foreign source" includes, so the list is not stated to be closed. Its ten limbs are:
| Limb | Foreign source |
|---|---|
| (i) | The Government of any foreign country or territory and any agency of that Government |
| (ii) | Any international agency, other than those excluded below |
| (iii) | A foreign company |
| (iv) | A corporation, not being a foreign company, incorporated in a foreign country or territory |
| (v) | A multi-national corporation referred to in section 2(1)(g)(iv) |
| (vi) | A company in which more than one-half of the nominal value of share capital is held by one or more listed foreign holders |
| (vii) | A trade union in any foreign country or territory, registered there or not |
| (viii) | A foreign trust or foreign foundation, by whatever name called, or such a trust or foundation mainly financed by a foreign country or territory |
| (ix) | A society, club or other association of individuals formed or registered outside India |
| (x) | A citizen of a foreign country |
International agencies, limb (ii). The limb leaves out the United Nations or any of its specialised agencies, the World Bank, the International Monetary Fund "or such other agency as the Central Government may, by notification, specify in this behalf". No such notification is in the texts consulted, and none is described here. If a grant comes from an international body, check whether it falls within the exclusions, and take FEMA advice on the remittance itself.
Foreign trusts and foundations, limb (viii). The words "by whatever name called" matter: the label on the entity does not decide the question. The limb also names a trust or foundation mainly financed by a foreign country or territory.
Citizens of foreign countries, limb (x). An individual foreign national is a foreign source whatever his residence. An Indian organisation that receives a personal gift from such an individual should therefore start from the assumption that the gift is a donation from a foreign source and then check the definition of foreign contribution in the preceding article on section 2(1)(h).
Limb (vi): the shareholding test
Limb (vi) catches a company "within the meaning of the Companies Act, 1956" more than one-half of whose nominal value of share capital is held, either singly or in the aggregate, by one or more of:
- (A) the Government of a foreign country or territory;
- (B) the citizens of a foreign country or territory;
- (C) corporations incorporated in a foreign country or territory;
- (D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;
- (E) a foreign company.
The words "singly or in the aggregate" mean several small foreign holders are added together. The Act as enacted refers to the Companies Act, 1956; the reader should check the current law for the corresponding provision, as no replacement is named here. Our site has posts on definitions in the Companies Act, 2013, part 1 and part 2, which are a separate law.
The proviso on FEMA limits
A proviso was added to limb (vi). Its words, as read from clause 233 of the Finance Bill, 2016, are:
"Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source;"
The Bill said the proviso was to be treated as inserted with effect from the 26th September, 2010. Section 220 of the Finance Act, 2018 amended section 236 of the Finance Act, 2016 (the section that carries the proviso) by replacing "the 26th September, 2010" with "the 5th August, 1976". So the date from which the proviso is deemed to have been inserted is the 5th August, 1976. The wording above is the Bill's; confirm it against the Finance Act, 2016 before relying on it.
| As enacted (2010) | As amended |
|---|---|
| Limb (vi) has no proviso: any company with more than one-half foreign nominal share capital is a foreign source | A proviso says a company whose share capital is within the limits specified for foreign investment under FEMA, or its rules or regulations, is not a foreign source; deemed inserted with effect from the 5th August, 1976 |
Our post on FEMA definitions of person resident in India and outside India is a separate law and states nothing about these limits.
Section 2(1)(g): "foreign company"
"Foreign company" means any company or association or body of individuals incorporated outside India and includes:
- a foreign company within the meaning of section 591 of the Companies Act, 1956;
- a company which is a subsidiary of a foreign company;
- the registered office or principal place of business of a company referred to in (1) or (2); and
- a multi-national corporation.
The Explanation says a corporation incorporated in a foreign country or territory is deemed to be a multi-national corporation if it (a) has a subsidiary or a branch or a place of business in two or more countries or territories, or (b) carries on business, or otherwise operates, in two or more countries or territories. In the text as printed the Explanation sits after clause (iv) and is introduced "for the purposes of this sub-clause".
Example (invented). Lakeshore Worldwide Inc. is incorporated abroad and has branches in three countries. By the Explanation it is a multi-national corporation, hence a foreign company under 2(1)(g)(iv) and a foreign source under limb (iii) and limb (v). Its Indian subsidiary, Lakeshore India Pvt. Ltd., is a foreign company under 2(1)(g)(ii) as a subsidiary of a foreign company.
Need help with foreign remittances?
When a donor is a company, a fund or an overseas relative organisation, the first question is whether it is a foreign source and what rules on foreign exchange apply to the remittance. Our FEMA advisory service can look at the donor's structure with you before the money is accepted.
Key takeaways
- Section 2(1)(j) lists ten kinds of foreign source and uses the word "includes".
- Limb (vi) applies where more than one-half of the nominal value of share capital is held, singly or in the aggregate, by the listed foreign holders.
- A proviso, read from the Finance Bill, 2016 and shown as deemed inserted from the 5th August, 1976 after the Finance Act, 2018, says a company within the FEMA investment limits is not a foreign source.
- Foreign company under section 2(1)(g) includes subsidiaries, registered offices and multi-national corporations; two or more countries of operation make a corporation multi-national.
- No notification excluding other international agencies is described here.
Read next
- Section 2: foreign contribution and foreign hospitality
- Section 2: person, association, political party and Legislature
- Section 3: who cannot accept foreign contribution
- Section 11: registration or 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.