Qualifying overseas donations use the lower limit, not an unrestricted USD 5 million allowance
For the specified overseas donations by persons other than individuals, the RBI framework compares 1% of foreign-exchange earnings during the previous three financial years with USD 5 million and uses the lower amount. For ordinary rupee-funded drawals with no applicable funding exemption, donations exceeding that amount require prior RBI approval. The delegated route is purpose-specific: creation of chairs in reputed educational institutions, qualifying non-investment funds promoted by educational institutions, and contributions to a technical institution, body or association in the donor company’s field of activity.
This guide is checked as at 23 October 2026 against RBI Master Direction–Other Remittance Facilities, updated 1 October 2026, paragraph 4.1 and Schedule III paragraph 2(i). It addresses resident corporate/non-individual remittance proposals, not an individual’s LRS donation allowance. A proposal within the arithmetic limit still needs an eligible purpose, an acceptable recipient and the authorised dealer’s supporting checks. A Board-approved donation budget does not itself authorise a foreign remittance. The calculations below assume ordinary rupee funding and no applicable funding exemption. Where payment is proposed from an RFC or EEFC account, separately establish account eligibility and the application of rules 5 and 6 of the annexed Current Account Transactions Rules, including their qualifications, before applying this approval test.
Classify the purpose and recipient before computing headroom
Obtain the institution’s identity, the proposed funding arrangement and the donor’s activity profile. A label such as “education support” is not enough to establish that a fund is promoted by an educational institution or is not an investment fund. For the technical-body route, document the connection with the donor company’s own field of activity. A subscription, sponsorship carrying commercial benefits, investment or loan needs classification on its actual terms rather than being renamed a donation to access this permission.
Paragraph 4.1 describes applications for purposes outside the specified list separately and calls for information about the company, its foreign-exchange earnings, the purpose and likely benefits. Do not treat every other charitable payment as automatically permitted merely because it is small. Take the actual proposed purpose and supporting facts through the authorised dealer and applicable RBI process before release.
Use three completed financial years and reconcile foreign-exchange earnings
For a proposal in FY 2026–27, the three previous completed financial years are FY 2023–24, FY 2024–25 and FY 2025–26. Build an evidence-backed earnings schedule for those periods. The specified base is foreign-exchange earnings during those years, not current-year forecast turnover, an unrelated capital contribution, a loan inflow or total domestic revenue. Reconcile the schedule to financial records and remittance evidence, and resolve disputed classifications with the authorised dealer.
The comparison uses 1% of the supported three-year earnings amount. Do not divide by three merely because a different Companies Act test uses average profits. Conversely, do not add the current year’s forecast to enlarge the historical base. If records contain multiple currencies or rupee reporting, document the consistent conversion basis required for the actual transaction. The illustrative exchange rate below is not a prescribed date or a current market quotation.
| Control | FEMA working | Separate issue |
|---|---|---|
| Applicant | Person other than an individual | Individual LRS rules are a different route |
| Purpose | One of the specified donation purposes | Other purposes need their applicable process |
| Historical base | Foreign-exchange earnings during previous three FYs | Not average net profit or total sales |
| Threshold | Lower of 1% of that base and USD 5 million | Not the higher of the two figures |
| Execution | Document proposal and applicable prior approval | Corporate, tax and accounting checks remain separate |
A single commitment does not acquire a fresh ceiling with every instalment
Present the full donation commitment, its proposed instalments and any related remittances transparently to the authorised dealer. Keep a donation-remittance ledger and provide relevant prior utilisation and approvals. Do not split one proposal across invoices or banks and claim an independent fresh limit for each piece. The rule quoted here does not justify inventing a universal reset date, rollover balance or per-invoice allowance; obtain the applicable aggregation and permission position for the actual facts.
Keep corporate authority and tax treatment independent of FEMA permission
For an Indian company, section 181 is a separate corporate-authority check. Its trigger uses the aggregate contributions in a financial year against 5% of average net profits for the three immediately preceding financial years, with prior general-meeting permission where the statutory trigger is crossed. That is a different base and purpose from the foreign-exchange-earnings comparison. See Companies Act, 2013, section 181. Completing either test does not replace the other.
Also determine whether the proposal is claimed as CSR, a business expenditure or another category, and establish the applicable treatment independently. No claim is made here that an overseas donation is automatically eligible CSR spending or deductible for tax. Resolve any required tax documentation and current remittance procedure before release. Preserve actual RBI approval where required; an application or a bank query is not an approval.
Prepare one bank-ready proposal file
The useful package connects the historical earnings reconciliation to the institution, purpose, total commitment, instalment plan, currency basis and corporate approvals. Explain why the specific purpose fits and why the computed limit is applicable. If prior approval is needed, retain its scope and conditions and reconcile the final bank debit to them. After payment, retain the institution’s acknowledgement and evidence of the intended utilisation rather than closing the file with only a SWIFT message.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: The 1% limb is lower
Assume an eligible purpose and supported foreign-exchange earnings of USD 20 million, USD 30 million and USD 50 million in the three previous financial years. Their total is USD 100 million; 1% is USD 1 million. The lower of USD 1 million and USD 5 million is USD 1 million. A USD 900,000 proposal is within that numerical threshold, with USD 100,000 difference; all other conditions remain to be checked.
Illustrative example 2: USD 5 million becomes the lower limb
Supported three-year foreign-exchange earnings total USD 800 million. One per cent is USD 8 million, so the lower threshold is USD 5 million. A USD 5.4 million qualifying donation proposal exceeds it by USD 400,000 and requires prior approval for the proposal under the applicable framework; it is not made permissible merely because 1% is higher.
Illustrative example 3: No foreign-exchange earnings means the percentage limb cannot be ignored
Assume the applicant has no supported foreign-exchange earnings in the three relevant years. One per cent of zero is zero, so the lower comparison is USD 0, not USD 5 million. A USD 25,000 donation cannot claim delegated permission under this specified earnings-based threshold merely because its value is modest. Establish the required approval or other applicable route before payment.
Illustrative example 4: Instalments are parts of the same proposal
Assume a supported threshold of USD 1 million and a single qualifying donation commitment of USD 1.2 million, proposed in two USD 600,000 instalments. The combined proposal exceeds the threshold by USD 200,000. Looking at each instalment separately and granting a fresh USD 1 million allowance twice would misstate the commitment presented for approval.
Illustrative example 5: A current-year forecast does not enlarge the historical base
For a proposal in FY 2026–27, supported earnings for FY 2023–24, FY 2024–25 and FY 2025–26 are USD 10 million, USD 20 million and USD 30 million. The USD 60 million total gives a USD 600,000 percentage limb, below USD 5 million. Adding a FY 2026–27 forecast of USD 100 million would wrongly produce USD 1.6 million, overstating the comparison by USD 1 million. Dividing the historical total by three would instead wrongly give USD 200,000.
Illustrative example 6: Equality and a one-dollar excess
Assume supported historical earnings make the USD 5 million limb the lower one. A qualifying proposal of exactly USD 5,000,000 does not exceed that numerical threshold. A proposal of USD 5,000,001 exceeds it by USD 1. Equality does not waive the purpose, documentation or authorised-dealer checks.
Illustrative example 7: Keep the currency comparison transparent
For arithmetic only, assume three-year earnings of ₹85 crore in each year and a consistently supported illustrative ₹85/USD conversion basis. Total earnings are ₹255 crore, equivalent to USD 30 million. One per cent is USD 300,000, equivalent to ₹2.55 crore; that is lower than USD 5 million. A ₹2 crore proposal equals approximately USD 235,294.12 on that assumed basis and is within the numerical threshold. Establish the actual required conversion basis rather than adopting this fictional rate.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify the resident applicant and correct non-individual route | Entity records and remittance classification |
| 2 | Establish that the proposal is a donation on its actual terms | Commitment letter and consideration/benefit review |
| 3 | Verify recipient identity and the specific permitted purpose | Institution documents and donor-activity connection |
| 4 | Identify the three previous completed financial years | Proposal date and period schedule |
| 5 | Reconcile actual foreign-exchange earnings for those years | Financial records and supporting receipts |
| 6 | Document currencies and the required comparison basis | Currency conversion methodology and evidence |
| 7 | Compute both limbs and examine the full commitment | Lower-limit calculation and instalment/prior-remittance disclosure |
| 8 | Complete independent corporate, CSR and tax checks | Applicable resolutions and technical conclusions |
| 9 | Obtain applicable prior RBI approval and authorised-dealer acceptance | Actual approval conditions and bank correspondence |
| 10 | Reconcile final remittance, acknowledgement and utilisation | Bank debit, recipient receipt and purpose evidence |
Sixteen practitioner FAQs
1. Is USD 5 million available to every company automatically?
No. The specified route uses the lower comparison and has purpose and documentation conditions.
2. Is the comparison the higher of 1% and USD 5 million?
No. It is the lower amount for the specified donation category.
3. Does this guide cover an individual’s LRS donation?
No. Identify the applicant first; individual remittances have a different framework.
4. Which financial years are used for a 2026–27 proposal?
The three previous completed financial years: 2023–24, 2024–25 and 2025–26.
5. Should the three-year earnings total be averaged?
The specified FEMA base is earnings during the previous three years. Do not substitute an average-profit method from another law.
6. Can total domestic sales be used instead?
No. Reconcile the prescribed foreign-exchange earnings population.
7. Can foreign capital and loan receipts automatically count as earnings?
No. They are not established as earnings merely because foreign currency entered the bank.
8. Can forecast earnings from the current year be added?
Do not enlarge the historical base with a forecast. Use the correct completed periods and supported actual amounts.
9. Can any education-related payment use the fund category?
Verify that the actual recipient and fund meet the stated conditions, including the exclusion of investment funds.
10. What matters for a technical institution contribution?
Document the connection with the donor company’s field of activity and the actual recipient and purpose.
11. What if the purpose is outside the specified list?
Paragraph 4.1 describes a separate application process. Take the actual facts through the authorised dealer and applicable RBI process rather than assuming small payments are automatically permitted.
12. Does splitting a commitment create several fresh limits?
No fresh allowance is established merely by instalments. Disclose the full proposal and relevant remittance history.
13. Is there an automatic carry-forward or reset date in these examples?
No. They do not invent one; confirm the applicable utilisation and aggregation position for the actual proposal.
14. Does section 181 use the same earnings base?
No. Its corporate-authority test concerns aggregate financial-year contributions and average net profits, requiring a separate calculation where applicable.
15. Does FEMA permission prove CSR or tax eligibility?
No. Determine those treatments independently under their applicable frameworks.
16. What evidence closes the remittance file?
The applicable approval, bank debit, institution’s acknowledgement and support for the intended purpose and utilisation.
Conclusion
Prove the permitted purpose and historical foreign-exchange earnings before judging the amount. Present the full commitment transparently and complete each independent approval and tax check before remitting.