Mastering GFR 2017 (Part 6): Giving Money - Grants-in-Aid & Loans

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This content is for educational purposes only. While we've prepared this series based on the General Financial Rules (GFR) 2017 (Updated 31st July 2025), please note that:

• This is a simplified interpretation of GFR 2017 for examination preparation
• Errors or omissions may occur despite our efforts to ensure accuracy
• For official, authoritative information, always refer to the official GFR document
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Introduction

Welcome to Part 6 of our GFR exam success series! We've covered budgeting, accounting, procurement, and property management. Now, we dive into Chapter 9: Grants-in-Aid and Loans—the rules for when the government gives or lends money to outside bodies.

This chapter explains the rules for when the government *gives* or *lends* money to outside bodies, such as state governments, autonomous bodies, NGOs, and public sector undertakings.

Part 1: Chapter 9 - Grants-in-Aid (Rules 228-245)

A Grant-in-Aid (GIA) is a payment made by the government to an institution or organization (like an Autonomous Body, NGO, or educational institution) to support its activities that serve a public purpose. It is a "gift" and is not expected to be repaid.

Key Principles (Rule 230)

The "Big 3" Rules of GIA (Rule 230) - V.V.I.P Exam Topics

These are the most frequently tested rules in this chapter.

1. Interest Earned on Grants (Rule 230(8))

The Rule: If a grantee institution receives a government grant and earns interest on it (e.g., by keeping it in a bank account), that interest does not belong to them.

The Action: It must be mandatorily remitted to the Consolidated Fund of India immediately after accounts are finalized. It cannot be kept by the institution or adjusted against a future grant.

2. Assets Acquired from Grants (Rule 230(9))

The Rule: If an organization buys an asset (like a computer, vehicle, or building) "wholly or substantially" using government grant money, it cannot dispose of (sell, scrap, etc.) that asset without the prior approval of the authority that sanctioned the grant.

The Logic: The asset was bought with public money, so the government maintains control over it.

3. Unspent Balances (Rule 230(7))

The Rule: When sanctioning a *new* recurring grant, the authority *must* take into account the unspent balance from the previous grant.

The Tool: The GFR now explicitly states that ministries *must* use the PFMS Portal to check the grantee's live bank balance before making a new release, ensuring a "just-in-time" release of funds.

Recurring vs. Non-Recurring Grants (Rule 230(4))

🎯 The Rule:

The sanction order *must* specify if the grant is:

• Recurring: Given periodically for the same purpose
• Non-Recurring: A one-time grant for a specific object

Specific Scheme Requirement (Rule 230(3))

Grants must be given for a viable and specific scheme with "quantified and qualitative targets," not just as a blank check.

The "UC" - Your Most Important Document (Rule 238)

This is the heart of the entire grant process. The Utilization Certificate (UC) is the document that proves the money was used correctly.

• What it is: A certificate in Form GFR 12-A from the grantee organization, certifying that the grant was used for the purpose for which it was sanctioned.
• V.V.I.P. Deadline (Rule 238(1)): The UC *must* be submitted by the grantee organization within 12 months of the closure of the financial year.
• The "No UC, No Money" Rule (Rule 238(2)): For recurring grants, you cannot release the full grant for the *next* year until the *final* audited statements and UC for the *previous* year have been submitted. (A provisional UC is needed just to get the next year started).
• The Hammer (Rule 238(1)): If a grantee *fails* to submit the UC within the prescribed time, the ministry is at liberty to blacklist that organization from receiving any future grants.
• The Exception (Rule 238(3)): UCs are not needed when grants are given as *reimbursements* for expenditure that has *already been incurred* and audited.

When does C&AG Audit a Grantee? (Rule 236)

This is a classic, tricky exam question. The C&AG *can* audit any grantee, but when does it become a *mandatory* audit?

🎯 The Rule:

The C&AG audit (under Section 14 of the C&AG's Act) applies if:

Condition 1 (The 75% Rule): The grant or loan given in a financial year is at least ₹25 Lakhs...
AND
This grant/loan makes up at least 75% of the institution's total expenditure.

OR

Condition 2 (The Big Grant Rule): The total grant/loan in a financial year is ₹1 Crore or more (even if it's less than 75% of their total expenditure).

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Follow-up Rule: If the C&AG audits an institution one year, it will continue to audit it for the next two years as well, even if the conditions aren't met in those years.

Part 2: Chapter 9 - Loans (Rules 246-263)

This section covers rules for when the government acts as a *lender*. This is money that *must* be repaid.

Key Loan Conditions:

• Power (Rule 247): The Budget Division, Department of Economic Affairs, is the nodal division that finalizes the terms and conditions for loans.
• Period (Rule 250): All loans must have a specific repayment term fixed.
• UCs (Rule 256): Just like grants, a Utilization Certificate (in Form GFR 12-B) is required to ensure the loan was used for the sanctioned purpose.

Key Loan Rules for Your Exam

1. Security for Loan (Rule 255)

The Rule: When giving a loan to any party *other than* State Governments or wholly-owned Government Companies, it *must* be sanctioned only against adequate security.

The Value: The security offered (like a mortgage) must be worth at least 33.33% more than the loan amount.

2. The "Moratorium" Rule (Rule 252(3))

What it is: A "holiday period" where the borrower doesn't have to make payments.

The Rule: A moratorium can be given for the repayment of the principal amount. However, a moratorium is ordinarily *not* allowed for the payment of interest. Interest payments must start as scheduled.

3. The "Default" Rule (Rule 258(1))

What happens if a borrower defaults on a payment?

The Penalty: The loan agreement *must* include a provision for a penal interest rate on the overdue installments.

The Rate: This penal rate shall not be less than 2.5% per annum *above* the normal interest rate.

Summary of Part 6

• For Grants-in-Aid (GIA):
  • The Utilization Certificate (UC) is mandatory (within 12 months). No UC = No more grants.
  • Interest earned on grant money must be refunded to the government.
  • C&AG Audit is triggered by the "₹25 Lakh + 75%" rule OR the "₹1 Crore" rule.
• For Loans:
  • Must be secured by collateral worth 33.33% more than the loan.
  • A moratorium is for the *principal*, not the *interest*.
  • Defaulting on a loan attracts a penal interest of at least 2.5%.

Series Navigation:

← Part 5: Managing Govt Property | Part 6: Giving Money | Part 7: Final Rules →

Coming Up Next...

In Part 7 (FINAL), we'll cover the last crucial chapters (10, 11, and 12), including rules for externally aided projects, government guarantees, and establishment matters.

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About This Series: This is Part 6 of a comprehensive 7-part series on GFR 2017 for government employees preparing for departmental exams. Each part covers specific chapters with exam-focused concepts, case studies, and memory tricks.

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