NANDI | NGO Portal
Any organization working for the welfare of Community and have following nature are NGOs. Non-profit organisations exist independently of the state and are self-governed by a board of trustees or ‘managing committee’/ governing council which produce benefits for others, generally outside the membership of the organisation. These are ‘non-profit-making as they are prohibited from distributing a monetary residual to their own members.
Section 2(15) of the Income Tax Act – which is applicable uniformly throughout the Republic of India – defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. A purpose that relates exclusively to religious teaching or worship is not considered as charitable. Thus, in ascertaining whether a purpose is public or private, one has to see if the class to be benefited, or from which the beneficiaries are to be selected, constitute a substantial body of the public. A public charitable purpose has to benefit a sufficiently large section of the public as distinguished from specified individuals. Organisations which lack the public element – such as trusts for the benefit of workmen or employees of a company, however numerous – have not been held to be charitable. As long as the beneficiaries of the organisation comprise an uncertain and fluctuating body of the public answering a particular description, the fact that the beneficiaries may belong to a certain religious faith, or a sect of persons of a certain religious persuasion, would not affect the organization’s ‘public’ character.
Whether a trust, society or section-25 company, the Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry.
CAF would like to clarify that this material provides only broad guidelines and it is recommended that legal and or financial experts be consulted before taking any important legal or financial decision or arriving at any conclusion.
A public charitable trust is usually floated when there is property involved, especially in terms of land and building.
Legislation : Different states in India have different Trusts Acts in force, which govern the trusts in the state; in the absence of a Trusts Act in any particular state or territory the general principles of the Indian Trusts Act 1882 are applied.
Main Instrument : The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the trust) should be enshrined. In every trust deed, the minimum and maximum number of trustees has to be specified. The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settlor/s and trustee/s in the presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.
Trustees : A trust needs a minimum of two trustees; there is no upper limit to the number of trustees. The Board of Management comprises the trustees.
Application for Registration :
The application for registration should be made to the official having jurisdiction over the region in which the trust is sought to be registered.
After providing details (in the form) regarding designation by which the public trust shall be known, names of trustees, mode of succession, etc., the applicant has to affix a court fee stamp of Rs.2/- to the form and pay a very nominal registration fee which may range from Rs.3/- to Rs.25/-, depending on the value of the trust property.
The application form should be signed by the applicant before the regional officer or superintendent of the regional office of the charity commissioner or a notary. The application form should be submitted, together with a copy of the trust deed.
Two other documents which should be submitted at the time of making an application for registration are affidavit and consent letter.
According to section 20 of the Societies Registration Act, 1860, the following societies can be registered under the Act: ‘charitable societies, military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collection of natural history, mechanical and philosophical inventions, instruments or designs.’
Legislation : Societies are registered under the Societies Registration Act, 1860, which is a federal act. In certain states, which have a charity commissioner, the society must not only be registered under the Societies Registration Act, but also, additionally, under the Bombay Public Trusts Act.
Main Instrument : The main instrument of any society is the memorandum of association and rules and regulations (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be enshrined.
Executive Members : A Society needs a minimum of seven managing committee members; there is no upper limit to the number managing committee members. The Board of Management is in the form of a governing body or council or a managing or executive committee
Application for Registration :
Registration can be done either at the state level (i.e., in the office of the Registrar of Societies) or at the district level (in the office of the District Magistrate or the local office of the Registrar of Societies).(2)
The procedure varies from state to state. However generally the application should be submitted together with: (a) memorandum of association and rules and regulations; (b) consent letters of all the members of the managing committee; (c) authority letter duly signed by all the members of the managing committee; (d) an affidavit sworn by the president or secretary of the society on non-judicial stamp paper , together with a court fee stamp; and (e) a declaration by the members of the managing committee that the funds of the society will be used only for the purpose of furthering the aims and objects of the society.
All the aforesaid documents which are required for the application for registration should be submitted in duplicate, together with the required registration fee. Unlike the trust deed, the memorandum of association and rules and regulations need not be executed on stamp paper.
According to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25 company can be established ‘for promoting commerce, art, science, religion, charity or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.
Legislation : Section-25 companies are registered under section-25 of the Indian Companies Act. 1956.
Main Instrument : For a section-25 company, the main instrument is a Memorandum and articles of association (no stamp paper required)
Trustees : A section-25 Company needs a minimum of three trustees; there is no upper limit to the number of trustees. The Board of Management is in the form of a Board of directors or managing committee.
Application for Registration :
1.An application has to be made for availability of name to the registrar of companies. It is advisable to suggest a choice of three other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.
2.Once the availability of name is confirmed, an application should be made in writing to the regional director of the company law board. The application should be accompanied by the following documents:
Three printed or typewritten copies of the memorandum and articles of association of the proposed company, duly signed by all the promoters with full name, address and occupation.
A declaration by an advocate or a chartered accountant that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made thereunder have been duly complied with, in respect of registration or matters incidental or supplementary thereto.
Three copies of a list of the names, addresses and occupations of the promoters (and where a firm is a promoter, of each partner in the firm), as well as of the members of the proposed board of directors, together with the names of companies, associations and other institutions in which such promoters, partners and members of the proposed board of directors are directors or hold responsible positions, if any, with description of the positions so held.
A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association, as on the date of the application or within seven days of that date.
An estimate of the future annual income and expenditure of the proposed company, specifying the sources of the income and the objects of the expenditure.
A statement giving a brief description of the work, if any, already done by the association and of the work proposed to be done by it after registration, in pursuance of section-25.
A statement specifying briefly the grounds on which the application is made.
A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged insolvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act 1956, for appointment as a director.
3.The applicants must also furnish to the registrar of companies (of the state in which the registered office of the proposed company is to be, or is situate) a copy of the application and each of the other documents that had been filed before the regional director of the company law board.
4.The applicants should also, within a week from the date of making the application to the regional director of the company law board, publish a notice in the prescribed manner at least once in a newspaper in a principal language of the district in which the registered office of the proposed company is to be situated or is situated and circulating in that district, and at least once in an English newspaper circulating in that district.
5.The regional director may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the licence should or should not be granted.
6.The regional director may also direct the company to insert in its memorandum, or in its articles, or in both, such conditions of the licence as may be specified by him in this behalf.
In addition to registration, a non-profit engaged in certain activities might also require special license/permission. Some of these include (but are not limited to):
A place of work in a restricted area (like a tribal area or a border area requires a special permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by the relevant local authority (i.e., district magistrate).
To open an office and employ people, the NGO should be registered under the Shop and Establishment Act.
To employ foreign staff, an Indian non-profit needs to be registered as a trust/society/company, have FCRA registration and also obtain a No Objection Certificate. The intended employee also needs a work visa.
A foreign non-profit setting up an office in India and wanting staff from abroad needs to be registered as a trust/society/company, needs permission from the Reserve Bank of India and also a No Objection Certificate from the Ministry of External Affairs.
Comparision among Trust, Society and Non profit Company
|
Trust |
Society |
Section-25 Comapny |
|---|---|---|---|
Statute/Legislation |
Relevant State Trust Act or Bombay Public Trusts Act, 1950 |
Societies Registration Act, 1860 |
Indian Companies Act, 1956 |
Jurisdiction |
Deputy Registrar/Charity commissioner |
Registrar of societies (charity commissioner in Maharashtra). |
Registrar of companies |
Registration |
As trust |
As Society |
As a company u/s 25 of the Indian Companies Act. |
Registration Document |
Trust deed |
Memorandum of association and rules and regulations |
Memorandum and articles of association. and regulations |
Stamp Duty |
Trust deed to be executed on non-judicial stamp paper, vary from state to state |
No stamp paper required for memorandum of association and rules and regulations. |
No stamp paper required for memorandum and articles of association. |
Members Required |
Minimum – two trustees. No upper limit. |
Minimum – seven managing committee members. No upper limit. |
Minimum three trustees. No upper limit. |
Board of Management |
Trustees / Board of Trustees |
Governing body or council/managing or executive committee |
Board of directors/ Managing committee |
Mode of Succession on Board of Management |
Appointment or Election |
Appointment or Election by members of the general body |
Election by members of the general body |
When NGO (trust, society or nonprofit company) get registered with Income Tax department under Income Tax Act 1961, to claim tax exemption for their income, it called the 12A registration.
From the Date of establishment of an NGO, should apply for registration with Income tax department to get 12A certificate. If delayed in applying for registration then the NGO should submit Audit Reports as may be available.
To get registered with Income tax department NGO have to fill a FORM 10A and it has to produce to the Commissioner of Income Tax, Income Tax Department office of your district. If your NGO is established in metropolitan cities like Delhi,Calcutta, Mumbai and Chennai, then you have to produce the FORM 10A to the Director of Income Tax (Exemption), Income tax department office.
Before submitting FORM 10A, please make sure that you have received PAN CARD for your NGO.
When you produce the form 10A to the Income tax department, you have also required to enclose the copies of the following.
1. Original basic documents of organization, like Trust deed / Bye laws / Rules and Regulations / Memorandum and Articles of Association as per the shape of your NGO.
2. Copies of the accounts of last couple of years may also be submitted.
After you have produced the above FORM 10A either through registered post with acknowledgement due or directly in the Income Tax office. The Commissioner of Income Tax, on receipt of an application for registration of an NGO, shall call for such documents or information, as he thinks necessary. While processing such application, the concerned authority normally concentrates on the genuineness of the NGO. Once the genuineness of the activities & creation is established, then it is incumbent upon the authority to pass an order in writing, registering the NGO.
The Income tax officers have the rights to grant or to refuse registration to your application. Also, note that, 12A registration of an NGO shall be cancelled by the Income tax department, if it feels that NGO is not fit as per law at any point of time.
If the trust is willing to give some benefit to its donors, then the trust should seek and obtain approval under section 80G (5).
As per Section 80G of the Income Tax Act, donations paid or given to any institution or fund established in India for a charitable purpose is eligible for deduction (normally 50%) in the hands of the donor subject to the following conditions:
I. The income of the institution is exempt under section 11 or 10(23) or (23AA) or (23C) of the Act.
II. The funds of the institutions are applied only for charitable purposes.
III. The institution should not be for the benefit of any particular religious community or caste
IV. The institution maintains regular accounts of its receipts and expenditure.
V. The institution shall be approved by the Commissioner of Income Tax.
Main points in this respect are:
I. Section 80G applies to donations to any institution or fund, only if it is established in India for a charitable purpose and if it fulfils the stipulated conditions.
II. Following conditions are required to be fulfilled under section 80G(5)-
(a) the instrument under which the institution or fund is considered does not, or the rules governing the institution or fund do not, contain any provision for the transfer for application at any time of the whole or any part of the income or assets of the institution or fund for any purposes other than a charitable purposes;
(b) the institution or fund in not expressed to be for the benefits of any particulars religious community or caste;
(c) the institution or fund maintains regular accounts of its receipts and expenditure;
(d) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860, or under any law corresponding to that Act, in force in any part of India or under section 25 of the Companies Act, 1956, or is a University established by law, or is any other educational institution recognized by the Government or by a University established by law, or affiliated to any University established by law or its is an institution financed wholly or in part by the Government or a local authority, and
(e) in relation to donations made after the 31st day of March 1992, the institution of fund is for the time being approved by the Commissioner in accordance with rule 11AA.
III. The application should be made in Form No.10G, prescribed under rule 11AA and it is required to be submitted to the jurisdictional Commissioner of Income-tax.
IV. The trust is necessarily required to be registered with the Commissioner under section 12A. A trust can apply for registration under section 12A and simultaneously seek approval under s. 80G (5).
V. There is a time-limit of 6 months (from the date on which such application was made), within which the Commissioner shall pass an order either granting the approval or rejecting the application. However, any time taken by the applicant in not complying with the directions of the commissioner is excluded.
VI. The period of validity of approval is specified in the order of approval, which cannot exceed five assessment years. Before the expiry of this period, the trust should seek continuance the approval, by submitting the application in Form No. 10G again.
VII. The approval u/s. 80 G is issued in writing after the Commissioner is satisfied about the genuineness of the activities of the trust and about fulfillment of all conditions laid down in section 80 G (5) (i) to (v)
i) Under section 35AC, organisations having income from business or profession can get 100 per cent deduction. Charitable Organisations can get registered themselves u/s. 5AC by applying to the National Committee under rule 11F to 11-O, if they are carrying on any business.
ii) The Central Goverment has specified various types of projects of national needs for which Charitable Organisations can make donations.
iii) Business houses making donations for the purpose of section 35AC, should be careful that the donee organisation continues to enjoy approval u/s. 35AC. As the approval under section 35(AC) is not permanent in nature.
iv) To get approval u/s. 35AC two sets of application have to be made alongwith specified enclosures to secretary of National Committee, New Delhi.
v) The National Committee may recommend or reject the project but when the approval is recommended then it is for a period of maximum 3 years and it could be further extended if the National Committee is satisfied with the performance during the period.
vi) A certificate has to be issued to the donor in Form 58A. This certificate will enable the donor to claim exemptions.
vii) The National Committee may withdraw the approval if the project is not carried out in accordance with the approved conditions. To withdraw a project National Committee should provide an opportunity of being heard to the aggrieved organisation.
viii) Section 35AC provides deduction from income from business and profession. Similar deduction is also available u/s. 80GGA, for assessees having income from other heads.
FCRA means Foreign Contribution (Regulation) Act. It was first passed in 1976, nine years after an uproar over foreign funding of 1967 elections. The Act was originally intended to prevent foreign funds reaching political parties. Subsequently in 1984, it was tightened for NGOs also, based on the findings of the Kudal Commission. The 1976 Act has been replaced by a new law titled Foreign Contribution (Regulation) Act, 2010 (FCRA 2010). This became effective from 1st May 2011, after the rules were notified.
Registration:
Any organization in India, which has a definite program needs FCRA registration before receiving foreign contribution (money, material or securities). It does not matter that this has come directly from the foreign source, or has passed through several Indian organizations. For getting FCRA registration, you have to apply in form FC-3. This should be done online.
Renewal:
This registration must be renewed every five years. Organisations registered under the old Act do not need to register again. However, their registration will expire on 30-April-2016. They must apply 6- 12 months in advance for renewal. This is done using form FC-5.
Prior-permission:
In some cases, the Government is unwilling to give FCRA registration immediately. In such cases, you can get prior-permission to receive funds by applying in form FC-4.2 This is given on a case-by-case basis. The application must be made online. Political parties cannot access foreign funds at all. Organizations of a political nature also cannot receive foreign contribution.
Banking:
All FCRA funds must be received in the designated bank account. This is the account number mentioned in the FCRA permission letter or registration certificate. No other funds must ever be deposited in this account. You can now open multiple secondary accounts for utilising FCRA funds. These accounts should be kept exclusively for foreign contribution. Intimation of opening such an account must be sent to FCRA Department within 15 days. Change of FCRA bank account is allowed. For this you must apply using a separate form. This form is available at FCRA website. Do not use the new account till FCRA Department sends you a revised letter of registration.
Accounts:
You need to keep a separate cash book and ledgers for FCRA funds.3 The ledgers can be kept separately for each project or donor. However, opening of separate cash books for each donor is not required. You should not enter local contribution in these books. For non-cash contribution received from foreign sources, you should keep a stock register. Similarly, if you receive shares or securities as a donation from a foreign source, then you should keep an investment register. This is also needed if you invest foreign contribution in fixed deposits, bonds etc.
Reports:
Each year you should file a report with FCRA Department in form FC-6. This shows how much funds you have received and used during the year from 1st April till 31st March. The report should be filed by 31st December each year. No extension is available. This return can be filed online. A printed and signed copy must then be sent by registered post. Alternatively, you can simply file a printed FC-6 by registered post. Along with the form, you also have to give a Receipts & Payments Account, Income & Expenditure Account and a Balance Sheet. All three should be related to FCRA funds only
All organizations registered with FCRA have to file forms FC-6, FC-7, and FC-8, even if they did not receive or use any foreign contribution during the year. Forms FC-6, 7, 8 should be audited by a practicing Chartered Accountant.
DOCUMENTATION
CASH BOOK
MEETING REGITER
VISITOR REGISTER
EVENT REGISTER
ANNUAL REPORTS
AUDIT REPORT
PROJECT REPORT