NGO Consultancy services provided by us include Registration, Funding, Registration u/s 12A, Approval for Deduction U/s 80G, Deduction u/s 35AC, Deduction u/s 80GGA FCRA. NGO can be registered as non-profit organization in India in the form of Trust, Society or as section 25 company.
Formation of NGO Basically a Non-Governmental Organization (NGO) is an association of persons or a body of individuals which may be registered or unregistered. But when such association seeks external funding or income tax exemptions, the association has to get it registered. An association with non profit motive may be registered under any of the following Acts.
Charitable Trust NGO may be formed as a public charitable trust, which may be registered for number of charitable purposes like relief from poverty, education, medical relief, preservation of environment, preservation of monuments, places or objects of artistic or historic interest, general public utility, and provision of facilities for recreation. At least two trustees are required to register a public charitable trust. The instrument by which the trust is registered is called the trust deed. No national law governs public charitable trusts in India, although some states like Maharashtra, Gujarat, Rajasthan, and M.P have made their Public Trust Acts.Trustee of a public charitable trust cannot use the property for personal use. Indian public charitable trusts are generally irrevocable.
Society NGO may be formed as a society under Societies Registration Act 1860. Minimum seven persons are required to form a society. Individuals, partnership firms, companies and registered societies are eligible to form a society. Society may be registered for promotion of science, literature, fine arts, for providing education, for charitable or such type of other purposes. Society is generally managed by governing council or management committee. Society may be dissolved.
Company under section 25 of the Companies Act NGO may be formed under section 25 of Companies Act with limited liability for promotion of commerce, science, art, religion, charity or other useful object, provided that no profits (if any) or any other income derived from promoting objects of the company is distributed to the members. At least three persons are required to form a section 25 company. Promoters of the company have to submit application to the Regional Director in Form No.24 along with copy of memorandum and articles of association, statements of assets, copies of accounts, balance sheet, description of work already done and proposed to be done. The affairs of section 25 company are managed by governing council or managing committee. A section 25 company may be dissolved. Upon dissolution, after settlement of all liabilities the remaining assets will be transferred to other section 25 company with similar objects.
Project Proposal Steps to prepare Project Proposal
- Information about existing organization
- Objectives of the organization
- About proposed project
- Human resources requirement
- Project beneficiaries
- Project implementation strategy
- Duration of the project
- Project monitoring
- Budget of the project
- Organizations own contribution
- Funds sought from the funding Agencies
Registration under section 12A of the income tax Act An application for registration of charitable trust or institution shall be filed with commissioner of income tax in Form No.10A along with following documents
- Certified copy of the instrument under which the trust/institution was created
- Two copies of the account and balance sheet of the trust/institution for last three years or since its inception whichever is less
Approval for Deduction under section 80G of the income Tax Act Donations made to certain Charitable/Religious Institutions are eligible for deductions from the taxable income of the donor under the provisions of section 80G. Donations made in kind are not covered under section 80G.
Trusts and Institutions established in India for a charitable purpose are required to obtain approval from the commissioner of income tax and fulfill certain conditions laid down in section 80G(5). The conditions to be fulfilled are
- That the income of the Trust or Institution shall be exempt under section 11 and 12 or 10(23C)
- The Trust/ Institution derives income from business and proper books of account are maintained in respect of that business
- The donations received are not used directly or indirectly for the purpose of such business
- The Trust /Institution issues to the donor, a certificate that separate books of accounts are maintained in respect of such business and donations received will not be used directly or indirectly for the purpose of such business
- The Trust/Institution or its funds are not for the benefit of any particular religious community or caste. The Trust/Institution may create separate funds for the use of schedule caste, schedule tribes, backward classes. Donations to these organizations qualify for exemption. The organization must maintain a separate account of the monies received and disbursed through such a fund
- The Trust/Institution maintains regular books of accounts
- The documents of Trust/Institution do not permit use of income other than charitable purpose
- Donations given in kind are not tax deductible under section 80G
Procedure for getting Approval The application for approval u/s 80G (5) is to be made in Form No.10G in triplicate to the commissioner of income tax accompanied by following documents
- Copy of registration granted under section 12A in respect of charitable trust or copy of notification issued u/s 10(23C) in respect of public charitable or public religious trust
- Notes on activities of trust or institution since its inception or during the last three years whichever is less
- Copies of accounts of the trust or institution since its beginning or for the last three years whichever is less
- With effect from 1-10-2009 approval shall be required to be obtained once only
Deductions on contributions u/s 35AC The Income Tax Act contains provisions under section 35AC permitting income tax payers to deduct contributions made while computing profits from business or profession for expenditure incurred for promoting social and economic welfare or upliftment of the public as specified by the central government on recommendation of the national committee. The NGOs can avail the benefit of these provisions to attract contributors. Central government approves and notifies certain type of NGOs eligible for projects for the provisions of section35AC. If a NGO succeeds in getting approval for its project then it can mobilize substantial funds from the corporate sector.
All approved NGOs are required to issue a certificate to the contributor for all contributions & receipts under section 35AC. The certificate is to be issued in Form 58A.
This certificate will enable the contributor to claim exemption from its taxable income. Further, the NGOs should also send an Annual Report to the National Committee indicating the progress of the work relating to the project/scheme and information in respect of each contributor.
Deductions on contributions u/s 80GGA Section 35AC is available to taxpayers who have income from the head business or profession. Therefore for tax payers who do not have income from business or profession, Section 80GGA provides for 100% deduction for donations made to eligible projects in respect of donations given for scientific research or rural development.
FCRA (Foreign Contribution Regulation Act) The main purpose of this act is to curb the use of foreign funds and hospitality for nefarious and anti social purposes. It is regulated by Ministry of Home Affairs. The provisions of FCRA apply to whole of India including Jammu and Kashmir.
Under section 6 of FCRA it is clearly provided that any organization having a definite cultural/social/educational/religious /economic object shall only accept foreign contribution after satisfying two conditions.
- It must register with central govt
- It must agree to receive foreign contribution only through one specific bank account
Documents required to be filed for Registration - Form FC-8 duly filled up in triplicate
- Audited statement of accounts of last three years
- Annual Reports specifying activities of last 5 years
- Detail of beneficiaries and detail of the socio economic factors of the region in which NGO is working
- List of geographical details of the state and districts proposed for work
- Certified copy of the registration certificate
- Certified copy of the bye laws and memorandum and articles of association, whichever is applicable
- Copy of certificate of exemption and registration issued by the income tax department under section 80G and 12A
- Copy of any prior permission granted to the organization
- Copy of resolution of governing body of the organization authorizing the registration under FCRA
- Copy of Power of Attorney by which the chief functionary is authorized to submit FC-8
- List of present members of the governing body of the organization and office bearers
- Copy of any journal or other publication of the organization
- If the organization is having any parent/sister or sister organization which is registered with the FCRA, then the registration no. along with Ministry of Home Affair file number should be mentioned
- If the association has submitted any application earlier then its reference no. should be mentioned
- If the association has received any foreign contribution with or without the prior approval of the central govt. then the detail should be given
Tax Deduction at Source by NGOs Any NGO whether formed as a society, trust or non-profit making company responsible for making payments is liable to deduct TDS as per provisions of Income tax Act. TDS is applicable on NGOs like other entities.
NGOs and Wealth Tax All individuals, HUFs and companies are liable to wealth tax if their taxable net wealth exceeds Rs.30 lacs. Similarly NGOs whether formed as trust society or company are liable to wealth tax.
Application of Sales tax and Service tax on NGOs NGOs may be engaged in the sale of goods which are either manufactured/assembled/traded as part of their business activities. Vat will be levied on sale of taxable goods like other business entities. Similarly service tax will be applicable on taxable services provided by NGOs.
Delhi, India
