NGO’ are formed for the welfare of deprived, promotion of education, research, sports or such other objects. These are non-profit organisations which work for social cause and address various causes. There are many options available in India for incorporating a NGO.
NGO’s tax and other benefits:
The NGO’s are given benefit in Income tax and service tax. The basic criteria are mentioned as under to avail the benefits.
- NGO should have any business income. In case of business income, separate records are mandatorily required
- The bye laws of organisation should not allow spending of income and assets of NGO other than charitable.
- NGO should maintain regular accounts.
- NGO should not work for benefit of any particular religious community or caste.
With this article, we believe you should be able to appreciate the select right mode of organisation for your planned NGO venture and plan your NGO incorporation steps effectively.
||Company (Section 8)
||The Society Registration Act, 1860
||The Registration Act, 1908
||The Companies Act, 2013
|Approval o name
||Name is generally granted if available
||Separate application for name approval with strict guidelines
|Minimum number of subscribers required
||All members have equal rights
||All trustees have equal rights
||The voting rights may vary on the basis of shareholding.
||Two tier structure
a. General Body
b. Managing body
|All trustees have equal rights
||Two tier structure
a. General Body
b. Board of directors
|Transfer of membership
||Membership can be transferred, however company may choose to provide restrictions on transfer
|Annual documents to be filed under the Act above
||List of general body, list of managing body, annual audited accounts, Chairman’s report to be filed every year.
||Annual return and audited accounts
|Income tax return
||Audited accounts to be filed every year
|Penal consequences in case of any default
Funds of NGO:
The organization must spend 85% of its income in any financial year (April 1st to March 31st) on the objects of the organization. The organization has until 12 months following the end of the financial year to comply with this requirement. Surplus income may be accumulated for specific projects for a period ranging from 1 to 5 years. No part of the income or property of the organization may be used or applied directly or indirectly for the benefit of the founder, trustee, relative of the founder or trustee or a person who has contributed in excess of Rs. 50,000 to the organization in a financial year. NGOs can be incorporated with minimum amount of capital.
Name of NGO:
For the companies under Section 8, the name shall include the words Foundation, Forum, Association, Federation, Chambers, Confederations, etc. Limited or Pvt. Ltd will not be suffixed with name.
Process of Incorporation:
The process of incorporation involves submission of ID, address proofs of subscribers and address proofs of office. The documents are filed along with charter of the organisation for requesting for incorporation. In case of Section 8 Company, one also has to apply for licence under Section 8 of Companies Act prior to incorporation. The process required submission of business plan of the proposed NGO along with other documents.
The organisation must apply for PAN number for Income tax filing and TAN (tax deducted at source number) for deduction of TDS for payments to vendors above the threshold defined.
- Income tax registration as charitable organisation:
Application (Form 10A) for registration with Income tax for charitable activities under Section 12AA is a must for NGOs. In order to avail income tax exemption, the organisation must obtain this registration.
- Application for 80G certification under Income Tax Act:
Donor’s get tax advantage if the organisation is registered under Section 80G. Form 10G is used to apply for registration by organisation.
- Service Tax: The entities registered under Section 12AA of the Income Tax are exempt for service tax. In case, the organisation achieves Rs 9 lacs threshold before grant of Income tax registration, the organisation should apply for service tax registration.
- VAT (Value Added Tax): VAT would be applicable in state of Haryana if the sales exceed Rs 500,000 or at the time of any inter-state sales.
- GST (Goods and Service tax): As soon as the GST is implemented, any registration taken in Service tax or VAT would be required to be shifted to GST.
Foreign contributions: In order to receive any foreign contributions registration under FCRA would be required.
Choosing between above three options:
It’s a difficult choice. The comparative advantages and disadvantages are not alarming enough to recommend any particular for of registration. Registration as company would be more professional and organised way of working, entailing more paper work and compliances. On the other hand, registration as trust would be simplest way with minimal paper work and procedural hassles. Registration as a society will come in between; which is generally the popular choice.