NGO REGISTRATION IN INDIA

Transcription

1 NGO REGISTRATION IN INDIA A Non Governmental Organization is perceived to be a body of individuals or an association of persons. An association of persons with non-profit motive may be registered under any of the following Indian Acts: AS A CHARITABLE TRUST. : The public charitable trust is a potential form of not-for-profit entity in India. Normally, public charitable trusts can be established for a number of purposes, including the relief of poverty, education, medical relief, provision of facilities for recreation, and any other object of general public utility. Indian public trusts are usually irrevocable. No national law governs public charitable trusts in India, although many states (particularly Maharashtra, Rajasthan, Gujarat and Madhya Pradesh) have Public Trusts Acts. A Trust may be created by any language sufficient to know the intention and no technical words are compulsory. Generally, A trust deed incorporates the following: The name(s) of the author(s)/settlor(s) of the trust. The name(s) of the trustee(s). The name(s) of the beneficiary/ies or whether it shall be the public at large. The name by which the trust shall be known. The name where its principal and/or other offices shall be situate. The property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies An intention to divest the trust property upon the trustee(s). The objects of the trust. The procedure for appointment, removal or replacement of a trustee. Their rights, duties and powers etc.

2 The rights and duties of the beneficiary/ies; The mode and method of determination of the trust. A trust of immoveable property can be created by two ways, one by a non-testamentary document and another by a testamentary document such as a will. In other words, a trust regarding a immoveable property cannot be created orally but it must be by a document duly registered. A trust of a moveable property can be created either by a document or delivering the property to the trustee with necessary oral directions. If the directions are given in writing it would amount to a trust by a non-testamentary document which may or may not be registered. A Trust can be created by any person competent to contract or even by a manner with the authority of a competent court and respect of any property which is transferable and over which the author of the trust has dispossessing power. A Trust may be private and public. When the purpose of the trust is to benefit an individual or a group of individuals or his or their descendants for any legal person and who is capable of holding property, it is a private trust. When the purpose of the trust is to the benefit the public or any section of the public, it is public trust. A trustee can be any person that is, an individual or a corporate body or a corporate sole, capable of holding property and competent to contract and he must accept the trust. AS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT. : Societies are membership organizations, which may be registered for charitable purposes. Societies are generally managed by a governing council or a managing committee. Societies are governed by the Societies Registration Act 1860, which has been

3 adapted by different states. NGO OR SOCIETY: There is Two type of Society and NGO's in India - State label and All India label. Before registering the NGO or Society you should know about the difference between both of them. STATE LABEL : To register the Society or NGO at State Label. You will have to provide the ID proof of Seven Member's (DL Copy of Passport Voter ID). You will have to provide Two Members (President - Treasurar or Secretary - Treasurar) form Delhi and another Five Member's can be from any states. Two set of MOA of NGO or Society. ALL INDIA LABEL : To register the Society or NGO at all India Label. You will have to provide the ID proof of Nine Member's (DL Copy of Passport Voter ID). You will have to provide Two Members (President - Treasurar or Secretary - Treasurar) form Delhi and another Seven Member's from Seven different states. Two set of MOA of NGO or Society. AS A COMPANY LICENSED UNDER SECTION 25 OF THE COMPANIES ACT. : A section 25 company is a company with limited liability that may be formed for "promoting commerce, science, art, religion, charity or any other useful object," provided that no profits, if any, or other income derived through promoting the company's objects may be distributed in any form to its members. The Indian Companies Act, 1956, which principally governs forprofit entities, permits certain companies to obtain not-for-profit status as "section 25 companies." A section 25 company may be formed for "promoting commerce, art, science, religion, charity or any other useful object." A section 25 company must apply its profits, if any, or other income to the promotion of its objects, and may not pay a dividend to its members. At least three individuals are required to form a section 25 company. The founders or promoters of a section 25 company must submit application materials to the Regional Director of the Company Law Board. The application must include copies of the memorandum and articles of association of the proposed

4 company, as well as a number of other documents, including a statement of assets and a brief description of the work proposed to be done upon registration. The internal governance of a section 25 company is similar to that of a society. It generally has members and is governed by directors or a managing committee or a governing council elected by its members. Like a society (but unlike a trust), a section 25 company may be dissolved. Upon dissolution and after settlement of all debts and liabilities, the funds and property of the company may not be distributed among the members of the company. Rather, the remaining funds and property must be given or transferred to some other section 25 company, preferably one having similar objects as the dissolved entity. PUBLIC BENEFIT STATUS To be eligible for tax-exemption under the Income Tax Act, 1961, a not-for-profit entity must be organized for religious or charitable purposes. Charitable purposes include "relief of the poor, education, medical relief and the advancement of any other object of general public utility." Public charitable trusts, by definition, must be created for the benefit of the public. Societies likewise may be registered for charitable purposes. Section 25 companies are formed for the limited purposes of "promoting commerce, art, science, religion, charity or any other useful object." OBJECTIVES OF A NON-PROFIT COMPANY: - Objectives of a non-profit company can be including promotion of commerce, art, science, religion, charity or any

5 other useful object. Profits are applied for promoting only the objects of the company and no dividend is paid to its members. (Section 25 (1) (a) and (b) of the Companies Act, 1956). A non-profit company may be Public or Private. If the non-profit company is a private company, minimum of only two members are required to form it. However, if the non-profit from is for a public purpose, then a minimum of seven are needed. A 'Section 25 company' and is eligible for certain exemption from provisions of law and concessional rate of fees etc. STEPS FOR ESTABLISHING A SECTION 25 COMPANY Application for a name Memorandum and Articles License under section 25 Registration with ROC Non-profit organizations in India (a) exist separately of the state; (b) are self-governed by a board of trustees or 'managing committee'/ governing council, comprising individuals who generally serve in a fiduciary capacity; (c) produce benefits for others, usually outside the membership of the organization; and (d), are 'non-profit-making', in as much 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 completely to worship is not considered as charitable. Therefore, in ascertaining whether a purpose is private or public, 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. Whether a trust, section-25 company or society, the Income Tax Act gives all categories equal treatment, in terms of

6 exempting their income and granting 80G certificates, whereby donors to non-profit organizations may claim a repayment against donations made NGO FORMATION REGISTRATION PROCEDURES: We assist in NGO registration procedures of Societies and Trusts as well as in the process of formation of memorandum of association (MOA). We guide them through the modes and methods, procedural formalities and the process of documentation. We also counsel them regarding the benchmark required for registration. We provide services regarding all facets of NGO working right from registration to utilisation of funds etc. Moreover, we provide solutions regarding income tax, statutory and internal audit and many more services are offered by us. While it is critical that a new NGO ensures that it is properly registered with the public authorities of the country, it is of even more importance to 'register' with its target community - in terms of ensuring acceptability, building trust, chalking out effective programmes and projects and being the harbingers of real and measurable change. IDENTIFYING THE TYPE OF ORGANISATION AND BOARD OF MANAGEMENT Before a process of incorporating or registering an organisation can be gone through, it is necessary to first establish the type of organisation and a Board of Management/ Directors or an Advisory Board, and arrive at the organisation's vision and mission. The members of the management, as a group, have trustee and legal responsibility for the actions and operation of the organisation. There are minimum levels of involvement required of board members in organisational and operational management Governance, Planning and Programme formulation and implementation, Financial management and resource development or fund raising, Human resource and information management and Marketing and Public Relations. A primary step in this process is to draft the bye-laws or the trust deed as the case may be (in the case of incorporation it is called memorandum and articles of association). The type and style of these documents will depend on whether the NGO is being set up as a society (Bye-laws), trust (Trust Deed) or incorporated entity (often called a Sec 25 company in India because of the section of the Indian Companies Act, 1956 under which such nonprofit corporations are incorporated - Memorandum and Articles of Association). There are standard formats

7 available for adoption with any competent chartered accountant or even online on the internet. These documents need to be approved and signed by all members of the Board before submission to the registering authority with supporting forms and documents as required also similarly signed. DRAFTING THE BYE-LAWS There is no prescribed format for bye-laws, the set of rules under which the organisation will operate. However, they typically include such items as (a) number of members, term length, nomination process, committees, and meetings; (b) fiscal year/accounting cycles, committees, and officers' responsibilities; (c) methodologies, tools, and strategies, monitoring and evaluation etc.; and (d) how to amend the bylaws themselves. Typical bye-laws of an NGO will contain the following information: A suitable preamble The chosen and approved name of the Organisation The basic or primary aim and purpose of organisation and any supplementary aims and objectives The mission statement Membership types, conditions/qualifications of members, status, length of service, procedure to become members, rights and obligations, termination Management and/or Advisory board including but not restricted to the role and functions, qualifications of board members, prescribed authority, voting rights, method of elections, membership etc Organisation functions and structure Raising of Finance, property and membership fees, if applicable etc. Legal status Trust, Society, Corporation etc. Location and Contact address Rules for Dissolution of NGO if needed Method for amendments, modifications, revisions of bye-laws The bye-laws will generally be applicable to a society. In the case of a trust, the trust deed will also have generally the same information as stated above (bye-laws) but in addition will also have the name of the settler who creates the trust, the trust property details and trustees names and addresses, responsibilities etc. and some details specific to a trust functioning.

8 In the case of an incorporated entity (Sec. 25 company), the Memorandum and Articles of Association will need to adhere to the format prescribed in the Indian Companies Act, 1956 and other applicable laws in force. REGISTER THE NGO THE NGO'S NAME: Check to see if the proposed name of the organisation is already in use. Check with the local government registry or similar agency/board to see if your proposed name is already taken. It may be necessary to provide two or three optional names for the NGO! This also applies to the logo of the NGO, if you plan to use one. Registering or incorporating with the local authority: It will be necessary to incorporate the organisation within its given local government/agency by writing and filing the necessary forms. In larger cites and towns in India, there could be and normally are separate authorities for registrations of Societies (Registrar of Co-operative Societies, trust (Charity Commissioner) and Companies (Registrar of Companies). However, in smaller towns and district headquarters, there could just be one Registrar who is common for all of these duties. So you will need to find out the local authority responsible for registration of your type of organisation at your location. In most other countries also, there are specialized departments or officers within local governments that deal with registering an NGO (which may also be called by other different names: non-profit organisation, voluntary organisation, people's organisation, etc.) There are several documents that need to be submitted, and these differ from country to country and also on the type of organisation. Information on the NGO Board, its mission statement, purpose, programmes and projects information, staff members, funding sources etc. will be necessary in all cases, whatever the type of organisation. A typical set of documents to be submitted to the appropriate authority for registering an NGO includes - Memorandum of Association, Bye-laws or Trust Deed, including applicable rules and regulations; report of annual activities, financial reports/audit reports; sources and pattern of income and expenditure; minutes of the Board or General meeting of members that endorses the setting up of the NGO; funding sources, letters of support etc. FUNDING AND FUND-RAISING

9 Even if a 'donation' is made to a programme or activity, it is done with an objective in mind - sometimes simply to feel good. It is therefore critical to understand when we approach a potential sponsor, why is he be donating. Many donations are made with the intention of availing of the tax advantages that go with it, some companies will look for PR mileage, sometimes the donation can be anonymous with no other motive except to help. The exercise in fund-raising needs to asses the possible reason for each sponsor. It is equally important to maintain professionalism, within the NGO, to build adequate trust with the potential sponsor or donor. Transparency, accountability, communication etc. should be an integral part of the NGO. The implementation team, or the management of the organisation should be methodical in its approach. It may also be a good idea to not always depend on external or large sources of funding, sometimes, it can come from surprising sources in your own backyard. TAX LAWS : TAX EXEMPTIONS A. 1. GENERAL SCHEME The Income Tax Act, 1961, which is a national all-india Act, governs tax exemption of not-for-profit entities. Organizations may qualify for tax-exempt status if the following conditions are met: The organization must be organized for religious or charitable purposes; 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; The funds of the organization must be deposited as specified in section 11(5) of the Income Tax Act; 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; The organization must timely file its annual income return; and The income must be applied or accumulated in India. However, trust income may be applied outside India to promote international causes in which India has an interest, without being subject to income tax. 2. CORPUS DONATIONS

10 Corpus donations or donations to endowment are capital contributions and should not be included to compute the total income of the organization. 3. Business Income Under amendments to Section 11(4A) of the Income Tax Act 1961, a not-for-profit organization is not taxed on income from a business that it operates that is incidental to the attainment of the objects of the not-for-profit organization, provided the entity maintains separate books and accounts with respect to the business. Furthermore, certain activities resulting in profit, such as renting out auditoriums, are not treated as income from a business. 4. Disqualification from Exemption The following groups are ineligible for tax exemption: all private religious trusts; and charitable trusts or organizations created after April 1, 1962, and established for the benefit of any particular religious community or caste. But note that a trust or organization established for the benefit of "Scheduled Castes, backward classes, Scheduled Tribes or women and children" is an exception; such a trust or organization is not disqualified, and its income is exempt from taxation. B. Value Added Tax India subjects certain sales of goods and services to VAT, with a fairly broad range of exempt activities. The rates range from 4 percent to 12 percent, with most goods and services taxed at 8 percent. An entity (including a public charitable trust) is liable under the VAT Act if its sales/purchase turnover in the previous year exceeded Rs.500,000. The threshold is lower, Rs.100,000, for importers. Several other tax laws have now merged into VAT, including Sales Tax Act, Motor Spirit Taxation Act, Purchase Tax on Sugarcane Act, and Transfer of Right to Use Act. C. Tax Deduction for Donors The Income Tax Act, section 80G, sets forth the types of donations that are tax-deductible. The Act permits donors to deduct contributions to trusts, societies and section 25 companies. Many institutions listed under 80G are government-related; donors are entitled to a 100% deduction for donations to some of these government funds. Donors are generally entitled to a 50% deduction for donations to non-governmental charities. Total deductions

11 taken may not exceed 10% of the donor's total gross income. The following are examples of governmental charities listed in section 80G, contributions to which entitle the donor to a 100% deduction: the Prime Minister's National Relief Fund; the Prime Minister's Armenia Earthquake Relief Fund; the Africa (Public Contributions India) Fund; and the National Foundation for Communal Harmony. As to those entities not specifically enumerated in section 80G, donors may deduct 50% of their contributions to such organizations, provided the following conditions are met: the institution or fund was created for charitable purposes in India; the institution or fund is tax-exempt; the institution's governing documents do not permit the use of income or assets for any purpose other than a charitable purpose; the institution or fund is not expressed to be for the benefit of any particular religious community or caste; and the institution or fund maintains regular accounts of its receipts and expenditure. Note that donations to institutions or funds "for the benefit of any particular religious community or caste" are not tax-deductible. A not-for-profit organization created exclusively for the benefit of a particular religious community or caste may, however, create a separate fund for the benefit of "Scheduled castes, backward classes, Scheduled Tribes or women and children." Donations to these funds may qualify for deduction under section 80G, even though the organization, as a whole, may be for the exclusive benefit of only a particular religious community or caste. The organization must maintain a separate account of the monies received and disbursed through such a fund. In-kind donations are not tax-deductible under Section 80G. Receipts issued to donors by not-for-profit organizations must bear the number and date of the 80G certificate and indicate the period for which the certificate is valid. The Income Tax Act contains a number of other provisions permitting donors to deduct contributions. Under section 35AC of the Act, donors may deduct 100% of contributions to various projects, including 1) construction and maintenance of drinking water projects in rural areas and in urban slums; 2) construction of dwelling units for the economically disadvantaged; and 3) construction of school buildings, primarily for economically disadvantaged children. Furthermore, under section 35CCA of the Act, donors may deduct 100% of their contributions to associations and institutions carrying out rural development programs and, under Section 35CCB

12 of the Act, 100% of their donations to associations and institutions carrying out programs of conservation of natural resources. A weighted deduction of 125% is also allowed for contributions to organizations approved under section 35(1)(ii) (a scientific research institute or a university, college or other institution) specifically for "scientific research," and for contributions made under section 35(1)(iii) specifically for "research in social science or statistical research." D. Reporting Foreign Contributions Under the Foreign Contribution (Regulation) Act, 1976 (FCRA), all not-for-profit organizations in India (e.g., public charitable trusts, societies and section 25 companies) wishing to accept foreign contributions must a) register with the Central Government; and b) agree to accept contributions through designated banks. Furthermore, not-forprofit entities must report to the Central Government regarding foreign contributions received, within 30 days of their receipt, and must file annual reports with the Home Ministry. The entity must report the amount of the foreign contribution, its source, the manner in which it was received, the purpose for which it was intended, and the manner in which it was used. Foreign contributions include currency, securities, and articles, except personal gifts under Rs. 1,000 (approximately $20). Funds collected by an Indian citizen in a foreign country on behalf of a not-for-profit entity registered in India are considered foreign contributions. Moreover, funds received in India, in Indian currency, if from a foreign source, are considered foreign contributions. According to FC(R)A guidelines if 50% or more of the office bearers (not members of the board of management) of a trust/society or section 25 Company change, the organization must apply to the Home Ministry for approving the change. This approval could take as long as three to four months. However, in the interim period, the FC(R)A registration granted to the organization would stand suspended. FC(R)A guidelines require that an organization allowed to receive funds from a foreign source, may provide funds from its FC(R)A account to another organization, only if the other organization also has clearance from the Home Ministry to receive funds from a foreign source. If the foreign donor agency specifies in writing that the whole or part of the grant may be taken to corpus, the recipient organization may do so. Such corpus fund may be invested in an approved security. The interest or dividend generated should be accounted for as amount received by way of interest on deposit

13 drawn out of funds received from a foreign source. In other words, even the interest/dividend received in India in Indian rupees must be disclosed in the Return Form FC-3. E. Customs Duty Not-for-profit organizations involved in relief work and in the distribution of relief supplies to the needy are 100% exempt from customs duty on the import of items such as food, medicine, clothing and blankets. Moreover, other exemptions may be available, such as an exemption from customs duty for scientific/technical equipment and components intended for research institutes. Donors should investigate whether an exemption from customs duty is available before shipping articles to not-for-profit entities in India. F. Double Tax Treaty India and the United States signed a double-tax treaty on September 12, The treaty does not address issues related to charitable giving or not-for-profit entities.