Our team has put together an outline of all the basic compliance that are to be considered by a not-for-profit organisation in India. Each compliance/topic will be discussed in detail in the coming weeks via a series of blog posts. These will be tagged with the relevant compliance briefs for further understanding and perusal.
Should there be any topic that you would like us to blog about, please comment on this post or write to us. Happy reading!
Basic legal forms of charitable entities
Let's start with understanding the most commonly used forms of registrations for a non-profit organisation.
● Public Charitable Trusts
● Charitable Societies
● Section 8 companies
Broad distinguishing points between Section 8 and Trusts
Important Income tax registrations:
PAN - Permanent Account Number is a ten-character alphanumeric identifier issued by the Income Tax Department. It is essential to obtain PAN as it is required for opening bank accounts, filing income tax returns, registering on Darpan, etc.
TAN – Tax Deduction and Collection Account Number is a 10 Digit Alphanumeric Number. Every Assessee/ taxpayer liable to deduct TDS is required to apply for a TAN No. and shall quote this number in all TDS Returns, TDS payments, and any other communication regarding TDS with the Income Tax Department.
12A - Registration that makes Income of the organisation exempt. It is valid for a period of 5 years.
80G - Registration that makes the donation exempt from tax for the donors. This registration is valid for a period of 5 years.
New rules starting from 1st April 2021 - Read more about Statement and Certificate of donations process
Read more about Revalidation of 12AA and 80G
Income tax - Exemption Rule
As per the requirements of the Income Tax Act,1961, an entity will be exempt from tax if the following conditions are fulfilled:
Activities are in conformity with their stated objects,
Apply 85% or more of its income in the same financial year or, if there is a shortfall, then apply to the Income Tax Department through specified forms for permission to carry forward the unspent amount to immediate next year or for a maximum period of 5 years. Reasons for not being able to spend are to be given in these forms.
File income tax return – ITR 7 along with Form 10B
Foreign Contribution (Regulation) Act (FCRA)
● FCRA, 2010 has been enacted to consolidate the law to regulate the acceptance and utilization of foreign contribution by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution for any activities detrimental to national interest and for matters connected therewith or incidental thereto.
● Any “Person” can receive foreign contribution subject to the following conditions: -
○ a) It must have a definite cultural, economic, educational, religious, or social programme.
○ b) It must obtain the FCRA registration/prior permission from the Central Government
○ c) It must not be prohibited under Section 3 of FCRA, 2010.
To read more about some key aspects, read our blog post Donations from NRIs.
NGO Darpan
● The NGO Darpan is a platform of interface between Non-Governmental Organization (NGO) and key Ministries / Departments / Government Bodies
● This is a free facility offered by the NITI Aayog in association with NIC to bring about a greater partnership between government & voluntary sector and foster better:
○ transparency
○ efficiency
○ accountability
● All the existing FCRA registered associations and those who are seeking registration/prior permission or accepting foreign contribution are required to register with DARPAN Portal and obtain a unique Darpan Identification Number.
Method of accounting
● Generally, there are two bases of accounting:
○ Cash basis of accounting
○ Accrual basis of accounting
● Accrual basis of accounting has conceptual superiority over cash basis of accounting
● Section 8 companies are required to maintain their books of account on an accrual basis
Budgeting and policies
Budgeting – It is a healthy practice for an organisation to build a budget and track actuals against it. This helps in planning resources, raising funds, implementing activities, monitoring work, and evaluation.
Organisation Policies – Basic policies to maintain:
● Finance
● Procurement
● Human Resources
● POSH
Restriction on cash transactions
● 80G receipts cannot be issued for cash donations over INR 2,000
● Dis-allowance as an application on income for expenses of more INR 10,000 in a single day [Section 40A(3)]
● Not to receive INR 2,00,000 or more from a person/transaction/event in a day (Section 269ST)
Investments Options
Section 11(5) of the Income Tax Act and Rule 17C of the Income Tax Rules state permissible forms or modes of investment or deposits that can be made by a charitable organisation. These investments include Government Saving Certificates, Deposits in Post Office Savings Bank or Scheduled Banks, Central and State Government securities, etc.
Corpus
● An amount donated by a donor with a specific direction towards the “Corpus”
● Such a corpus is may be considered as the capital of the organisation
● Invest in section 11(5) approved investments
Form 10BD & 10BE
● W.e.f. 01 April 2021, a charitable organisation needs to collect a unique ID like PAN, Aadhaar, TIN, etc. for any donation/grant received by them
● 80G registered charitable organisations must:
o File Form 10BD – Statement of donations
o Issue Form 10BE – Certificate of donation to the donors
Read a detailed post on how this may affect your fundraising
Tax Deducted at Source (TDS)
● Tax needs to be deducted on certain transactions such as
○ Professional fees
○ Contracts
○ Rent
○ Commission, etc.
and Remitted monthly to CG on prescribed dates
● Reported via quarterly TDS returns
Goods & Services Tax (GST)
● Entities providing revenue-generating activities need to register if their aggregate turnover exceeds INR 20 lakhs (from services) and INR 40 lakhs (from goods)
● No exemption on GST being charged to such entities
See our previous blog post #5 misconceptions about GST for NGOs
Basic Labour Law
** These rules mentioned are applicable to Maharashtra state and they may vary for other states.
Corporate Social Responsibility (CSR)
● Funding and grants support from corporates (private or public)
● CSR funding may be received by the organisations with:
o 12A registration
o 80G registration
o A minimum 3-year track record in undertaking similar activities
o Unique number allotted in Form CSR-1
Registrars of Companies (ROC) compliance
● ROC deals with the administration of companies in India
●Depending upon the applicability, forms must be filed, and board resolutions are maintained by all companies in a timely manner
● Some regular compliances
○ Annual Returns
○ Directors Declarations/compliances
○ Statutory Registers
○ Statutory Audit
Note: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
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