Non-governmental organization (NGO)

An NGO can be described as an association that possesses a definite cultural, educational, economic, religious, or social purpose and organization. They are not owned by any one and cannot distribute profits as such. Whatever profits they may earn from economic activities are reinvested or spent on appropriate non-profit activities. The typical sources of revenue or non-governmental organizations are donations, membership fees, interest and dividends on investments. NGOs, driven by individuals with a shared interest and focused on specific tasks, perform diverse service and humanitarian functions. They bring local issues to the attention of governments, advocate for policies, promote political participation through the dissemination of information, and support various causes such as human rights, environment, and wellness. The registration of NGOs is truly a boon for society. They provide analysis and expertise, act as early warning systems, and help monitor and enforce international agreements. The nature of their relationship with United Nations offices and agencies varies based on their objectives, location, and the mandate of each specific institution.

The NGOs can be registered under any of the following Acts:

• Indian Trust Act, 1882
• Societies Registration Act, 1860
• Companies Act, 1956, u/s 25.
• Charitable and Religious Trusts Act, 1920.
• Sikh Gurdwara Act, 1925
• Trustees and Mortgagees Powers Act, 1866.
• Wakf Act, 1995
• Indian Trustees Act, 1866
• Religious Endowment Act, 1863.

A Non-Profit Organization can receive income tax benefits by registering and adhering to certain procedures, but such NGO registration does not result in any profit for the individuals making donations. The Income Tax Act of 1961 has certain provisions that provide tax benefits to "donors," such as section 35ac, which offers a 100% tax rebate, and section 80G, which offers a 50% tax rebate. In India, non-profit/public charitable companies can register as trusts, societies, or a limited non-profit company under section 25 of the Companies Act of 1956.

Types of NGO

1. Trust
   A trust is a type of non-governmental organization registered under the Indian Trust Act of 1882. It can be established swiftly within 15 days, requiring a minimum of 3 members. Relatives are also eligible to be involved in a trust. The maximum number of members allowed is up to 21. The typical designations for trustees include President, Vice-President, Chairman, Vice-Chairman, Secretary, Treasurer, and others. For trust registration in Delhi, the main founder of the organization must possess an Aadhaar card along with an electricity bill or water bill as proof of the main office address. Additionally, two photographs of each member, along with their identification and address proofs, are required. Acceptable address proofs can include a voter ID card, driving license, passport, or any valid government-issued photo ID. The office location should be authorized, and if the office is rented, a No Objection Certificate (NOC) from the proprietor is also necessary.
2. Society
   A society is registered under the Indian Societies Act of 1860. Its development requirements are similar to that of forming a trust, with the distinction that family members cannot be part of a society. A minimum of seven members from different states is required for forming a society at the nationwide level. The process of developing a society typically takes 1.5 to 2 months.
3. Section 25 Company
   A Section 25 Company is a special type of organization established under the Indian Companies Act 1956. It can be set up as either a Public or Private Company with limited liability, and it may or may not have share capital. A minimum of three trustees is required to form such a company, and there is no maximum limit on the number of members. The Board of directors serves as the governing body. While the Section 25 Company is registered with the registrar of companies, its funds are solely dedicated to social welfare activities and cannot be used for personal benefits or profits.

Section 12A and Section 80G

An NGO can obtain income tax exemption by registering itself and fulfilling certain formalities. However, this registration does not directly benefit the individuals who make donations. The Income Tax Act of 1961 includes provisions that offer tax benefits to the donors instead. It is advisable for all NGOs to take advantage of these provisions to attract potential donors. One such provision is Section 80G. When an NGO is registered under Section 80G, individuals or organizations that donate to the NGO are eligible to claim a deduction of 50% from their taxable income.To be eligible for government funding, an NGO must be registered under both Section 12A and 80G. Even a newly registered NGO can apply for 80G registration.The benefits of Section 12A and 80G are significant. NGOs registered under Section 12A are exempt from paying taxes throughout their existence. Moreover, corporations and ministries prefer to donate to NGOs that have both 12A and 80G registration, as this allows them to deduct 50% of their donation from their taxes. In today's digital age, having a website for an NGO is essential. The website should provide information about the NGO's profile, activities, members, history, address, and the social work it has undertaken. NGOs should maintain balance sheets, annual reports, accounts, records, bills, vouchers, and photographs as evidence of their social activities. These documents are of great help, particularly during investigations conducted by IB officers for FCRA registration or when being verified by government officials for government funding or by corporate officials for corporate social responsibility funding.

Conditions for registration u/s 80G

To obtain approval under Section 80G, the following conditions must be fulfilled:

1. The NGO should not have any non-exempted income, such as income from a company. If the NGO has business income, it should maintain separate accounting records and must not utilize donations received specifically for that business purpose.
2. The bye laws or goals of the NGOs must not contain any regulation for investing the income or possessions of the NGO for purposes aside from charitable activities.
3. The NGO is not working for the advantage of particular religious community or caste.
4. The NGO keeps regular records of its expenses and income.
5. The NGO is duly registered either under the Societies Registration Act 1860 or under any similar legislation, or it is registered under Section 25 of the Companies Act 1956.

Advantages of registration u/s 80G

There is a limit imposed on the benefit available to donors. If the amount of deduction to a charitable organization exceeds 10% of the Gross Total Income calculated under the Act (after adjusting for income on which no tax is payable and any deductions allowed under other provisions of this Chapter), the excess amount above 10% of Gross Total Income will not be eligible for deduction under Section 80G. When calculating the total income of a taxpayer and determining the deductible amount under Section 80G, the aggregate sum of donations must be computed. Fifty percent of these contributions should be calculated, but the deduction is limited to 10% of the gross total income. If the amount exceeds 10% of the gross total income, the excess portion will be disregarded. Individuals or companies that donate under Section 80G can claim a deduction of 50% from their taxable income. However, there is a common misconception that the tax benefit under Section 80G is 50%, which is not accurate. 50% of the donated amount is allowed to be deducted from the gross income, and tax is calculated accordingly.

The persons or company who donate under section 80G gets a deduction of 50% from their taxable income. Below at times a confusion creeps in, that the tax advantage under section 80G is 50 %, but in fact it is not so. 50 % of the donation made is allowed to be deducted from the gross income and consequently tax is determined.

Section 35AC: 100% Tax Exemption

In order to facilitate the reinvestment of business profits into areas requiring substantial capital for socio-economic development, the Income Tax Act provides a tax incentive known as 35AC. This provision allows taxpayers engaged in business or profession to claim a full deduction for the entire amount paid towards financing projects or schemes that promote social and economic welfare. The purpose of this provision is to encourage businesses and affluent individuals to contribute more towards the well-being of the general public. By donating to an approved project under section 35AC of the Income Tax Act, a donor is eligible for a 100% rebate on their donated amount for income tax purposes. This enables NGOs to generate significant funds for approved projects under section 35AC, fostering a mutually beneficial relationship between the corporate sector and civil society.

THE FOLLOWING PROJECTS ARE ELIGIBLE FOR APPROVAL

1. Construction and maintenance of drinking water projects in rural areas and urban slums, including the installation of pump-sets, well digging, tube wells, and pipe laying for drinking water supply.
2. Construction of residential units for economically weaker sections.
3. Construction of school buildings primarily intended for children belonging to economically weaker sections of society.
4. Establishment and operation of non-conventional and renewable energy systems.
5. Construction and maintenance of bridges, public highways, and other roads infrastructure.
6. Promotion of sports and pollution control initiatives.
7. Establishment and operation of educational institutions in rural areas exclusively for women and children up to 12 years of age.
8. Establishment and operation of hospitals and medical facilities in rural areas exclusively for women and children up to 12 years of age.
9. Establishment and operation of childcare centers and schools for the children of factory or construction site workers.
10. Encouragement of the production of bacteria-induced fertilizers.
11. Programs promoting road safety, accident prevention, and traffic awareness.
12. Construction of hostel accommodations for women, handicapped individuals, or individuals aged sixty-five years or older.
13. Establishment and operation of institutions for vocational education and training in rural areas or towns with a population of less than 500,000.
14. Establishment and operation of engineering and medical education institutions in rural areas or towns with a population of less than 500,000.
15. Softwood plantation on degraded non-forest land.
16. Programs focused on conservation of natural resources and afforestation.
17. Relief and rehabilitation efforts for handicapped individuals.

Registrations

DSC, Name Approval, Drafting Trust Deed, Preparing MoA & AoA, Fillings with the Registrar, Documentation Compliances, FCRA Registration

Documents Required

Details of Trustees, Photographs, PAN, Address Proof of Trustee & Settler, List of all Members for Society, Self Declaration, Latest Utility bill to establish Ownership Proof of Property or Rent Deed duly notarized with rent receipt and NOC form Land Lord on Stamp Paper, Physical Presence of the Settler and Two witnesses with original Aadhar Card Proof at the time of Registration.