Overview of Non – Governmental Organization (NGO)
A non-governmental organization (NGO) is a legally established organization created by natural persons that operate independently without interference of the government. This term “NGO” is usually used by the government to refer entities that have no government status. NGOs are primarily engaged in social, cultural, legal, & environmental activities without any profit motive.
Why NGO Registration is Recommended?
If you want to establish a non-profit organization and want to work with an object of betterment or improvement of any specific arena of the society then NGO Registration enables you to be evident in the eyes of the law.
Three Legal Possible Ways for NGO Registration in India
- Trust Registration under “The Indian Trust Act, 1882”
- Society Registration under “Societies Registration Act, 1860”
- Section 8 Company Registration under “The Companies Act, 2013”
Difference Between – Trust, Society & Section 8 Company
- Meaning: Trust is an agreement between parties, whereby one party holds the ownership of property for the benefit of another party.Society is a collection of persons, who come together for initiating any literary, scientific or charitable purpose.
Section 8 is a company formed with social or charitable object which intends to apply its profits for promoting such purpose.
- NGO Registration: As NGO/ NPO, only Section 8 enjoys the privileges of a limited company without using the words “Limited” or “Private Limited” in its name.
- Governing Law: In case of Trust, the Indian Trusts Act, 1882 governs Private Trusts, while general law governs Public Trusts except states like Gujarat, Maharashtra where they have separate public trust acts.In case of Society, the Societies Registration Act, 1860 governs societies.
In case of Section 8 Company, the Companies Act, 2013 governs section 8 companies.
- Registering Authority: In case of Trust, Deputy Registrar of the relevant area is a registering authority.In case of Society, Registrar or Deputy Registrar of Societies of the State is a registering authority.
In case of Section 8 Company, Registrar of Companies (ROC) or Regional Director is a registering authority.
- Minimum Members: In case of Trust, minimum 2 trustees are required to form trust.In case of Society, minimum 7 members are required to form society.
In case of Section 8 Company, minimum 2 directors and minimum 2 shareholders are required. Same person can be appointed as director and shareholder in a company.
- Geographical Area Of Operation: In case of Trust, whole IndiaIn case of society, state wise, but can operate in whole India after becoming National Level Society.
In case of Section 8 Company, whole India.
- Supporting Formation Document: In case of Trust, Trust DeedIn case of Society, Memorandum of Association and Rules & Regulations
In case of Section 8 Company, Memorandum of Association and Articles of Association.
- Legal Title Of Property: In case of Trust, title of the property vests in the hands of trustees.In case of Society, title of the property held in the name of the society.
In case of Section 8 Company, title of the property held on the name of the company.
- Cost Factor: In case of Trust, cost is low.In case of Society, cost is medium.
In case of Section 8 Company cost is bit high.
- Preference In Case Of Grant Of Subsidy By The Government: In case of Trust, not much preferred.In case of Society, not much preferred.
In case of Section 8 Company, highly preferred.
- Tax Exemption Under The Income Tax Act, 1961: In case of Trust, yes, allowed.In case of Society, yes, allowed.
In case of Section 8 Company, yes, allowed.
- Preference In Case Of Foreign Contribution Regulation Act (FCRA) Registration: In case of Trust, not much preferred.In case of Society, not much preferred.
In case of Section 8 company, mostly preferred.
- Transparency In Working: In case of Trust, not much.In case of Society, not much.
In case of Section 8 Company, high, because of online availability.
- Annual Compliance Requirement: In case of Trust, few annual compliances are required depending upon the type of trust such as Private trust or Public Trust.In case of Society, annual filing of list of names, addresses and occupations of members of the Managing Committee of the society is mandatory with the Registrar of Societies.
In case of Section 8 Company, annual compliances of filing of accounts and filing of annual return are mandatory with the Registrar of Companies (ROC).
NGO Registration Advisories
Form A Trust:
- If more than one family member is involved in running the business.
- If you want better privacy in business and flexibility in sharing among members.
- If you want trustees to hold office for a lifetime without any elections.
Form A Society:
- If you want an elected body for the management of affairs of the business.
- If members need an option to quit if they wish.
- If members want easy winding up of the business.
Form A Section 8 Company:
- If you want to undertake wide range of activities.
- If you want a recognized legal structure of a company without any minimum Capital requirement.
- If you want reliability and credibility for your organization, as the Central Government licenses it.
Benefits of NGO Registration as Section 8 Company
- Tax ExemptionsBy NGO registration as Section 8 Company, it obtains a special status. It enjoys tax exemptions, as subscribers and doners can claim an exemption for the contribution made. Apart from tax exemption, the company is also exempted from the applicability of various compliances.
- Separate IdentificationBeing registered as a company, it obtains an independent status apart from its members. It can possess and hold the assets/property and liabilities on its name irrespective of the relationship with the members or contributors.
- Restricted LiabilityA company registered under Section 8 guarantees limited liability to its members. The responsibilities of the members are limited only to the extent of the capital contributed.
- No Corporate NameAlthough the company experiences the benefit of the corporate entity, it is not labelled as the corporate entity. The company cannot add the suffix “Private Limited” or “Limited” after its title. This is implemented so that third parties offer their attention to the company’s purpose and not to its status assuming it is a profit-making organisation.
Minimum Requirements to begin as Section 8 company
- At least two shareholders;
- At least two Directors (Directors and shareholders can be the same person);
- At least one Director shall be resident in India;
- No Minimum capital required;
- ‘Income-tax PAN’ is a necessity in case of Indian nationals;
- Copy of Identity Proof (Voter ID/Aadhar Card/Driving License/Passport) Passport is a mandatory requirement for identification in case of international residents;
- Proof of Residency;
- Registered office proof (no-objection certificate from the owner of the premises);
- Memorandum & Articles of Association of the Company;
- A declaration approving the application by a Company Secretary in Practice on the Non – Judicial stamp document of prescribed value;
- List of ‘names’, ‘descriptions’, ‘addresses’ & ‘occupation’ of the promoters as well as of the Board Members;
- Details of assets and obligations of the company as on date with the utilisation;
- An estimate of future annual income;
- A statement providing a brief description of work;
- A statement specifying briefly the territories in which the request is made;
- A declaration in prescribed form on non – judicial stamp paper by each person making an application;
- A letter of authorisation;
- Payment of fee.
Looks like too much effort? The whole process will be carried out online.
Procedure for NGO Registration – Trust Registration
Procedure for NGO Registration – Society Registration
Procedure for NGO Registration – Section 8 Company Registration
Issuance of 80G Certificate
80G Certificate is provided to a non-profit organization or non-governmental organizations (NGO) by the ‘Income Tax Department’. The aim behind the 80G certificate is to promote donors to donate more charitable funds to such organizations. The prime advantage is that by donating to NGO, donor avails 50% tax exemption on his charity. Donor is permitted to deduct their donations from their Gross Total Income.
Issuance of 12A Registration
Significantly, through 12A registration, NGOs get an tax exemption. NGOs are primarily created for rendering charitable purpose. However, they do have revenues and would be required to pay the fee as per standard rates if not registered under section 12A of the Income Tax Act.
Income Tax on Charitable Institutions / NGOs
Trust is required to utilise at least 85% of its revenue to charitable or religious subjects in India. Moreover, income employed for purchase of ‘capital asset’, ‘repayment of the loan for the purchase of capital asset’, ‘revenue expenditure’ and contribution to trust registered under Section 12AA and Section 10(23C) shall also be treated as implemented for charitable purposes and hence exempted from tax.
Religious ideas are necessarily connected with religion and a matter of trust with individuals or associations. It includes the promotion, support or propagation of religion and its beliefs. The immunity under Section 11 is accessible to public religious trusts only and not to trust for private spiritual purposes.
What is FCRA Registration?
FCRA stands for Foreign Contribution Regulation Act that governs and regulated foreign contributions occurring within India. FCRA Registration Certificate issued by the government authority is a mandatory obligation to acquire or receive any foreign contribution or foreign grants by any registered trust, society, institution, association, and NGOs.
The primary objective of FCRA registration is to legalize the receipt of any foreign contribution by domestic entities and for ensuring the proper utilization of such funds for the specified objective.
FCRA Registration
The minimum requirement for FCRA Registration
Following is the key requirement for applying FCRA Registration depending upon the type of registration such as:
A) Obligations For Proper FCRA Registration:
- The applicant shall be a registered entity and must be operating for a minimum of 5 years.
- Applicant entity must have spent at least INR 10 Lakhs in the previous three years for the attainment of its main objects for which the entity was registered excluding administrative expenses made.
- The last three years financial statement audited by a qualified chartered accountant shall be submitted by an applicant.
B) The Obligation For Prior Permission FCRA Registration:
- If the newly registered entity is willing to receive a foreign contribution or foreign grants shall apply for prior permission
- During applying for the same, it shall give the details relating to a foreign owner who is contributing the fund
- The fund received shall be utilized only for the specified purpose
Eligibility for applying for FCRA Registration
Following are the eligible entities for applying for FCRA registration:
- Trust registered under the Indian Trust Act
- Societies registered under Indian Society Registration Act
- Section-8 companies incorporated under the Companies Act
- The applicant must be registered as NPO set up with charitable objectives for serving the society by promoting health, education, economic development, promotion of art, culture, religion, sports, etc
- The entity must not be prohibited in any form by the provision of the Foreign Contribution (Regulation) Act.
- Foreign contribution accepted shall not endanger the life or safety of any individual or shall not lead to any offence.
Non-Eligible entities for applying for FCRA Registration
Following entities are not allowed to be granted FCRA registration:
- The applicant is fictitious or Benami.
- Applicant against whom prosecution is conducted for indulging in any unfair activity
- An applicant who has been convicted or prosecuted for any communal tension made in any area of specified district or any part of the country
- Is engaged in any violent activities
- Has utilized foreign contribution for its personal use
- Any entity de-bared for accepting any foreign receipt or foreign grant under any provision of law.
- Any such acceptance of foreign grant that affects prejudicially:• The sovereignty of India
• Public Interest
• Relationship with any state.
FCRA Registration Process
Following is the step by step online process of applying for FCRA license:
- Apply online through filling online form FC-3 available on the official website of FCRA https://fcraonline.nic.in
- Click option “FCRA Online Forms” for registration under FCRA.
- The applicant will be redirected to the next page for several options such as application for seeking the permission of the central government, foreign receipt intimation, application for FCRA registration, etc.
- Select “Apply Online” option under Application for FCRA Registration (FC-3)
- New user needs to sign up for completing the application form
- Fill the form and complete all the mandatory details
- Once the form is completed, click the save button after which “User id” will be generated automatically.
- Then applicant needs to sign up using the login credential generated automatically on the above procedure.
- Continue to start step by step registration.
- Once the entire form is completed, the applicant needs to scan and attach the documents in PDF Format.
- Complete the online registration by making online payment through online payment gateways.
Documents: Following documents shall be annexed with the online application:
- Self-certified copy of incorporation certificate, trust deed, or any other certificate hold by such entity
- PAN of NGO
- Copy of MOA & AOA of associations and institutions
- Signature of the chief judiciary in JPG format
- A detailed report on activities of the preceding three years.
- Audited copy of financial statement, P&L account, Income-Expenditure details, and cash flow statement of the preceding three years.
- CTC of the resolution passed by a governing body authorized by NGO
- Certificate obtained under section 80G and 12A of Income Tax. Section 80G and 12A provide tax exemption to NGOs under the Income-tax Act.
Renewal of FCRA License
FCRA registration remains valid for five years, which can be renewed by applying for the renewal. An entity shall apply for renewal within the following timelines:
- At least six months before the date when the license is getting lapsed.
- At least 12 months before the date when registration lapses, in cases the entity is operating on a multi-year project.
Cancellation/Suspension of FCRA Registration
In case authorities are of the view that registered entity is not operating as per the provisions of law and its license needs to be cancelled, such authority can do so by giving the notice to the concerned entity. Following are the few reasons that can be considered while cancelling the license:
- NGO fails to comply with the provisions of the Foreign Contribution (Regulation) Act.
- If the entity fails to submit an annual return within the due date
- In case any inquiry is made for any allegation imposed against such organization for any wrongdoing in operations, and such allegation proved to be true
- Contribution received is not utilized for the attainment of the main object of entity neither for achieving the purpose stated during FCRA registration application