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
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 India
In 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 Deed
In 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 Exemptions
By 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 Identification
Being 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 Liability
A 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 Name
Although 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.
Influence of GST on Training Memoranda, Resorts, and Functions Accompanied by a Charitable Trust
If a charitable trust is attending training programs, yoga camps, or other programs that are not free for members/participants, it will be regarded as a commercial activity and therefore will be liable for GST. Even the contribution obtained for such an event will be responsible for taxation under GST.
- Services presented by way of training or coaching in productive activities relating to 'arts and culture', or sports by a charitable entity will be excluded/ exempted from GST.
- If the trust is running under Charitable pursuit of GST, such activities will be acknowledged as charitable activities, and income from such supplies will be wholly exempt from GST.
Frequently Asked Questions
An NGO gets eligible for Government funding after three years. However, in some exceptional cases, an NGO can get Government funding even after one year if its project gets approved.
CSR stands for ''Corporate Social Responsibility''. These are voluntary activities to be done by a company to operate in an economic, social and environmentally sustainable manner.
No, you can start an NGO in a leased property as well. You just need a No Objection Certificate (NOC) from the owner of the leased property.
There is a special provision as per which if donor donate to those NGOs having 35ac registration, they get 100% tax rebate.