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CA SANDEEP KHANDELWAL
There are several types of NGOs (Non-Governmental Organizations) in India, which can be broadly classified into the following categories:
Type of Trusts: –
- Oral and written trust
- Simple and special trust
- Express and implied trust
- Constructive trust
- Resulting trust
- Executed and executory trust
- Revocable and irrevocable trust
- Public and private trust
- Public cum private trust
- Specific and Discretionary trust
- Religious and Charitable trust
Essential Elements of trust: – The essential elements of a trust are as follows:
Intention: The settlor (person creating the trust) must have the intention to create a trust. This means that the settlor must have a clear intention to create a legal obligation on the trustee to hold and manage the trust property for the benefit of the beneficiaries.
Trust Property: The trust property is the asset or assets that are transferred to the trustee by the settlor. The trust property must be identifiable and must be capable of being managed by the trustee.
Trustee: The trustee is the person or persons who are responsible for managing the trust property for the benefit of the beneficiaries. The trustee must be capable of holding and managing the trust property, and must be legally competent.
Beneficiaries: The beneficiaries are the persons who are entitled to benefit from the trust property. The beneficiaries must be clearly identified in the trust deed.
Trust purpose: The trust purpose is the reason for which the trust is created. The purpose of the trust must be legal and must not be against public policy.
Trust Deed: A trust deed is a legal document that defines the terms and conditions of a trust. It is an essential document that establishes a trust and provides a framework for how the trust should be administered. According to Section 5 of the Indian Trusts Act, “No trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee.”
Registration: The trust must be registered under the Indian Trusts Act, 1882, with the registrar of the area in which the trust is located.
Essential elements of a charitable society: The essential elements of a charitable society in India includes:
A clear charitable purpose: The society must have a clear charitable purpose, such as the promotion of education, relief of poverty, advancement of religion, or any other purpose that is beneficial to the public.
Non-profit orientation: The society must be a non-profit organization, and the income generated by it should be used solely for its charitable purposes. No part of the income or property can be distributed to the members of the society.
Registration with the appropriate authority: The society must be registered under the Societies Registration Act, 1860, or any other relevant law in India. Registration provides legal recognition to the society and enables it to function as a legal entity.
Governing body: The society must have a governing body or a board of trustees that manages its affairs. The governing body must be elected or appointed in accordance with the rules of the society and should be accountable for its actions.
Regular reporting and maintenance of accounts: The society must maintain proper books of accounts and regularly report its activities and financial statements to the appropriate authorities. This ensures transparency and accountability in the management of the society.
Compliance with legal and regulatory requirements: The society must comply with all legal and regulatory requirements, including tax laws, labor laws, and other applicable laws and regulations.
Public benefit: The activities of the society must be for the benefit of the public at large, and not restricted to any particular community or group.
Essential elements of a Section 8 Company in India include:
Objectives: A Section 8 company must have a clearly defined charitable or not-for-profit objective, such as the promotion of science, art, commerce, education, research, social welfare, religion, charity, protection of the environment, or any other similar objective.
Non-profit orientation: A Section 8 company must be a non-profit organization, and the income generated by it should be used solely for its charitable or not-for-profit objectives. No part of the income or property can be distributed to the members of the company.
Memorandum of Association (MOA): The MOA of a Section 8 company must state its objectives, and it should also include clauses specifying that the company is a not-for-profit entity, and that its profits will be used solely for its objectives.
Articles of Association (AOA): The AOA of a Section 8 company should specify the rules and regulations governing the company’s operations, such as the appointment and powers of directors, the conduct of meetings, and other relevant matters.
Registration: A Section 8 company must be registered with the Registrar of Companies (ROC) under the Companies Act, 2013. The registration process includes the submission of various documents such as the MOA, AOA, and other relevant documents.
Minimum number of directors: A Section 8 company must have a minimum of two directors. At least one director should be an Indian resident.
Statutory compliances: A Section 8 company must comply with various legal and regulatory requirements, such as the filing of annual returns and financial statements with the ROC, conducting annual general meetings, and other relevant compliances.
In India, non-governmental organizations (NGOs) are required to pay taxes if they earn any income or generate revenue. NGOs that are registered as trusts and engage in activities that are considered “charitable purposes” may be eligible for income tax exemptions. However, they may still be required to pay other taxes such as GST and comply with the provisions of the FCRA. However, the tax treatment of NGOs in India depends on their legal status and activities. Here are some key points to keep in mind:
Legal status: NGOs can be registered as trusts, societies, or companies under Section 8 of the Companies Act, 2013. The tax treatment of NGOs may vary depending on their legal status.
Income tax: NGOs that are registered as trusts are eligible for tax exemptions under Section 11 of the Income Tax Act, 1961, if their activities fall under the definition of “charitable purposes”. The exemption applies to income earned from property held under trust for charitable purposes, as well as income from voluntary contributions.
Goods and Services Tax (GST): NGOs that provide goods or services in exchange for money are required to register for GST and pay GST on the value of their taxable supplies. However, small NGOs with an annual turnover of less than Rs. 20 lakhs (Rs. 10 lakhs for some states) are exempt from GST registration.
Foreign Contributions Regulation Act (FCRA): NGOs that receive foreign contributions are required to comply with the provisions of the FCRA, which regulates the acceptance and utilization of foreign contributions by NGOs in India. Such NGOs are also required to file annual returns with the Ministry of Home Affairs.
Other taxes: NGOs may be required to pay other taxes such as property tax, professional tax, and withholding tax on payments made to vendors, employees, or contractors.
Comparison between Trust- Society -U/s 25 Company.
|Features||Trust||Societies||Section 8 Company|
|Object / Purpose||Charitable, Religious, Welfare of the member, Families, Debenture redemption trust, Employee Welfare trust. Ex. PF Trust, Superannuation Trust etc.||Charitable, literacy, Health, Scientific and any social purpose.||Non-Profit activities|
|Relevant Legislation||Indian Trusts Act,1866||Societies Registration Act,1860||Companies Act, 2013|
|No. of person||Minimum 3Members||Minimum 7 Members||Minimum 2 Members|
|Penalties||Lesser penalties||Lesser penalties||Higher Penalties|
|Set up and running Cost||Nominal||Nominal||Comparatively more|
|Charter||Trust Deed||By laws and Rules & Regulation||Memorandum of Association and Article of Association|
How Can MNRS Help?
We can provide a variety of NGOs management services and have specialisation in providing these services to NGOs. NGOs can also consider hiring engaging us as retainer for fixed retainer fee to provide these services, depending on their needs and resources. NGOs (Non-Governmental Organizations) in India can avail of a variety of management services from MNRS, including:
- Advisory services: Before resorting to any particular type of constitution, it is absolutely necessary to understand peculiar need for setting up of the NGO and opting for constitution that is most suitable to meet the object of the NGO.
- Incorporation services: Incorporation of a Trust, Society, Company requires a deep understanding of the NGO functioning and requires services of an expert for drafting applicable documents such as Trust Deed for the Trust, Memorandum of Articles for Society, Memorandum and Articles of Association in case of Section 8 Company.
- Legal and compliance services: NGOs need to comply with various laws and regulations in India, including registration, tax compliance, and reporting requirements. Legal and compliance services can help NGOs ensure that they are meeting all the necessary legal and regulatory requirements.
- Financial management services: NGOs need to manage their finances effectively to ensure that they can operate sustainably and achieve their goals. Financial management services can help NGOs with budgeting, accounting, and financial reporting.
- Fundraising services: NGOs often rely on donations and grants to fund their operations. Fundraising services can help NGOs identify potential donors and develop fundraising strategies to maximize donations.
- Human resource management services: NGOs need to manage their staff effectively to ensure that they can deliver their programs and services efficiently. Human resource management services can help NGOs with recruiting, training, and managing staff.
- Program management services: NGOs need to design and implement programs that are effective in achieving their goals. Program management services can help NGOs with program design, planning, implementation, and monitoring and evaluation.