Management of non profit organisation module 4

Management of Non Profit Organization - MODULE 4
UMA K, Assistant Professor. Page 1
Module 4: NPOs in India: History and current status, Types, Legislations related to NGOs,
National Policy on Voluntary Sector.
NPOs in India

History and current status,

Types,

Legislations related to NGOs,

National Policy on Voluntary Sector.
Introduction:
A Non-Governmental organization is a legal entity created by natural or lawful person
which operates independently from all government which has no government status. NGO
organizations operate with their own fund and with the funds raised through its volunteers or
through donation for a social cause. Sometimes the Government use to fund the NGO
organization totally or partially in project based or in object and social activity based.
To monitor, to assist NGO our Indian Government allocated the Social welfare Ministry
which supports to do several welfare activities as per the need and desire of NGO organization.
History and Current Status:
The constitution of India is the source of Indian NGO organization which is to protect all kinds
of human rights. NGOs shape their objectives along with these rights and duties laid out by the
Indian constitution which spell the Fundamental rights such as equality before the law and
freedom from discrimination on the grounds of caste, religion, gender, birth place, race, and
speech and expression freedom, rights to peaceful assembly without arms to form unions or
associations to move, to settle, to reside any part of India and for the protection against life
deprivation, conscience freedom, and religious practice, profession, and propagation and to
preserve the culture, to protect national environment and to have compassion for living creatures.
The pronouncing style of NGO varies countrywide. In United States the same NGO
principle organization is called as nonprofit organization. In some areas the same style of NGO
organizations are called as Social benefit organization or as Civil Society organization. Only
there are certain operational difference are there as per the law.

The activities of the NGOs are of different types. They are Operational NGO, Campaigning
NGO, Operational and Campaigning NGO.
 Operational NGOs localize their activity to make Small level changes directly through
projects.
 Campaigning NGOs are making Large level changes promoted indirectly through
influence of political system which use to have
Effective group of professional members who use to deal with human rights, Women's
welfare and Children welfare.
NGO organization acts in various methods to maintain a healthy relationship with public
to meet their goals. Foundations and charities use public relationship for fundraising, and to
employ standard techniques with Governments.
The first-ever exercise by the CBI to map registered NGOs has disclosed that India has at
least 31 lakh NGOs — more than double the number of schools in the country, 250 times the
number of government hospitals, one NGO for 400 people as against one policeman for 709
people.
These statistics, indicating the relative status of education and healthcare infrastructure
apart from policing, have come to light after the CBI collated information from all states and
Union Territories to list NGOs registered under the Societies Registration Act. The CBI has been
directed by the Supreme Court to collect information about NGOs and inform whether these
NGOs have filed balance sheets, including income-expenditure statements, to ascertain
compliance with accountability norms.
According to the affidavit filed by the CBI in the Supreme Court Friday, there are a total
of around 31 lakh NGOs in 26 states. Karnataka, Odisha and Telangana are still to adduce
information about the number of NGOs, so the total number of NGOs will be more than 31 lakh.
Besides, more than 82,000 NGOs are registered in seven Union Territories. The total number of
schools in the country is around 15 lakh, as per the data compiled by the Planning Commission
of India in 2011. The commission had calculated the number of schools, classifying them as
primary, upper primary, secondary, lower secondary and higher secondary. The number inheres

the peril of duplication since one school building may have primary as well as upper primary
schooling— More than one level of education in the same building.
In March 2011, total number of government hospitals in the country was 11,993, with
7.84 lakh beds. Of these, 7,347 hospitals were in rural areas with 1.60 lakh beds and 4,146
hospitals in urban areas with 6.18 lakh beds. The number of NGOs also exceeds the number of
policemen in the country.
According to the National Crime Records Bureau data in 2014, there were 17.3 lakh
policemen across the country, as against a sanctioned India has 31 lakh NGOs, twice the
number of schools, 250 times number of govt hospitals strength of 22 lakh. This accounts for
one policeman for 709 people. Add 13 lakh armed forces personnel to the number of
policemen, and the total number of NGOs will be equal to the combined strength of both.
Among the states, Uttar Pradesh tops the list with more than 5.48 lakh NGOs, followed
by Maharashtra which has 5.18 lakh NGOs. Kerala comes third with 3.7 lakh NGOs, followed
by West Bengal with 2.34 lakh NGOs. Of the 82,250 NGOs in the Union Territories, Delhi alone
has more than 76,000 NGOs. Less than 10 per cent of the NGOs have complied with the
requirement of submitting balance sheets and income-expenditure statements with the Registrar
of Societies. Of around 30 lakh NGOs, 2.9 lakh have submitted financial statements.
In Kerala, none of the 3.7 lakh NGOs has filed details since the state law does not
mandate it. In Maharashtra and West Bengal, only around 7 per cent of NGOs have been filing
such details. Other states also had poor records. The CBI has told the court it will complete its
exercise in the next two months after Karnataka, Odisha and Telangana also furnish the requisite
data. Next week, the court will take up the PIL filed by advocate M L Sharma who has sought a
CBI inquiry into affairs of all the NGOs lacking accountability.
Formation of NGO:
Generally NGO organizations have focus on either communal or environmental. NGOs
address various issues of the society both national and international. But During the formation of
the NGO organization in India, there are certain rules as per their object to operate. Also our
Indian government have framed special rules to establish NGO ( non governmental organization
) to identify the needs of the society and its area of operation with the objects which are related

to health, HIV/AIDS, Maternal Mortality, Polio, food, shelter, education, civil liberty and
poverty alleviation among others.
As the NGO organizations are operating as a legal entity, Indian government encourages
such nonprofit organization to make them eligible with specific certifications, tax exemptions,
additional power of importing funds through special permission from Indian Government and
special project implementations through Social welfare ministry of India.
There are various types of NGO (non-governmental organizations) and NPO ( non-profit
organization ) which shall be classified by orientation, Co-operation and Structure.
The NGO and NPO organizational setup has alternative names like independent sector,
volunteer sector, civil society, grassroots organizations, trans-national social movement
organizations, private voluntary organizations, self-help organizations and non-state actors.
All types of NGOs and NPOs are operating for causes like social, economical,
environmental, human rights and other valuable reasons. Now let us see the types.
NGO types by orientation:
1. Charitable oriented NGOs,
2. Service Oriented NGOs,
3. Participatory Oriented NGOs,
4. Empowerment Oriented NGOs.
1. Charitable Orientation: often involves a top-down paternalistic effort with little
participation by the "beneficiaries". It includes NGOs/NPOs with activities directed toward
meeting the needs of the poor - distribution of food, clothing or medicine; provision of housing,
transport, schools etc. Such NGOs/NPOs may also undertake relief activities during a natural
or man-made disaster.
2. Service Orientation: includes NGOs/NPOs with activities such as the provision of health,
family planning or education services in which the programme is designed by the NGOs/NPOs
and people are expected to participate in its implementation and in receiving the service.
3. Participatory Orientation is characterized by self-help projects where local people are
involved particularly in the implementation of a project by contributing cash, tools, land,
materials, labour etc. In the classical community development project, participation begins with

the need definition and continues into the planning and implementation stages. Cooperatives
often have a participatory orientation.
4. Empowering Orientation: is where the aim is to help poor people develop a clearer
understanding of the social, political and economic factors affecting their lives, and to
strengthen their awareness of their own potential power to control their lives. Sometimes, these
groups develop spontaneously around a problem or an issue, at other times outside workers
from NGOs plays a facilitating role in their development. In any case, there is maximum
involvement of the people with NGOs acting as facilitators.
NGO types by Co-operation levels:
1. Communal based NGOs,
2. City Wide NGOs,
3. Nation wide NGOs,
4. International NGOs.
1. Community-based Organizations (CBOs): arise out of people's own initiatives. These
can include sports clubs, women's organizations, neighborhood organizations, religious or
educational organizations. There are a large variety of these, some supported by NGOs,
national or international NGOs, or bilateral or international agencies, and others independent
of outside help. Some are devoted to rising the consciousness of the urban poor or helping
them to understand their rights in gaining access to needed services while others are
involved in providing such services.
2. Citywide Organizations: include organizations such as the Rotary or Lion's Club,
chambers of commerce and industry, coalitions of business, ethnic or educational groups and
associations of community organizations. Some exist for other purposes, and become
involved in helping the poor as one of many activities, while others are created for the
specific purpose of helping the poor.
3. National NGOs: include organizations such as the Red Cross, YMCAs/YWCAs,
professional organizations etc. Some of these have state and city branches and assist local
NGOs.
4. International NGOs: range from secular agencies such as ReddaBarna and Save the
Children organizations, OXFAM, CARE, Ford and Rockefeller Foundations to religiously

motivated groups. Their activities vary from mainly funding local NGOs, institutions and
projects, to implementing the projects themselves.
NGO Structural types in India:
1. Trust
2. Society
3. Nonprofit Companies. (Charitable Foundations including private & public)
The structure of the NGOs and NPOs in India vary by its nature and bye-laws which
represents the objects of the organization. Bye-law or memorandum will be created during
the establishment of the above structural types of NGOs. The structural types of NGOs vary
by the body of the organization like minimum number of members, maximum number of
members, filing of accounts, operation of organization, area of operation, nature of
organization like revocable or non revocable and several other structural elements.
Trust:
The public charitable trust is a possible form of nonprofit entity in India. Typically,
public charitable trusts can be established for a number of purposes, including the relief of
poverty, education, medical relief, provision of facilities for recreation, and any other object
of general public utility.
Indian public trusts are generally irrevocable.
No national law (except the broad principles of the India Trusts Act 1882, which
governs private trusts) governs public charitable trusts in India, although many states
(particularly like Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh) have Public Trusts
Acts. Public charitable trusts, as distinguished from private trusts, are designed to benefit
members of an uncertain and fluctuating class. In determining whether a trust is public or
private, the key question is whether the class to be benefited constitutes a substantial
segment of the public. There is no central law governing public charitable trusts, although
most states have "Public Trusts Acts."
Typically, a public charitable trust must register with the office of the Charity
Commissioner having jurisdiction over the trust (generally the Charity Commissioner of the
state in which the trustees register the trust) in order to be eligible to apply for tax-
exemption.
In general, trusts may register for one or more of the following purposes:

 Relief of poverty or distress
 Education /
 Medical relief /
 Provision for facilities for recreation or other leisure -time occupation
(including assistance for such provision),
 If the facilities are provided in the interest of social welfare and public benefit.
Requirements:
1) At least two trustees are required to register a public charitable trust.
In general, Indian citizens serve as trustees, although there is no prohibition against non-
natural legal persons or foreigners serving in this capacity. Legal title of the property of a
public charitable trust vests in the trustees. Trustees of a public charitable trust may not,
however, in any way use trust property or their position for their own interest or private
advantage. Trustees may not enter into agreements in which they may have a personal
interest that conflicts or may possibly conflict with the interests of the beneficiaries of the
trust (whose interests the trustees are bound to protect). Trustees may not delegate any of
their duties, functions or powers to a co-trustee or any other person, except that trustees may
delegate ministerial acts. In essence, trustees may not delegate authority with respect to
duties requiring the exercise of discretion.
Trustees of religious or charitable trusts are charged with discharging their duties with
the degree of care that an ordinarily prudent person would exercise with respect to his
personal property. This is a slight variant on the duty of care applicable in many U.S.
jurisdictions, which requires directors and officers to act with the degree of diligence, care
and skill that ordinarily prudent persons would exercise under similar circumstances in like
positions (as opposed to in the management of their personal affairs).
Public charitable trusts are highly regulated. For instance, in many states, the Charity
Commissioner must approve purchases or sales of immovable property by a trust or taking a
loan in advance. Indian public charitable trusts are generally irrevocable. If a trust becomes
inactive due to the negligence of its trustees, the Charity Commissioner may take steps to
revive the trust. Furthermore, if it becomes too difficult to carry out the objects of a trust, the
doctrine of cypress, meaning "as near as possible," may be applied to change the objects of
the trust.

NGO REGISTRATION IN INDIA
A Non Governmental Organization is perceived to be a body of individuals or an association of
persons. An association of persons with non-profit motive may be registered under any of the
following Indian Acts:
1. As A Charitable Trust. : The public charitable trust is a potential form of not-for-profit entity
in India. Normally, public charitable trusts can be established for a number of purposes,
including the relief of poverty, education, medical relief, provision of facilities for recreation,
and any other object of general public utility. Indian public trusts are usually irrevocable. No
national law governs public charitable trusts in India, although many states (particularly
Maharashtra, Rajasthan, Gujarat and Madhya Pradesh) have Public Trusts Acts.
A Trust may be created by any language sufficient to know the intention and no technical
words are compulsory. Generally, A trust deed incorporates the following:
The name(s) of the author(s)/settler(s) of the trust.
The name(s) of the trustee(s).
The name(s) of the beneficiary/ies or whether it shall be the public at large.
The name by which the trust shall be known.
The name where its principal and/or other offices shall be situate.
The property that shall devolve upon the trustee(s) under the trust for the benefit of the
beneficiary/ies
An intention to divest the trust property upon the trustee(s).
The objects of the trust.
The procedure for appointment, removal or replacement of a trustee. Their rights, duties and
powers etc.
The rights and duties of the beneficiary/ies;
The mode and method of determination of the trust.
A trust of immoveable property can be created by two ways, one by a non-testamentary
document and another by a testamentary document such as a will. In other words, a trust
regarding an immoveable property cannot be created orally but it must be by a document duly
registered. A trust of a moveable property can be created either by a document or delivering the
property to the trustee with necessary oral directions. If the directions are given in writing it
would amount to a trust by a non-testamentary document which may or may not be registered.

A Trust can be created by any person competent to contract or even by a manner with the
authority of a competent court and respect of any property which is transferable and over which
the author of the trust has dispossessing power.
A Trust may be private and public. When the purpose of the trust is to benefit an
individual or a group of individuals or his or their descendants for any legal person and who is
capable of holding property, it is a private trust. When the purpose of the trust is to the benefit
the public or any section of the public, it is public trust.
A trustee can be any person that is, an individual or a corporate body or a corporate sole,
capable of holding property and competent to contract and he must accept the trust.
2. As A Society Registered Under The Societies Registration Act. : Societies are membership
organizations, which may be registered for charitable purposes. Societies are generally managed
by a governing council or a managing committee. Societies are governed by the Societies
Registration Act 1860, which has been adapted by different states.
NGO or Society: There is two types of Society and NGO's in India - State label and All India
label. Before registering the NGO or Society you should know about the difference between both
of them.
State Label: To register the Society or NGO at State Label. You will have to provide the ID
proof of Seven Member's (DL | Copy of Passport | Voter ID). You will have to provide Two
Members (President - Treasurer or Secretary - Treasurer) form Delhi and another Five Member's
can be from any states. Two set of MOA of NGO or Society.
All India Label: To register the Society or NGO at all India Label. You will have to provide the
ID proof of Nine Member's (DL | Copy of Passport | Voter ID). You will have to provide Two
Members (President - Treasurer or Secretary - Treasurer) form Delhi and another Seven
Member's from seven different states. Two set of MOA of NGO or Society.
3. As A Company Licensed Under Section 25 Of The Companies Act. : A section 25
company is a company with limited liability that may be formed for "promoting commerce,
science, art, religion, charity or any other useful object," provided that no profits, if any, or other
income derived through promoting the company's objects may be distributed in any form to its
members. The Indian Companies Act, 1956, which principally governs for-profit entities,
permits certain companies to obtain not-for-profit status as "section 25 companies." A section 25
company may be formed for "promoting commerce, art, science, religion, charity or any other

useful object." A section 25 company must apply its profits, if any, or other income to the
promotion of its objects, and may not pay a dividend to its members. At least three individuals
are required to form a section 25 company. The founders or promoters of a section 25 company
must submit application materials to the Regional Director of the Company Law Board. The
application must include copies of the memorandum and articles of association of the proposed
company, as well as a number of other documents, including a statement of assets and a brief
description of the work proposed to be done upon registration.
The internal governance of a section 25 company is similar to that of a society. It
generally has members and is governed by directors or a managing committee or a governing
council elected by its members. Like a society (but unlike a trust), a section 25 company may be
dissolved. Upon dissolution and after settlement of all debts and liabilities, the funds and
property of the company may not be distributed among the members of the company. Rather, the
remaining funds and property must be given or transferred to some other section 25 company,
preferably one having similar objects as the dissolved entity.
Public Benefit Status
To be eligible for tax-exemption under the Income Tax Act, 1961, a not-for-profit entity must be
organized for religious or charitable purposes. Charitable purposes include "relief of the poor,
education, medical relief and the advancement of any other object of general public utility."
Public charitable trusts, by definition, must be created for the benefit of the public.
Societies likewise may be registered for charitable purposes. Section 25 companies are formed
for the limited purposes of "promoting commerce, art, science, religion, charity or any other
useful object."
Objectives of A Non-Profit Company: -
Objectives of a non-profit company can be including promotion of commerce, art, science,
religion, charity or any other useful object. Profits are applied for promoting only the objects of
the company and no dividend is paid to its members. (Section 25 (1) (a) and (b) of the
Companies Act, 1956). A non-profit company may be public or private. If the non-profit
company is a private company, minimum of only two members are required to form it. However,
if the non-profit from is for a public purpose, then a minimum of seven are needed. A 'Section 25
company' and is eligible for certain exemption from provisions of law and concessional rate of
fees etc.

Steps for Establishing a Section 25 Company
Application for a name
Memorandum and Articles
License under section 25
Registration with ROC
Non-profit organizations in India (a) exist separately of the state; (b) are self-governed by
a board of trustees or 'managing committee'/ governing council, comprising individuals who
generally serve in a fiduciary capacity; (c) produce benefits for others, usually outside the
membership of the organization; and (d), are 'non-profit-making', in as much as they are
prohibited from distributing a monetary residual to their own members.
Section 2(15) of the Income Tax Act which is applicable uniformly throughout the
Republic of India defines 'charitable purpose' to include 'relief of the poor, education, medical
relief and the advancement of any other object of general public utility'. A purpose that relates
completely to worship is not considered as charitable. Therefore, in ascertaining whether a
purpose is private or public, one has to see if the class to be benefited, or from which the
beneficiaries are to be selected, constitute a substantial body of the public.
Whether a trust, section-25 company or society, the Income Tax Act gives all categories
equal treatment, in terms of exempting their income and granting 80G certificates, whereby
donors to non-profit organizations may claim a repayment against donations made
5. Ngo Formation Registration Procedures:
We assist in NGO registration procedures of Societies and Trusts as well as in the process of
formation of memorandum of association (MOA). We guide them through the modes and
methods, procedural formalities and the process of documentation. We also counsel them
regarding the benchmark required for registration. We provide services regarding all facets of
NGO working right from registration to utilization of funds etc.
Moreover, we provide solutions regarding income tax, statutory and internal audit and
many more services are offered by us. While it is critical that a new NGO ensures that it is
properly registered with the public authorities of the country, it is of even more importance to
'register' with its target community - in terms of ensuring acceptability, building trust, chalking
out effective programmes and projects and being the harbingers of real and measurable change.
Identifying the Type of Organization and Board of Management:

Before a process of incorporating or registering an organization can be gone through, it is
necessary to first establish the type of organization and a Board of Management/ Directors or an
Advisory Board, and arrive at the organization’s vision and mission. The members of the
management, as a group, have trustee and legal responsibility for the actions and operation of the
organization. There are minimum levels of involvement required of board members in
organizational and operational management – Governance, Planning and Programme formulation
and implementation, financial management and resource development or fund raising, Human
resource and information management and Marketing and Public Relations.
A primary step in this process is to draft the bye-laws or the trust deed as the case may be
(in the case of incorporation it is called memorandum and articles of association). The type and
style of these documents will depend on whether the NGO is being set up as a society (Bye-
laws), trust (Trust Deed) or incorporated entity (often called a Sec 25 company in India because
of the section of the Indian Companies Act, 1956 under which such nonprofit corporations are
incorporated - Memorandum and Articles of Association). There are standard formats available
for adoption with any competent chartered accountant or even online on the internet. These
documents need to be approved and signed by all members of the Board before submission to the
registering authority with supporting forms and documents as required also similarly signed.
Drafting the Bye-Laws:
There is no prescribed format for bye-laws, the set of rules under which the organisation will
operate. However, they typically include such items as (a) number of members, term length,
nomination process, committees, and meetings; (b) fiscal year/accounting cycles, committees,
and officers' responsibilities; (c) methodologies, tools, and strategies, monitoring and evaluation
etc.; and (d) how to amend the bylaws themselves.
Typical bye-laws of an NGO will contain the following information:
A suitable preamble
The chosen and approved name of the Organization
The basic or primary aim and purpose of organization and any supplementary aims and
objectives
The mission statement
Membership types, conditions/qualifications of members, status, length of service, procedure
to become members, rights and obligations, termination

Management and/or Advisory board including but not restricted to the role and functions,
qualifications of board members, prescribed authority, voting rights, method of elections,
membership etc
Organization functions and structure
Raising of Finance, property and membership fees, if applicable etc.
Legal status – Trust, Society, Corporation etc.
Location and Contact address
Rules for Dissolution of NGO if needed
Method for amendments, modifications, revisions of bye-laws
The bye-laws will generally be applicable to a society. In the case of a trust, the trust
deed will also have generally the same information as stated above (bye-laws) but in addition
will also have the name of the settler who creates the trust, the trust property details and trustees
names and addresses, responsibilities etc. and some details specific to a trust functioning.
In the case of an incorporated entity (Sec. 25 company), the Memorandum and Articles of
Association will need to adhere to the format prescribed in the Indian Companies Act, 1956 and
other applicable laws in force.
Register The NGO:
The Ngo's Name: Check to see if the proposed name of the organization is already in use. Check
with the local government registry or similar agency/board to see if your proposed name is
already taken. It may be necessary to provide two or three optional names for the NGO! This
also applies to the logo of the NGO, if you plan to use one.
Registering or incorporating with the local authority: It will be necessary to incorporate the
organization within its given local government/agency by writing and filing the necessary forms.
In larger cites and towns in India, there could be and normally are separate authorities for
registrations of Societies (Registrar of Co-operative Societies, trust (Charity Commissioner) and
Companies (Registrar of Companies). However, in smaller towns and district headquarters, there
could just be one Registrar who is common for all of these duties. So you will need to find out
the local authority responsible for registration of your type of organization at your location.
In most other countries also, there are specialized departments or officers within local
governments that deal with registering an NGO (which may also be called by other different
names: non-profit organization, voluntary organization, people's organization, etc.)

There are several documents that need to be submitted, and these differ from country to
country and also on the type of organization. Information on the NGO Board, its mission
statement, purpose, programmes and projects information, staff members, funding sources etc.
will be necessary in all cases, whatever the type of organization.
A typical set of documents to be submitted to the appropriate authority for registering an NGO
includes - Memorandum of Association, Bye-laws or Trust Deed, including applicable rules and
regulations; report of annual activities, financial reports/audit reports; sources and pattern of
income and expenditure; minutes of the Board or General meeting of members that endorses the
setting up of the NGO; funding sources, letters of support etc.
Funding and Fund-Raising:
Even if a 'donation' is made to a programme or activity, it is done with an objective in
mind - sometimes simply to feel good. It is therefore critical to understand when we approach a
potential sponsor, why is he be donating. Many donations are made with the intention of availing
of the tax advantages that go with it, some companies will look for PR mileage, sometimes the
donation can be anonymous with no other motive except to help. The exercise in fund-raising
needs to asses the possible reason for each sponsor.
It is equally important to maintain professionalism, within the NGO, to build adequate
trust with the potential sponsor or donor. Transparency, accountability, communication etc.
should be an integral part of the NGO. The implementation team or the management of the
organization should be methodical in its approach. It may also be a good idea to not always
depend on external or large sources of funding, sometimes; it can come from surprising sources
in your own backyard.
Tax Laws: Tax Exemptions
A. 1. General Scheme
The Income Tax Act, 1961, which is a national all-India Act, governs tax exemption of
not-for-profit entities. Organizations may qualify for tax-exempt status if the following
conditions are met: The organization must be organized for religious or charitable purposes; The
organization must spend 85% of its income in any financial year (April 1st to March 31st) on the
objects of the organization. The organization has until 12 months following the end of the
financial year to comply with this requirement. Surplus income may be accumulated for specific
projects for a period ranging from 1 to 5 years; The funds of the organization must be deposited

as specified in section 11(5) of the Income Tax Act; No part of the income or property of the
organization may be used or applied directly or indirectly for the benefit of the founder, trustee,
relative of the founder or trustee or a person who has contributed in excess of Rs. 50,000 to the
organization in a financial year;
The organization must timely file its annual income return; and the income must be
applied or accumulated in India. However, trust income may be applied outside India to promote
international causes in which India has an interest, without being subject to income tax.
2. Corpus Donations
Corpus donations or donations to endowment are capital contributions and should not be
included to compute the total income of the organization.
3. Business Income
Under amendments to Section 11(4A) of the Income Tax Act 1961, a not-for-profit
organization is not taxed on income from a business that it operates that is incidental to the
attainment of the objects of the not-for-profit organization, provided the entity maintains separate
books and accounts with respect to the business. Furthermore, certain activities resulting in
profit, such as renting out auditoriums, are not treated as income from a business.
4. Disqualification from Exemption
The following groups are ineligible for tax exemption: all private religious trusts; and
charitable trusts or organizations created after April 1, 1962, and established for the benefit of
any particular religious community or caste. But note that a trust or organization established for
the benefit of "Scheduled Castes, backward classes, Scheduled Tribes or women and children" is
an exception; such a trust or organization is not disqualified, and its income is exempt from
taxation.
B. Value Added Tax
India subjects certain sales of goods and services to VAT, with a fairly broad range of exempt
activities. The rates range from 4 percent to 12 percent, with most goods and services taxed at 8
percent. An entity (including a public charitable trust) is liable under the VAT Act if its
sales/purchase turnover in the previous year exceeded Rs.500,000. The threshold is lower,
Rs.100,000, for importers. Several other tax laws have now merged into VAT, including Sales

Tax Act, Motor Spirit Taxation Act, Purchase Tax on Sugarcane Act, and Transfer of Right to
Use Act.
C. Tax Deduction for Donors
The Income Tax Act, section 80G, sets forth the types of donations that are tax-deductible. The
Act permits donors to deduct contributions to trusts, societies and section 25 companies. Many
institutions listed under 80G are government-related; donors are entitled to a 100% deduction for
donations to some of these government funds. Donors are generally entitled to a 50% deduction
for donations to non-governmental charities. Total deductions taken may not exceed 10% of the
donor's total gross income.
The following are examples of governmental charities listed in section 80G, contributions
to which entitle the donor to a 100% deduction: the Prime Minister's National Relief Fund; the
Prime Minister's Armenia Earthquake Relief Fund; the Africa (Public Contributions – India)
Fund; and the National Foundation for Communal Harmony.
As to those entities not specifically enumerated in section 80G, donors may deduct 50%
of their contributions to such organizations, provided the following conditions are met: the
institution or fund was created for charitable purposes in India; the institution or fund is tax-
exempt; the institution's governing documents do not permit the use of income or assets for any
purpose other than a charitable purpose; the institution or fund is not expressed to be for the
benefit of any particular religious community or caste; and the institution or fund maintains
regular accounts of its receipts and expenditure. Note that donations to institutions or funds "for
the benefit of any particular religious community or caste" are not tax-deductible. A not-for-
profit organization created exclusively for the benefit of a particular religious community or
caste may, however, create a separate fund for the benefit of "Scheduled castes, backward
classes, Scheduled Tribes or women and children." Donations to these funds may qualify for
deduction under section 80G, even though the organization, as a whole, may be for the exclusive
benefit of only a particular religious community or caste. The organization must maintain a
separate account of the monies received and disbursed through such a fund. In-kind donations
are not tax-deductible under Section 80G. Receipts issued to donors by not-for-profit
organizations must bear the number and date of the 80G certificate and indicate the period for
which the certificate is valid.

The Income Tax Act contains a number of other provisions permitting donors to deduct
contributions. Under section 35AC of the Act, donors may deduct 100% of contributions to
various projects, including
1) Construction and maintenance of drinking water projects in rural areas and in urban slums;
2) Construction of dwelling units for the economically disadvantaged; and
3) Construction of school buildings, primarily for economically disadvantaged children.
Furthermore, under section 35CCA of the Act, donors may deduct 100% of their contributions to
associations and institutions carrying out rural development programs and, under Section 35CCB
of the Act, 100% of their donations to associations and institutions carrying out programs of
conservation of natural resources. A weighted deduction of 125% is also allowed for
contributions to organizations approved under section 35(1)(ii) (a scientific research institute or a
university, college or other institution) specifically for "scientific research," and for contributions
made under section 35(1)(iii) specifically for "research in social science or statistical research."
D. Reporting Foreign Contributions
Under the Foreign Contribution (Regulation) Act, 1976 (FCRA), all not-for-profit
organizations in India (e.g., public charitable trusts, societies and section 25 companies) wishing
to accept foreign contributions must a) register with the Central Government; and b) agree to
accept contributions through designated banks. Furthermore, not-for-profit entities must report to
the Central Government regarding foreign contributions received, within 30 days of their receipt,
and must file annual reports with the Home Ministry. The entity must report the amount of the
foreign contribution, its source, the manner in which it was received, the purpose for which it
was intended, and the manner in which it was used. Foreign contributions include currency,
securities, and articles, except personal gifts under Rs. 1,000 (approximately $20). Funds
collected by an Indian citizen in a foreign country on behalf of a not-for-profit entity registered
in India are considered foreign contributions. Moreover, funds received in India, in Indian
currency, if from a foreign source, are considered foreign contributions.
According to FC(R)A guidelines if 50% or more of the “office bearers” (not members of
the board of management) of a trust/society or section 25 Company change, the organization
must apply to the Home Ministry for approving the change. This approval could take as long as
three to four months. However, in the interim period, the FC(R)A registration granted to the
organization would stand “suspended”.

FC(R) A guidelines require that an organization allowed to receive funds from a foreign
source, may provide funds from its FC(R)A account to another organization, only if the other
organization also has clearance from the Home Ministry to receive funds from a foreign source.
If the foreign donor agency specifies in writing that the whole or part of the grant may be taken
to “corpus”, the recipient organization may do so. Such corpus fund may be invested in an
approved security.
The “interest” or “dividend” generated should be accounted for as amount received by
way of interest on deposit drawn out of funds received from a foreign source.
In other words, even the interest/dividend received in India in Indian rupees must be
disclosed in the Return Form FC-3.
E. Customs Duty
Not-for-profit organizations involved in relief work and in the distribution of relief
supplies to the needy are 100% exempt from customs duty on the import of items such as food,
medicine, clothing and blankets. Moreover, other exemptions may be available, such as an
exemption from customs duty for scientific/technical equipment and components intended for
research institutes. Donors should investigate whether an exemption from customs duty is
available before shipping articles to not-for-profit entities in India.
F. Double Tax Treaty
India and the United States signed a double-tax treaty on September 12, 1989. The treaty
does not address issues related to charitable giving or not-for-profit entities.
Procedure for Registering as Trust:
The Indian Trusts Act, 1882 deals with the formation of Trusts in India. The Act specifies
the procedure in which a Trust may be registered and operated in the India.
The points enumerated herein below broadly deal with the establishment of Trusts in
India-
(a) A Trust are created with a document called the Trust deed.
(b) A Trust is created by the Founder (author or settler) with the trust of Trustees (who are
also known as the body of the Trust)
(c) A Trust deed should necessarily consist of the following information:
 Main objects of the trust
 Operation of trust

 Trustee information
 Powers of the trustees.
 Rights, duties and liabilities of the trust.
After following the procedures for creation of the Trust the Trust shall be registered
with the Registrar or Sub-registrar office as per the laws relevant to the specific states in
India.
On registration of the Trust, the Trust shall receive a copy of the registration from the
Registrar after which the Trust will be required apply for a PAN card. Further, the Trust
shall be required to obtain a proper Income Tax Registration from the Income Tax
Department.
After the Trust obtains the Income Tax Certificate, the Trust can also apply for Income
Tax Exemption Certificates like Form 80 G, Form 35 AC and such other forms for Income
Tax
Exemption as per the objects of the trust and as per the applicable rules. The Trust may
be a Public Charitable Trust or Private Trust. A Public Charitable Trust can raise funds from
public to serve the social causes of the nation. The Trust should be registered with a
"Registered office address of the Trust" with proper landmarks.
Formation Procedure of a Trust: A Trust may be declared either by will or by a non-
testamentary instrument called as Trust Deed. A Trust in relation to immovable property can
be created also by transfer of ownership of that property to the trustee.
A Trust can be created by any of the following methods:
(a) By Trust Deed: A trust declared inter vivos or by the acts of the parties is to be
supported and evidenced by a non testamentary instrument in writing and signed by the
author of the trust and the trustee (i.e. trust deed). There is no prescribed form of a Trust
Deed. Any words which indicate the intention of the author that the property of which he is
the legal owner, shall beneficially be another’s is sufficient. A trust in relation to an
immoveable property must be supported by a Trust Deed, unless it is declared by a will, and
must be registered.
A Trust declared by a non testamentary instrument comes into effect from the date
specified in the instrument or the date of its execution, where the date is not specified.

Necessity of Trust Deed: A trust can be created orally but in such cases it is necessary to
prove that there was either an express declaration as to the trust or that there is evidence of
language or expressions used by or facts and conduct of the owner of the property to indicate
with reasonable certainty that trust was created. In order to remove ambiguity and disputes,
it is always advisable to create a Trust by a written Trust Deed.
Registration of Trust Deed: As Trust Deed is non mandatory requirement, the registration
so is not statutorily required but it is always desired. A registered Trust Deed has the
following advantage:
A registered Trust Deed is an official document enforceable by law. A registered deed
effectuates transmutation of possession. The registration of Trust Deed, in the absence of an
intention to the contrary, is enough to convey the title to the Trust property to the trustee
even if the Trust Deed is not delivered to the trustee.
A conveyance of the Trust property to the trustee, under a registered deed is generally,
not open to challenge, except where there is no intention to act upon the deed.
(b) By Will: A person may declare his intention to create a Trust in respect of his property
or any part thereof by way of a will. A will according to the Indian Succession Act must be
in writing and signed thereof by all testators in presence of two witnesses. A Trust declared
under will, shall come into existence on the death of the person making the will.
(c) By Transfer of Ownership: A Trust in relation to moveable property can be formed
also by mere of ownership of the property or the trustee with a direction that the property be
held under Trust for the benefit of the beneficiary. The ownership of a moveable property
can be transferred by physical act of handing over the possession of the property.
In case where the author himself is the trustee, transfer of possession is neither necessary nor
possible and mere declaration of the author that he holds the property under trust would be
sufficient to constitute a trust.
Society:
Societies are membership organizations that may be registered for charitable purposes. A
governing council or a managing committee usually manages societies. Societies are
governed by the Societies Registration Act1860, which has been adapted by various states.
Unlike trusts, societies may be dissolved.

The Societies Registration Act governs societies, 1860, which is an all-India Act.
Many states, however, have variants on the Act. Societies are similar in character to trusts,
although there are a few essential differences. While only two individuals are required to
form a trust, minimums of seven individuals are required to form a society. The applicants
must register the society with the state Registrar of Societies having jurisdiction in order to
be eligible to apply for tax-exempt status.
A registration application includes, the society's memorandum of association and rules
and regulations. In general, Indian citizens serve as members of the managing committee or
governing council of societies, although there is no prohibition in the Societies Registration
Act against non-natural legal persons or foreigners serving in this capacity.
According to section 20 of the Act, the types of societies that may be registered under the
Act include, but are not limited to, the following:
Charitable societies;
Societies established for the promotion of science, literature, education, or the fine arts;
and Public art museums and galleries, and certain other types of museums. The governance
of societies also differs from that of trusts; a governing council usually manages societies or
managing committee, whereas their trustees govern trusts.
Individuals or institutions or both may be members of a society. The general body of
members delegates the management of day-to-day affairs to the managing committee, which
is usually elected by the membership. Members of the general body of the society have
voting rights and can demand the submission of accounts and the annual report of the
society for inspection. Members of the managing committee may hold office for such period
of time as may be specified under the bylaws of the society.
Society, unlike trust, must annually file a list of the names, addresses and occupations
of their managing committee members with the Registrar of Societies. Furthermore, in a
society all property is held in the name of the society, whereas all of the property of a trust
legally vests in the trustees.
Unlike trusts, societies may be dissolved. Dissolution must be approved by at least
three-fifths of the society's members. Upon dissolution, and after settlement of all debts and
liabilities, the funds and property of the society may not be distributed among the members

of the society. Rather, the remainingfunds and property must be given or transferred to some
other society, preferably one with similar objects as the dissolved entity.
Societies are membership organizations that may be registered for charitable purposes.
A governing council or a managing committee usually manages societies. Societies are
governed by the Societies Registration Act 1860, which has been adapted by various states.
Unlike trusts, societies may be dissolved. The Societies Registration Act governs societies,
1860, which is an all-India Act. Many states, however, have variants on the Act.
What is a foundation?
A foundation is an entity that is established as a nonprofit corporation or a charitable
trust, with a principal purpose of making grants to unrelated organizations or institutions or
to individuals for scientific, educational, cultural, religious, or other charitable purposes.
Characteristic Types of Foundation:
There are two characteristic types. One is Private foundations and another is public
foundations. The most common distinguishing characteristic of a private foundation is that
most of its funds come from one source, whether an individual, a family, or a corporation. A
public foundation, in contrast, normally receives its assets from multiple sources, which may
include private foundations, individuals, government agencies, and fees for service.
Moreover, a public foundation must continue to seek money from diverse sources in order to
retain its public status.
A foundation is a nonprofit organization that supports charitable activities in order to
serve the common good. Foundations are often created with endowments-money given by
individuals, families or corporations. They generally make grants or operate programs with
the income earned from investing the endowments.
What Are the Different Types of Foundations?
Independent Foundations: Independent foundations are the most common type of
private foundation. An individual, a family or a group of individuals generally founds them.
The donor or members of the donor's family, a type often referred to as a family foundation
or by an independent board, may operate them.
Corporate Foundations:
Corporate foundations are created and funded by companies as separate legal entities,
operated by a board of directors that is usually comprised of company officials. Corporations

may establish private foundations with endowments, make periodic contributions from
profits, or combine both methods to provide a foundation's resources. Some companies
operate in-house corporate giving programs, which unlike corporate foundations are under
the full control of the company and are not required by law to follow the same regulations.
Many corporations maintain both a foundation and a corporate giving program.
Community / Public Foundations:
Community and other public foundations are publicly supported foundations operated
by, and for the benefit of, a specific community or geographic region. They receive their
funds from a variety of individual donors, and provide a vehicle for donors to establish
endowed funds without incurring the costs of starting a foundation. A governing body or
distribution committee representative of community interests administers Community/public
foundations. There is also a type of foundation that does not generally make grants, called an
operating foundation. The majority of an operating foundation's funds are expended to
operate its own charitable programs.
What Limits Are There on Foundation Grant making?
Some foundations have broad discretion regarding the charitable causes to which their
grants can be directed. Others are sharply limited, often legally, by the mandate of the
foundation donor. Some foundations are restricted to making grants only to specific causes;
others must restrict their grant making to a specific geographic area.
How Are Foundations Regulated?
Foundations are governed by stricter regulations than public charities, which generally
raise money from the public to operate institutions or programs. Both foundations and public
charities might use the term "foundation" in their titles, but very different laws apply to each.
Registration.
Let’s have a real analysis about NGO Registration. Some people are thinking that
without a base monetary resource if they do just NGO Registration then they can attain their
goals and vision. It’s a truth some people are registering ngo with a nice mood and several
wound up or even left it in middle
In case if an Individual or a group of 2 to 7 members, Before registering NGO just
think over what is your actual monetary strength, and immovable assets to manage and
maintain the NGO, though you have ocean wide mind to give others. If you are doing NGO

Registration only with the mindset of getting grants and donation from external sources, then
the sustainability of such NGO is a question mark.
If a company and if founder sure that their company shall allot a portion of fund to
charity regularly, then they can register a NGO with the better planning about its
sustainability.
In India, several registered NGOs are only in the paper form and only 65% of NGOs
are really working for the society. Some NGOs formed with a rocket speed and when they
fail to get the project funds from Government schemes or contributions from local and
outside countries, they got held up and even they forget about their own NGO. The legal
entity and eligibility of such organizations are also a reason for the same.
Instead of searching for easy possibilities towards formation of NGO, better analysis
about what is the actual requirement for NGO Registration and what is the strength to form,
how to manage and how to maintain such NGO is much important.
Section 25 of Companies Act:
Section 25 Companies are not for profit companies incorporated and governed by the
Companies Act, 1956. According to section 25(1)(a) and (b) of the Indian Companies Act,
1956, a Section 25 Company can be established for ‘promoting commerce, art, science,
religion, charity or any other useful object’, provided the profits, if any, or other income is
applied for promoting only the objects of the company and no dividend is paid to its
members.
Thus, for incorporating a Section 25 Company, the following three conditions must be
satisfied:
 The company must be formed for promoting commerce, arts, science, religion, charity
or other useful objects, its, if any or other income in promoting its objects, and
members.
 The company should apply its profits, if any, or other income in promoting its objects,
and
 The company is prohibited to make payment of any dividend to its members.

For a Section 25 Company, its Memorandum and Articles of Association are the main
and guiding instruments. No stamping of memorandum or articles is required for a Section
25 company.
Procedure for Incorporation
Step – 1 Form 1A - Name approval
An application in E-Form 1A may be made for availability of name to the Registrar of
Companies (ROC), with the prescribed fee. It can be filed electronically. Six names in
preferential order are required to be proposed.
Step - 2 Applications to Registrar of Companies
The proposed company or any association, which is desirous of being incorporated as a
company with limited liability or guarantee, without the addition of the word "Limited" or
the words "Private Limited" to its name is required to make an application in writing along
with the necessary documents to the Registrar of Companies for grant of a license under
section 25. The said application should briefly specify the grounds under which it is made
and should also be accompanied by a statement giving a brief description of the work, if any,
already done by the proposed company and of the work proposed to be done by it after
registration, in pursuance of section 25.
It may take 3-6 weeks of time in procuring the license from the Registrar of
Companies. Once the said license is obtained, it may take up to one week’s time to complete
the incorporation process.
Step – 3 Publication of Notice
Within a week from the date of making the application to the Registrar of Companies,
the applicants are required to publish a notice in the prescribed manner in at least two news
papers. One notice should be in an English newspaper circulating in that district and in a
language of the district in which the registered office of the proposed company is to be
situated or is situated and circulating in that district.
Step – 4 Grant of Approval
The Registrar of Companies, after considering the application, documents and
objections, if any, received within 30 days from the date of publication of the notice in the
newspapers, and after consulting any authority, department or ministry, as he may, in his
discretion, decide, determine whether the license should be granted or not. And if the

Registrar of Companies is satisfied that the application is complete in all respects and in the
best interest of the country,
he can grant the license under this section with or without conditions and may also
direct the company to insert in its memorandum, or in its articles, or in both, such conditions
of the license as may be specified under the Companies Act, 1956 and Rules made there
under.
Step – 5 Other Incorporation formalities
After obtaining license from the Registrar of Companies under section 25 the company
shall be formed as a normal company and the other formalities of incorporation shall be
complied with.
Obligations
Though a Section 25 Company has many advantages and enjoys many privileges yet there are
some statutory obligations which are required to be complied with and taken care of by such
companies.
(a) A Section 25 Company has to ensure that its profits and all other incomes are utilized
only for the purpose of promoting its objects and not for any other purpose.
(b) It should also ensure that its profits are not distributed as dividend among its
members.
(c) A Section 25 Company cannot alter its objects clause in its Memorandum without
seeking the written approval of Central Government.
(d) If the Central Government has imposed some conditions and regulations upon the
company for granting a license under section 25 then such a company is bound by such
conditions and has to ensure adequate compliance with them. Where such conditions and
regulations have been imposed then such conditions and regulations are required to be
included in the Articles or/and Memorandum of the company as may be directed by the
Government.
(e) Section 25 Company is regarded as a ‘company’ within the meaning of the Income
Tax Act, 1961 and as such its income is taxable according to the applicable rates similar
to those applying to other companies.
Privileges and Advantages

A Section 25 company enjoys certain privileges which are in nature of exemptions
from making certain compliances under the provisions of the Companies Act, 1956, or apply
with some modifications to a Section 25 Company.
(a) Limited Liability: Section 25 companies enjoy limited liability without disclosing to the
public the nature of liability of its members.
(b) Minimum Share Capital: Section 25 Companies have been exempted from the requirement
regarding minimum share capital. As such they can be registered even if they have share
capital less than the statutory minimum for Private and Public limited Companies.
(c) Annual Return: A Section 25 Company without share capital is also required to file return
with the Registrar but has been exempted from mentioning the particulars of the members of
the company since the last AGM.
(d) Time and Place of AGM: Section 25 Companies are free to determine the date, place and
time of its AGM according to their convenience and feasibility the only condition being that
time, place and date of such meeting should have been pre determined by the Board of
Directors in accordance with directions of the company if any.
(e) Notice of AGM: A Section 25 Company is allowed to hold an AGM after giving a notice
of at least 14 days to its members.
(f) Maintaining Books of Accounts: A Section 25 Company is required to maintain books of
account relating to a period of only four years immediately preceding the current year.
(g) Service of Copies of Certain Documents: A Section 25 company is required to send a copy
of every balance sheet (including profit and loss account) and other documents required by
law to be laid before a company in the General Meeting to its members, debenture holders and
debenture trustees at least 14 days before the date on which such a meeting is to be held.
(h) Board Meetings: Section 25 companies are required to hold at least one Board meeting in
six months and a minimum of four meetings in a year.
(i) Maintenance of Registers of Contracts: A Section 25 company is required to maintain
register of contracts to which sub-sections (1) and (3) of section 297 apply. Thus they are
exempted from maintaining registers of those contracts which are made in pursuance of sub-
section (2) of section 297 or are covered by section 299.
(j) Maintenance of Register of Directors: Section 25 companies are required to maintain
Registers of their Directors, Managing Directors, Managers and Secretary in prescribed format

containing specified particulars and updating the register by making changes in it as when
there is some change among the Directors, Managing Directors, Managers and Secretary of
the company.
(k) Qualification for Secretary Ship: A Section 25 Company is exempt from the provision of
section 2(45) to the extent that the rules regarding the qualification of a Secretary do not apply
to them. Thus, they are free to appoint any person as its Secretary whom it feels fit and proper
for the same.
Post Incorporation Compliances
Apart from the above mentioned privileges and obligations, a Section 25 Company needs
to comply with the below mentioned requirements as per the provisions of the Companies
Act:-
(a) To maintain Minutes Books for all the Board Meetings, in accordance with the provisions
Section 193.
(b) To convene the first Annual General Meeting within 18 months from the date of
Incorporation of the company and maintain the Minutes and notices of the AGM in records of
the company.
(c) To maintain the following registers at the registered office of the company: -
 Register of Investment u/s 49- Detailing the investments made by the company.
 Register of Charges u/s 143- Details of all charges specifically affecting the property of the
company and all floating charges on the undertaking or on any property of the company
giving, the particulars like:-
 A short description of the property charged.
 The amount of charge
 Except in case of security of bearer, the names of the persons entitled to the charge.
 Register of Members u/s 150- - Giving the details of the members of the company.
 Register Directors -Giving particulars of, Managing Directors, Managers and Secretary in
prescribed format
 Register of attendance and board meetings,
 Register of Contracts,-companies and firms in which the Directors are interested.
 Register of Disclosure of members of director’s interest in contract appointing manager,
managing directors etc.

 Register of Directors Shareholding.
(d) The following documents need to be filed with the Registrar of Companies on an annual
basis:-
 Annual Return - within 60 days from the date of AGM
 Balance sheet etc u/s 220-- within 30 days from the date of AGM
 Profit and loss account - - within 30 days from the date of AGM
 Compliance certificate u/s 383 A - within 30 days from the date of AGM
A Section 25 company is required to comply with all the statutory requirements as
prescribed in the provisions of the Act unless it has been expressly exempted. In case there is
a default in compliance with any of the provision of the Companies Act the company will be
subject to penalties. Such a default can also result in revocation of the license granted by the
central government under section 25. Therefore, it is important for the company to strictly
comply with the statutory requirements of the Act.
NGO Registration | Formation of Nonprofit:
Now let us look about the difference between NGO Types. That is difference between
trust, society, foundation and nonprofit company. Before formation of a nonprofit or NGO,
learn the difference between types of organizations in India. After your best analysis you shall
know how you can form a nonprofit organization with a perfect NGO Registration.
This page is only for ideological purpose and for knowledge learning. Its a best
practice to consult with your Lawyer, Auditor and professional towards NGO Registration.
Please be clear before starting a social organization. Several NGO organizations are sleeping
only with certifications. If you do not have solid financial resource to run your organization,
please don't jump in NGO Registration, only with your desires and willingness to do for the
society and public. Instead, you shall join with other organizations to dedicate your social
service mind.
Society Registration: How to register?
A minimum of 7 members are required to register a Society. A society shall be
registered with the Registrar office under Societies Registration act 1860 (A separate Registrar
of Societies will be in your area). Only for Maharashtra state its different and it shall be
registered with Charity commissioner.

Registration of society is undertaken by a basic document of Memorandum of
understanding and Articles of Association with the specified rules and regulations. Such
document consists of Name, occupation and address of all members and with the rights,
power, duties and responsibilities of each members and governing body.
Society registration is formed by association of at least 7 members. Each designated
persons will be elected by election 3 years once or as specified by the about society document.
The objects and rules of the society are formed as per the societies act and you shall
contact the society of registrar to have more details towards creation of bye-law
(Memorandum of understanding and articles of association). Also you can ask your Auditor,
chartered person, Lawyers, Attorney to help you towards this bye-law creation.
No stamp paper is required for society registration. Management of society run by
Governing body and succession in management is by Election.
As per the Societies act, the Governing body meeting and Annual general meeting
should be conducted. Governing body members are entrusted the management of the affairs of
the society. Where as the General body member duties include election of Governing body
members, alteration of name, objects, rules and regulations if necessary. Even a foreigner can
be a member of a society in India.
The purpose and object of the society shall be literary, scientific or charitable purpose. After
registration of society, you shall apply of PAN CARD if required. Any way each year we have
to submit the accounts to the Registrar of societies. Non-filling of names, addresses and
occupation of Governing body members, council, directors, committee entrusted with
management of the Society or willfully furnishing false information or return or refusing or
neglecting to send audited income and expenditure statement and information are offenses of
the Society which is Realizable.
Foundation is nothing different from a nonprofit organization. But it differs in formation
and registration country wide.
1. The main concept of the foundation is to fund other organization by donating its own fund
or to raise the funds for its own charitable activities.
2. The foundation is of two types: Public foundation and Private foundation. Private
foundations are formed by a private entity or by an individual family.

3. The foundation has its own board members, assembly and voting. But its not having share
holders like a nonprofit company.
4. Foundations are formed with assets and its being delivered to other nonprofit organization
in the forms of donations, grants and charity donations.
5. Foundations are often set up for charitable cause, family patrimony and collective
purposes.
6. Some specific laws are applicable for foundation. So with out the help of a certified
chartered person, Auditors, Lawyers and attorney, it is difficult to form such foundation like
trust, society or nonprofit company.
7. As usual the accountability of such foundation is annual as like trust, society and nonprofit
organizations.
8. Private foundations are formed for philanthropy purposes by individual, family or group of
Individuals.
9. Foundations plays role with major movable and immovable assets. So consultation from
Auditors, lawyers / attorney is must for every move towards formation of such foundation.
Special Licensing
Society Charitable societies, military orphan funds or societies established at the
several presidencies of India, societies established for the promotion of science, literature, or
the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political
education, the foundation or maintenance of libraries or reading rooms for general use among
the members or open to the public, or public museums and galleries of paintings and other
works of art, collection of natural history, mechanical and philosophical inventions,
instruments or designs
In addition to registration, a non-profit engaged in certain activities might also require
special license/permission. Some of these include (but are not limited to):
1. A place of work in a restricted area (like a tribal area or a border area requires a special
permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by
the relevant local authority (i.e., district magistrate).
2. To open an office and employ people, the NGO should be registered under the Shop and
Establishment Act.

3. To employ foreign staff, an Indian non-profit needs to be registered as a
trust/society/company, have FCRA registration and also obtain a No Objection Certificate.
The intended employee also needs a work visa.
4. A foreign not-for-profit may be registered as a branch, liaison or project office [and not
necessarily as an Indian entity] after the requisite permission has been granted by the RBI.
Upon receipt of approval from the RBI, the foreign office must within 30 days seek
registration under the Companies Act, 1956. Alongside of these permissions, the office must
acquire tax registrations.
Differential factors Trust Society Non profit Company
Basic Document Trust Deed -
which contains
objects of the
trust (bye-law)
Memorandum of
Association Articles
of Association with
rules & regulations
Memorandum of
Association Articles of
Association
Formation Very Easy Simple Little Hard
Jurisdiction Deputy
Registrar /
Charity
Commissioner
Registrar of Societies
- For Maharashtra
Charity
Commissioner
Registrar of Companies
Legislation / Statute Relevant state
Trust Act -
Company Public
Trust Act 1950
Societies Registration
Act 1860
Indian Companies Act
1956
Objects Social benefits
& Charitable
Literary, Charitable,
Scientific and
resource oriented
Nonprofit Activities
Re-amendment or
Modification of
Objects
Alteration can
be undertaken
only by the
Founder or
settler. If the
founder
deceased
alteration of
objects is
impossible
Easy Legal
Procedures
Complicated Legal
Procedures
Required Members Minimum = 2
Maximum = No
limit
Minimum = 7
Maximum = No limit
Minimum = 7 Maximum
= No limit
Registration As Trust with As Society with As per Companies Act

the Registrar. Society Registrar -
Both as a society and
a trust in some states
like Maharashtra.
under Section 25
Stamp Duty 4% of Trust
property Value
will be executed
in non judicial
stamp paper
with the
registrar
No stamp paper
required for
Memorandum of
association, and rules
and regulations.
No Stamp paper required
for Memorandum of
association and articles of
association.
Name Very easy to
choose
Very easy to choose Prior approval required
from Registrar of
Companies.
Management Board Trustees Governing Body Board of Directors &
Management committee
Succession in
Management
By Election By Election By Appointment
Meetings No provisions Annual Meeting As
per Law. Governing
Body meeting as per
the rules of Society.
Quite Extensive as per the
provision of Company
Law
Legal Status Limited Legal
Status
Limited Legal Status Full Legal Status
Statutory
Regulations
Nominal Limited Maturable – Exhaustive
Membership
Transfer
Impossible Impossible Free or control as per
desire
Member Admission Not applicable Governing Body
Control
General Body or Board
Control through issue of
Capital.
Dissolution or Take
over by State
Possible Possible Very risky and difficult
Payment to Members As notified in
Trust deed
Not restricted As approved by Company
& State.

Case study:
1. Explain the procedures to be followed by NPOs for any three of the following:
a) Obtaining recognition for securing income tax exemption to donors.
b) Obtaining grants from international sources.
c) Reregistering as a nonprofit company.
d) Undertaking a government sponsored project.
e) Becoming a member of a federal organization of NPOs.
Reference;
1. An over view of the Non Profit Sector in India and the World CA Dr. M.Kandasami
FCA, Ph.D.
2. 1. An Overview of the Nonprofit Sector in India and Kerala-- An Overview Of The
Nonprofit Sector In India And Kerala.
3. 2. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations
Official journal of the International Society for Third-Sector Research ISSN: 0957-
8765 (Print) 1573-7888 (Online).

Management of non profit organisation module 4

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