Legal Compliances of NGO Laws in India – A complete guide

Sonal Pruthi

06 Sep, 2022

The article iterates the view of legal compliance of NGO Laws in India. NGO stands for the Non-Governmental Organization or Non-voluntary Organisation. The various forms of the non-governmental organizations are trust, society, trade union, co-operative society and section 8 companies. State and central governmental agencies gave regulatory authority over non-profit organizations. The hierarchy in states for the NGO includes Charity Commissioner (for trusts), Registrar of Societies, and Registrar of Companies under section 8 of the Companies Act, 2013^[1]. The various departments and regulatory bodies for NGOs are the Income Tax Department and Ministry of Home Affairs for NGOs receiving foreign contribution.

Different types of NGO Laws in India

The following laws would be applicable for NGO registration in India:

Trust- It is a public charitable institution registered under the Charity Commissioner’s office having jurisdiction over the state. Maharashtra has adopted the Bombay Public Trust Act, 1950, which has become a model for the various other states. The law that regulates trusts are the Indian Trusts Act, 1882.

Societies– According to the Societies Registration Act, 1860, states have adopted their version from the model Societies Act, 1860. A society is considered as an independent form of organization. It has broad membership, which elects a governing body periodically for managing the affairs of the society. The body is accountable to members. There are multiple types of societies that may be registered under the Act which includes:

• Charitable societies;
• societies which are established for the promotion of science, literature, or fine arts, education; and
• Public Art Museums, and galleries, and certain other types of museums.

Company– A Company has been described under the Companies Act, 2013. The Act permits “Section 8 companies” to be formed. According to the Act, Section 8 Companies are those which are formed for the purpose of art, religion, charity, and other useful objects. Internal governance of Section 8 Company is similar to that of a society. The members of the committee or governing council are elected by the members of the Charitable Company. A section 8 company can be dissolved. The registration process takes time and requires the memorandum of association and articles of association that has to be submitted with the ROC (registrar of companies).

Trade Union– According to the Trade Union Act, 1926, a Trade Union is defined as temporary or permanent combination formed to regulate and control the relations of employees and employers.

Multi-State Co-operative Societies– The Multi-State Co-operative Societies Act, 2002 has substituted the previous Act of 1984. The Act provides for the compliance of both primary and federal co-operatives.

Legal compliances of NGO

There are various legal compliances of the NGO are as follows:

1. Permanent Account Number (PAN) – This is a unique alphanumeric combination issued to all the juristic entities- identifiable under the Income Tax Act, 1961. The PAN number is used as the national identification number.
2. Tax Deduction Number (TAN) – It is the Tax Deduction and Collection Account Number.  It is a ten digit alpha-numeric number required to be obtained by all the individuals who are responsible for deducting or collecting tax (TDS) at source. The TAN number is required to be quoted at the following places-

a. A challan depositing the tax so deducted,
b. A certificate issued against the tax deducted,
c. All returns furnished in respect of the tax deducted at source, etc.

Tax deductions available under Legal compliance of NGO

The various tax deductions available under legal compliances of NGO are as follows:

1. Deductions under 80 G- Here donations are deductable. The section permits donors to deduct contributions for trusts, societies, and companies registered under section 8. They are entitled to the deduction of 100% if they are government funds or 50% if they are donations to non-government entities. It is a required condition for NGO to get registration under Section 80G- to be eligible for a deduction of 80G.
2. Reporting foreign contributions- It is under Foreign Contribution (Regulation) Act, 2010. All non-profit organizations in India i.e. public charitable trusts, societies, and Section 8 companies, accepting any foreign contribution requires to secure registration. They have to register themselves with the Central government.
3. Registration under section 12A- As per the Income Tax Act, 1961 such registration helps you get the exemption on the income of the Trust. Such registration is not compulsory. The registration is valid only for 5 years, and it has to be renewed after every 5 years.
4. Custom Duty- A non-profit organization is involved in any relief work then there is an exemption. The exemption is 100 % on importing items such as food, medicine, clothing, and blankets. The other exemption which is available is on the research equipment and components intended for research institutes.
5. FCRA Return- This return can be filed annually or quarterly to the Ministry of Home Affairs. The return has to be filed mandatorily, even if there is no foreign contribution received.  The return has to be filed in the Form FC-4, which incorporates the charitable activities run by the organization. The return shall include the FCRA registration and the CA certificate.

Conclusion

It can be concluded that legal compliance of NGOs are mandatory. The NGO, such as registered as the Company has to follow the Section 8 Annual Compliance.  Section 8 companies have to follow annual compliance. Legislations like the Income Tax Act play a significant role, as it provides deductions to the donors.  The donations from foreign contributions are necessary to be registered, as foreign incomes/donations for Non-Governmental Organisations. Other registrations related to PAN and TAN are mandatory. Under the Income Tax Act, 1961 the definition of income states that ‘no income is exempt unless provided’, so donations are not always 100 % exempted.

Read our article:Difference between Civil Society and NGO: A Critical Analysis