Formation, Registration, Formation, Registration, Taxation aspects relating Taxation aspects relating

to to NGO’s NGO’s

Scope of Scope of DiscussionDiscussion

• Definition• Formation• Registration with different authorities • Taxation Aspects

NGO-meansNGO-means NGO-brief term of ‘Non-Government

Organisation’.

Here, it means-

• Whose Control & Management does not vest into the Government but with a totally “independent” group of persons.

• These are being formed for Charitable, Educational, Medical, Social or Religious purposes only.

NGO’s - Different NGO’s - Different TypesTypes

Different options available for formation

A Trust registered under Indian Trust Act A Society registered under Societies Act of

the relevant State A Society registered under Indian Societies

Act A Company registered u/s 25 of the

Companies Act, 1956

The common form among above are either a Trust or Society (registered under the Societies Act of the relevant State).

The most simplest form for registration of Trust is to get the Trust Deed executed on the Paper having stamp duty as required under the law of the relevant State and registered with the Local Registering Authority under the relevant Stamp Act.

Factors to be considered Factors to be considered

while selecting the form while selecting the form

of NGO of NGO Number of persons interested to form the NGO Main objects of the NGO Amount to be settled by Settlor Starting of activities, whether immediately or can be started after registration

Proposed Management Pattern i.e. closely held or widely held

Planning for generation of Fund-• From private sources, public/

community• Grants & contribution from

Government, Funding Agencies

Other factors-• Reputation / Goodwill • Annual formalities/ compliances• Penalties for non-compliance

Formation of TrustFormation of Trust• Formation of a Trust-why ?For discharge of Charitable and/or

Religious sentiments of the settlor/author of the Trust, in a way that ensures public benefit.

For the welfare of members of the family and/or other relatives who are dependent on the settlor of the trust.

For Claiming exemption from Income-tax u/s 10/11 of the I. T. Act, 1961, as the case may be in respect of Incomes applied to Charitable and/or Religious purposes.

Definition of TrustDefinition of Trust Section 3 of Indian Trust Act, 1882,

defines Trust - A ‘Trust’ is an obligation annexed to the

ownership of the property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.

- The person who reposes or declares the confidence is ‘Author of the Trust’.

- The person who accepts the confidence is called ‘Trustee’.

- The person for whose benefit the confidence is accepted is called the ‘Beneficiary’.

- The Subject matter of the Trust is called ‘Trust Property’ or ‘Trust Money’.

- The Instrument, if any, by which the Trust is declared is called the ‘Instrument of the Trust’.

The word ‘Confidence Reposed’ is key word for the formation of Trust, since the Trustee is bound to Held the Property for the Beneficiary and he cannot use the Property for his own benefit.

Creation of Trust – Creation of Trust –

Drafting of DeedDrafting of DeedInformation Required for Drafting of Trust Deed- Name of Settlor/Author

Details of Movable/Immovable property he wants to settle towards Corpus of the Trust

Name of at least three prospective trustees (Settlor can also be a Trustee )

Name of the Trust

Address of the Registered Office of the Trust Main Objects of the Trust / other Objects Beneficiary details

Information Required for Formation of Society-

Names of at least Fifteen persons who wants to form the Society and agree to becomes subscriber to the Memorandum & By-laws of the Society

Names of seven prospective office bearers

(including President, Secretary & Treasurer) of the Proposed Society

Proposed name of the Society (Norms apply)

Address of the Registered Office Main Objects of the Society

Formation of Society – under Rajasthan Societies Act

Important clauses to be taken care of-

Appointment, Term of Office & Removal of Trustees/ Office Bearers & their Powers

& Duties Appointment of Additional Trustee(s) / Office Bearer(s)

Formation of various Committees, etc.

The manner of making, altering & rescinding Regulations

Drafting of Trust Deed/ Memorandum & Bye laws of a Society

Manner of dissolving of Trust / Society

The determination upon the Dissolution that the Property be Utilized by the Government or Others in Particular Manner

Removal or Termination of any Office Bearer or any Member on some

Happening or Conditions

Clause may be given to Allow Donation/ Contribution to Trust/Society having similar Objectives

Clause Allowing Authority to Borrow Money and /or Mortgage the Property

The Trust Deed is required to be executed on Non-Judicial Stamp Paper of the requisite value

(Rs.500/- in the state of Rajasthan).

The Memorandum/By-laws of a Society can be typed on Plain Paper or a Booklet available for this purpose in the market may also be utilized .

Formation of Formation of Societies Societies

uunder Indian Societies Actnder Indian Societies Act

Minimum 15 persons from 8 different States are required

Registration papers will have to be Submitted to the Office of the Registrar of Societies, Delhi.

Other requirements are generally same as per Registration under Rajasthan Societies Act

Registration with Sub-Registration with Sub-RegistrarRegistrar

(Required in case of immovable (Required in case of immovable property settled by the Settlor of the property settled by the Settlor of the

Trust, otherwise it is optional )Trust, otherwise it is optional )

Two copies of Trust Deed, one Original & one Xerox copy Xerox copy must have Original Signature Two Photo of each Trustee/Settlor Payment of requisite Fee All Trustee & Settlor are required to be Present in person in the Office of Sub–Registrar. Two Witnesses are required to be Present in person also.

Registration Registration with Registrar of with Registrar of

SocietiesSocieties

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Mandatory in case of Society

Three Copies of Memorandum & By-laws of Proposed

Society with Original Signature of all the Subscribers

i.e. at least Fifteen Persons on Memorandum

Each Page shall be Signed by three Office Bearers

It shall be Witnessed by two Persons & shall be

Notarized.

Address / I.D. Proof of all Office Bearers (self-

attested )

Recommendation of Parshad /MLA required

An Affidavit (as prescribed) by Office Bearers

Payment of requisite fee Rs.2,516/- (Challan

issued by Department)

Application can be submited through President /

Secretary or any Office Bearer

Management Committee shall have the one

Person from one family.

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Registration Registration with DevesthanVibhagwith DevesthanVibhag

Registration mandatory in case of Religious Trust / Society possess immovable property (Temple).

Registration mandatory to become Public Charitable Trust

In Other cases, it is Optional Apply in Form No. 6 [Rule 17(2)] of

Rajasthan Public Trust Act Submit two attested copies of Trust Deed in

case of Trust & Memorandum & By-laws in case of Society.

Copy of Registration Certificate required

to be submitted in case of Society

A Notice will be given by Dept. to be

published in any one local Newspaper

seeking Objections, if any within 60

days.

After Non receipt of any Objection

within above mentioned time,

Registration generally granted after

fixing a day for hearing .

Registration u/s 12A & Grant of approval u/s 80G

of the I.T. Act

Documents Required-

Application to CIT having Jurisdiction of address of Registered Office.

Form No. 10A for application u/s 12AA

Form No. 10G for application u/s 80G

List of Trustees /List of Office bearers

Copy of Trust Deed with copy of Registration Certificate, if any

In Case of Society- copy of Memorandum & By-Laws with copy of Registration Certificate.

Details of Main activity which has been undertaken or intended to be undertaken.

Accounts made up to the date of application

All documents to be filed in triplicate

Other Important Points-for Other Important Points-for

Registration under I.T. ActRegistration under I.T. Act Earlier, a period of twelve month from the

date of creation/formation was provided for filing of above application with a power to CIT to condone the delay, if any (s.12A)

But, now this power of condonation has been withdrawn & it is provided that Registration shall be granted from the F.Y. in which above application has been filed by the trust or society in all cases, where such applications have been filed on or after 01.06.2007.

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Since, all benefits of section 11 shall be available only after getting Registration u/s 12A of the I.T. Act, 1961, hence it is better to apply for above Registration immediately after the Creation of Trust or Registration of Society.

After necessary Enquiry and satisfying himself about the objects of the Trust or Society and the genuiness of its activities, the CIT shall grant registration u/s 12AA as well as approval u/s 80G of the I.T. Act, 1961.

Every order granting or refusing registration u/s 12AA shall have to be passed before the expiry of six months from the end of the month, in which application has been made.

As per section 253 (1) (c), the Order of Refusal both under 12AA/ 80G are Appellable before ITAT.

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Validity of Validity of Registration u/s80GRegistration u/s80G

The condition regarding maximum period of 5 years for approval have been ommitted [F.Act, 2009][s.80G(5)(vi)]

Taxation Aspects Taxation Aspects Provision of section 11 to 13 apply in

case Trust/Society Registered u/s 12AA of the I.T. Act.

85% of receipt of the year is to be utilized during that year itself [s.11(1)]

Donation/contribution towards Corpus Fund not considered as receipts [s.11(1)(d)]

In case 85% of the receipt not utilized:• Option u/s 11(1) Expl. 2 may be exercised by filing an application to

the A.O. before the due date u/s 139(1) of the I.T. Act.

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• Option u/s 11(2) may be exercised by passing a Resolution for Setting Apart a Specified Sum for Specific Objective for the period not more than Five years. A Notice in Form 10 is required to be filed to the A.O. before the due date u/s 139(1) of the I.T. Act. Amount to be invested in the modes specified in Sec 11(5) of the I.T. Act

Addition to fixed assets will be treated as Application of Income, whereas proceeds of Sale of Fixed Assets will be considered as receipt of that year.

Accounts are required to be get Audited, if Gross Receipt (Income) in any year is in excess of the Maximum Amount which is not Chargeable to I.T. [s.12A(1)(b)]

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Report in Form 10B is to be filed with the Return of Income.

Care is to be taken while filling annexure to form 10B-• In column no. 1 only amount

incurred out of income of previous year is to be filled. If any expenditure has been incurred out of the funds b/f from last year, it should be deducted out of total expenditure.

• Amount kept as Option either u/s 11(1) or 11(2) is to be separately shown other than 15% accumulated amount as permitted.

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• Details of any kind of payment, whether Salary, Honorarium, Rent, Vehicle charges paid to Trustees/Office Bearers are to be given. It may be noted that as per provisions of s.13, reasonable payment can be made to Trustees towards above expenses, which should not be more that what reasonably payable in market.

Provisions of TDS applies on these institutions also.

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Due date of filing return is 31st July of the relevant assessment year, if Gross Receipt (Income) is below the Maximum Amount which is not chargeable to I.T. [s. 139 (4A)].

Provisions of section 44AB applies, if Trust/ Society carries business activity having turnover of Rs.40 lacs & above

Penalty provisions also applies on such entity.

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Charitable Purposes Charitable Purposes [s.2(15)][s.2(15)]

Includes-Relief of Poor, Education, Medical Relief, Advancement of any other object of general public utility, etc.

Does not Include-If it involves carrying on any activity in nature of trade, commerce or business, etc. [1st Proviso]

However-First Proviso not apply if the aggregate value of the receipts from the aforesaid activities is Rs.10 lacs or less [2nd Proviso]

Provision of Provision of Anonymous Donation Anonymous Donation

(s.(s.115BBC115BBC))Anonymous Donations- means- Any Voluntary Contributions, where a person receiving such Contribution does not maintain a record of the Identity (name and address) of the person making such Contribution and Other required particulars.

Not Apply to- • Religious Entities• If the aggregate Anonymous Donation is

Rs.1 lac or less• If the aggregate Anonymous Donation is more

than Rs.1 lac but not more than 5 % of the Total Donation received.

Taxable @ 30% of the Anonymous Donations in excess of higher of- 5% of Total Donation or Rs.1 lac

Wealth-TaxWealth-Tax

• Wealth-tax is not applicable to the Trust/Societies.

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