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NON-PROFIT ORGANISATIONS

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NON-PROFIT ORGANISATIONS
A K Reddy and CO By: A K Reddy and CO
April 30, 2016
All Articles by: A K Reddy and CO       View Profile
  • Contents

In India, there are various forms of non profit organisations are available for the promoters to choose from.  The following are the types:

  1. Trust
  2. Society
  3. Section 8 company

1. Comparison among various forms of NPOs:

Let us compare and contrast between various features of the above listed entities with a view to provide a guidance on right kind of entity for the objectives:

 

Trust

Society

Section 8 Company

Registration requirement

Not mandatory

Mandatory u/p of Societies Registration Act

Mandatory u/p of Companies Act, 2013

Charter

Trust deed

Memorandum of association and Bye-laws

Memorandum and articles of association. and regulations

Sources of funds

Trust property & Profits from business which is property of trust#

Donations and Profits from incidental business*

Grants

Members Required

Minimum – two trustees. No upper limit.

Minimum – seven managing committee members. No upper limit.

Minimum three Members. No upper limit.

Board of Management

Trustees / Board of Trustees

Governing body or council/managing or executive committee

Board of directors/ Managing committee

Mode of Succession on Board of Management

Appointment or Election

Appointment or Election by members of the general body

Election by members of the general body

Availability of Tax Breaks

If public charitable & registered under section 12A of Income Tax Act

If public charitable & registered under section 12A of Income Tax Act

If public charitable & registered under section 12A of Income Tax Act

Ease of formation

Easy

Moderate

Difficult

Ease of operation

Easy

Moderate

Difficult

Regulatory controls

Easy

Moderate

Difficult

*revenue from incidental business shall not exceed ₹ 25 lakhs if the objective is ‘Advancement of any other object of general public utility’ and no such restriction applies if objective is (i) Relief of poor; (ii) Education; (iii) Medical relief; (iv) Preservation of environment including watersheds, forests and wildlife; and (v) Preservation of monuments or places or objects of artistic or historic interest.

#profit from such business is first taxed as such and profit after tax shall be considered as contribution for intended objective.

2. Taxability:

Income of any NPO if carrying the following objectives is exempted under provisions of the Income Tax Act, 1961:

  1. Relief of poor;
  2. Education;
  3. Medical relief;
  4. Preservation of environment including watersheds, forests and wildlife;
  5. Preservation of monuments or places or objects of artistic or historic interest; and
  6. Advancement of any other object of general public utility;

The above exemption is subject to registration under section 12AA.  This exemption is available only when the objectives are confined to Indian Territory.  There are a few more section under which income of the NPOs is exempted which are objective specific.

Generally, all donations shall be identifiable with the donor and his details including Full name, PAN, Address etc.  If details of donor are not available, the same will be treated as anonymous donations.  If anonymous donations exceed excess of 5% of total receipts and ₹ 1 lakhs, such excess shall be taxable at maximum marginal rate (34.608%).

All corpus donations and capital grants are not considered as revenue receipts for taxability.  To treat any donation / receipt as corpus, one needs to obtain a letter expressly station the contribution as corpus.

3. Accounts and Audit:

Accounts and audit are mandatory if the entity is registered for tax exemptions.  If not, for societies and section 8 companies, maintenance of books of account and audit is mandatory.

4. Compliance with other regulations:

But for Trusts, societies and section 8 companies need to file periodic returns with respective regulator i.e. District registrar for societies and ROC for section 8 companies.

5. Foreign contributions:

Foreign contributions receipt in India are regulated under Foreign Contribution (Regulations) Act.  To receive foreign contribution, the organisation shall have either prior permission or permanent registration.  Also, utilisation of foreign contribution shall be reported on periodic basis.

 

By: A K Reddy and CO - April 30, 2016

 

 

 

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