NGO: Types, Taxability, Importance and Government Schemes

Want to start your own NGO? Confused about its importance and taxability? Let's discuss the same in this article.

The word NGO (Non-Government Organization) in India refers to a body that remains detached from the Government and profit framework of usual businesses. These bodies work towards the broad advancement of society and operate as small units which fill the gaps at places where the government cannot reach directly and efficiently.

The term NGO is used as an umbrella to cover all legal entities that seek philanthropic and charitable funds and utilize them towards the advancement of society without the motive to earn profit from it or use the profit from the business of the NGO and utilize the same in the implementation of its objects.

Such organizations have a cultural, educational, religious, or social program. NGOs are not “owned” by anyone and cannot distribute profits in the form of dividends as such. Whatever profits they may earn from economic activities are reinvested or spent on the activities as per their objectives.

The typical sources of revenue for non-governmental organizations are donations, funding grants from unilateral and multi-lateral agencies, membership fees, rentals from let-out immovable properties, miscellaneous sources, and interest and dividends on investments.

The following forms of associations may act as an NGO

a) A trust of two or more persons as Trustees therein, The Trust may be registered under the Indian Trusts Act, 1982 through a trust deed

b) A company registered u/s 8 of the Companies Act, 2013. Usually, clubs and associations of professionals get registered under this provision of the Companies Act as Memorandum and Articles of Association and regulations with Minimum-three trustees. No upper limits

c) A society of persons registered under the provisions of the Societies Registration Act, 1860 with the Registrar of the Societies, with aims and objects and a structure as laid down in the said Act through Memorandum and Articles of Association and regulations with Minimum-seven managing committee members with no upper limit

d) A statutory body consisting of membership of persons constituted by or under a stature, having a structure as laid down in the statute by which it is constituted.

e) A charitable trust constituted under the Charitable Endowments Act, of 1920.

f) Any other organization akin to society.

Compliances under the income tax act, 1961

• Filing of income tax returns: NGOs are required to file income tax returns in the same manner as other taxpayers. The due date for filing income tax returns for NGOs is the same as the due date for other taxpayers.
• Deducting tax at source (TDS): NGOs are required to deduct tax at source (TDS) from certain payments made to their employees, contractors, and other third-party vendors. The rate of TDS varies depending on the type of payment and the recipient's tax status.
• Paying advance tax: NGOs with taxable income above a certain threshold are required to pay advance tax during the financial year. The amount of advance tax payable is calculated on the basis of the estimated taxable income for the financial year.
• Maintaining books of accounts and records: NGOs are required to maintain proper books of accounts and records for a minimum period of six years. These books and records must be preserved in such a manner that they can be easily inspected by the tax authorities.
• Filing of tax audit report: NGOs with total income exceeding INR 1 crore or with gross receipts exceeding INR 5 crores are required to get their accounts audited by a chartered accountant. The tax audit report must be filed with the Income Tax Department within six months of the end of the financial year.
• Filing of a 12A certificate: NGOs that are exempt from income tax under Section 11 of the ITA are required to file a 12A certificate with the Income Tax Department. This certificate is issued by the Income Tax Department and it confirms that the NGO is exempt from income tax.
• Filing of annual reports: NGOs are required to file annual reports with the Income Tax Department. These reports must contain information about the NGO's activities, finances, and governance.
• Maintaining a website: NGOs are encouraged to maintain a website. This website should provide information about the NGO's activities, finances, and governance.

In addition to these compliances, NGOs may also be subject to other compliance requirements under the ITA, such as the Foreign Contribution Regulation Act (FCRA). It is important for NGOs to be aware of their compliance obligations and to take steps to ensure that they are met.

Exemption from tax

NGOs in India are generally exempt from income tax under Section 11 of the Income Tax Act, of 1961. However, there are certain conditions that need to be met in order to qualify for tax exemption. These conditions include:

• The NGO must be registered under the Companies Act, of 2013, or the Societies Registration Act, of 1860.
• The NGO's main objective must be charitable or religious.
• The NGO's income must be used for charitable or religious purposes.
• The NGO must maintain proper books of accounts and records.

If an NGO meets all of these conditions, it will be issued a 12A certificate by the Income Tax Department. This certificate will exempt the NGO's income from tax.

In addition to tax exemption, NGOs can also benefit from Section 80G of the Income Tax Act. This section allows donors to claim a deduction on their income tax for donations made to NGOs. This can be a significant incentive for donors, and it can help to raise much-needed funds for NGOs.

Overall, NGOs in India are subject to a relatively light tax burden. This is in recognition of the important work that NGOs do in society. By being exempt from tax, NGOs are able to focus their resources on their charitable or religious work, and they can also attract more donations from the public.

Process of Registration

On receipt of an application in Form 10A from an NGO that was already registered under erstwhile section 12A/ 12AA, the Commissioner of Income Tax shall pass an order in writing registering the NGO for a period of 5 years.

Such an order shall be passed by the Commissioner before the expiry of the period of 3 months from the end of the month in which the application was received.

For NGOs already registered u/s 12AB, whether provisionally or else, and where the registration is due for renewal, the Commissioner of Income Tax shall call for such documents or information and make such inquiries as he may deem fit in order to satisfy himself about-

i) The genuineness of the activities of the NGO; and

ii) The compliance of requirements of any other law as necessary for achieving its objectives.

On satisfaction, the Commissioner shall pass an order in writing registering the NGO for a period of 5 years. However, if the commissioner is not so satisfied, he shall pass an order in writing, rejecting such application or canceling a provisional registration, after affording a reasonable opportunity of being heard.

An order granting or rejecting the registration to an NGO shall be passed by the Commissioner within 6 months from the end of the month in which the application was received.

For newly established NGOs, the commissioner shall pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought.

Further, such an order shall be passed before the expiry of 1 month from the end of the month in which the application was received.

Note: If the Commissioner of Income Tax fails to pass an order, grating the registration or rejecting the application, within the time prescribed, it shall be deemed that the registration sought has been granted.

Further, new NGOs that are provisionally registered shall make an application in Form 10AB within 6 months from the commencement of the activities or 6 months prior to the expiry of provisional registration.

Cancellation of Registration

A registration granted under the Income Tax Act can be revoked or canceled by the authority granting registration, in case he is satisfied that the-

i) Activities of the NGO are not genuine; or

ii) Activities of the NGO are not being carried out in accordance with the objectives of the NGO.

iii) Property or Income of NGO is being utilized for private purposes.

iv) the NGO has not complied with the requirement of any other law, and the order, direction, or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.

Donation

Section 80G of the Income Tax Act allows taxpayers to claim deductions for various contributions made as donations to specified relief funds and charitable NGOs. Not all charitable donations are eligible for deduction under Section 80G. Only donations made to the prescribed funds can qualify as a deduction.

Deduction under Section 80G can be claimed by individuals, partnership firms, HUF, Companies, and other types of taxpayers, irrespective of the type of income earned. NGOs registered under Section 80G are provided with a registration number by the Income Tax Department and donors making donations to such NGOs should ensure their receipt contains this number.

Statement of Donations Received

The approved NGOs u/s 80G have to prepare a statement showing the donations received for a particular period and submit the same to the prescribed income tax authorities in Form 10BD by 31st May of the subsequent year.

Benefits of NGO

• Tax exemption: NGOs that are registered under the Societies Registration Act, 1860, or the Companies Act, 2013 are exempt from income tax under Section 11 of the Income Tax Act, 1961. This means that the NGO's income will not be taxed.
• Access to funding: NGOs that are registered can access funding from a variety of sources, including government grants, corporate donations, and individual donations. This can help the NGO to carry out its work and achieve its goals.
• Increased credibility: Registration as an NGO can give the organization increased credibility. This can help the NGO to attract funding, volunteers, and partners.
• Enhanced visibility: Registration as an NGO can help the organization gain increased visibility. This can help the NGO to raise awareness of its work and to reach a wider audience.
• Protection from liability: Registration as an NGO can provide some protection from liability for the organization's members. This is because the organization is a separate legal entity from its members.
• Increased opportunities: Registration as an NGO can open up new opportunities for the organization. For example, the organization may be able to participate in government programs or access funding from international organizations.

Role of the Government

The Government of India offers a variety of schemes and subsidies to NGOs that are working in the areas of social welfare, education, health, and environment. These schemes and subsidies can help NGOs to fund their activities, build their capacity, and to reach a wider audience.

Some of the key government schemes and subsidies for NGOs include

• The National CSR Fund: The National CSR Fund is a government-backed fund that provides grants to NGOs that are working on social welfare projects.
• The Pradhan Mantri Kaushal Vikas Yojana (PMKVY): The PMKVY is a government-sponsored skill development program that provides training to youth from disadvantaged backgrounds. NGOs can partner with the government to implement the PMKVY.
• The Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): The DDU-GKY is a government-sponsored skill development program that provides training to rural youth. NGOs can partner with the government to implement the DDU-GKY.
• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): The MGNREGA is a government-sponsored employment guarantee program that provides employment to the rural poor. NGOs can partner with the government to implement the MGNREGA.
• The National Rural Livelihoods Mission (NRLM): The NRLM is a government-sponsored program that promotes self-employment and income generation among the rural poor. NGOs can partner with the government to implement the NRLM.

Note: These are just a few of the many government schemes and subsidies that are available to NGOs. To learn more about these schemes and subsidies, you can visit the website of the Ministry of Social Justice and Empowerment.

In addition to government schemes and subsidies, there are also a number of private foundations and corporate donors that provide funding to NGOs. These donors can provide funding for a variety of projects, including education, health, and the environment.

I hope this helps! Let me know if you have other questions in the comments