Non-Governmental Organization ‘NGO’ is a non-profit social service voluntary organization of community, persons, volunteers, civilians or citizens. NGO is registered with Government registering authorities but it is managed, operated and worked by its members and associated persons under and as per the rules. NGO works to improve the working patterns, enhance the policies, improves and implements the welfare and development schemes of Government or for various causes for human welfare.

Relevant provisions for NGO registration

The Companies Act, 2013 or The Societies Registration act 1860 or relevant State Trust Act.

NGO cannot be a part of civil society but works as organized civil society with a motive to promote education, health, environment etc.

Many people including millennials who wish to work for bringing social changes and for welfare of society, want to form and register NGOs so that they can work in their relevant fields.

NGO’s can be registered in different forms like trust, society or Company. Further registration of NGO’s is not mandatory. However, it is advisable to take registration due to following reason:

  1. Legal Status
  2. Tax benefits
  3. Helps in raising funds
  4. Separate legal identity
  5. Improves credibility
  6. Tax Exemption to the Donators

Whichever NGO wants to work in its capacity is required to get grants from various sources. NGO’s can get grants from corporations, Individuals, donors, governments, etc. Funding sources for NGO’s includes membership fees, public & private donations, grants from local, national, foreign agencies etc.

Funds can be received under various funding schemes:

  1. Funding schemes of Central Ministries of Government of India
  2. Funding scheme of Government of India
  3. Funding scheme of foreign funding agencies
  4. Funding scheme of private funding agencies
  5. Funding scheme of State Government
  6. CSR funding scheme

Why registering a section 8 company is better than Trust?

Trust is the oldest form of charitable organization. There are public trusts and private trusts mainly created for the benefit of family members or for known persons. Trust is easy to form and operate, but there is no regulatory oversight in case of any disputes, the parties have to go to the court. The process of formation of trust is an offline process and differ from state to state. Whereas, on the other hand, Section 8 company is governed by The Companies Act, 2013. Moreover, all the process for formation of section 8 company is an online process which is easy and simple. No personal presence is required and is less time consuming and cost effective.

NGO – Trust, Society or Company

Registration process of NGO under Indian Trust Act, Society Registration Act or The Companies Act, 2013 are different, but status of the organization is equal as NGO. There is no difference in getting funding from the Sources mentioned above.

Comparative analysis between Company, Trust and Society

Statute/ legislationThe Companies Act, 2013Relevant state ActSocieties Registration Act, 1860
JurisdictionRegistrar of CompaniesDeputy Registrar/Charity CommissionerRegistrar of Societies
Registration documentsMemorandum and articles of associationTrust DeedMemorandum and articles of association and rules and regulations
Stamp DutyDiffer from state to stateTrust deed to be executed on non-judicial stamp paper, vary from state to state.Differ from state to state
Members requiredMinimum 2 for Private Limited Company and 3 for Public Limited Company.Minimum 2 trusteeMinimum seven committee members. No upper limit.
Board of ManagementBoard of directorsTrustee/Board of trusteeGoverning body of council/Managing or executive committee

Some worth notables

Issuance of 80G Certificate

80G Certificate is provided to a non-profit organization or NGO, a ‘charitable’ trust or a Section 8 Company by the ‘Income Tax Department’. The aim behind the 80G certificate is to promote more donors to charitable funds to such organizations.

The prime advantage is that the donor avails by donating to such an NGO are that he gets tax exemption on 50% of his charity as the donor is permitted to deduct their donations from their Gross Total Income.

Issuance of 12A Registration

If Section 8 company got registered under section 12A (tax exemption) of the Income Tax Act, then its profits shall be entirely exempted, and no tax will be levied on the company.

Form 10A is a form which should be filed by entities which wish to take a registration under Section 12A. The process for applying for Section 12A registration and the process of Form 10A filing has been made exclusively online. The process of making online filing is possible only with a DSC. The application shall be addressed to the Commissioner of Income Tax along with the necessary documents.

Requirements for 80G Registration and 12A Registration

  • Have no income being obtained from the actions other than mentioned in MoA
  •  Is either a charitable trust/authorized society
  •  Should not be using their belongings or property or pay for any other purpose than a Donation
  • Maintains book of accounts
  • The trustees are not getting any undue benefit from these revenues
  • No work has been done in the interest of any particular caste or religion
  • If there is business-related income, there should be separate accounts maintained   for it
  • Annual Docility for Section 8 companies per the Companies Act 2013
  •  The annual docility of section 8 company is entirely like the other companies
  •  Adjustments of two board meetings in a year
  •  Preservation of Books of Accounts
  •  Evolution of Financial Statements
  •  Compulsory Audit
  •  Income tax return filing
  •  A yearly return is to be registered every year with other e- filing forms like MGT 7, AOC-4
  •  Moreover, acquiescence to fulfil the registration like 12AA, 80G etc.

FCRA Registration 

Organizations seeking foreign contributions for definite cultural, social, economic, educational or religious programmes may obtain FCRA registration or receive foreign contribution through “prior permission” route. The not-for-profit entity must have also been in existence for a minimum of three years while making the FCRA application. It should also not have received any foreign contribution prior to that without the Government’s approval. Additionally, the entity seeking registration should have spent at least Rs.10,00,000/- over the last three years on its aims and objects, excluding administrative expenditure. Statements of Income & Expenditure, duly audited by Chartered Accountant, for last three years are to be submitted to substantiate that it meets the financial parameter.