We also offer the consultancy services to our clients regarding the formation of NGO (Non Governmental Organization). This organization is an association of persons/body of individuals who have non-profit motive and are registered under Indian Acts as:
- Charitable Trust
- Societies under the Societies Registration Act
- Companies under section 25 of the Companies Act
Charitable Trust : It contains information on:
i. Name(s) of the author(s)/settlor(s) of the trust
ii. Name(s) of trustee(s)
iii. Name(s) if any, of beneficiary including public at large
iv. Name by which trust shall be known
v. Name where principal and/or other offices shall be situated
vi. Property that shall devolve upon trustee(s) under trust for benefit of beneficiary/ies
vii. Intention to divest trust property upon trustee(s)
The objects of the trust:
i. For appointment, removal or replacement of trustee
ii. Making them understand their rights, duties and powers
iii. Rights and duties of beneficiary/ies
A charitable trust is not required to obtain registration under the Indian Registration Act.
Society: Society is defined as company/association of persons who are united together through mutual consent for deliberating/determining/acting jointly for same common purpose. It needs a minimum of seven persons to be eligible to enter into contract for formation of society and needs to get registered under the Societies Registration Act, 1860.
Some advantages of society formation include:
- It provides a corporate appearance to organization
- It provides greater flexibility as its easier for amending memorandum and bye laws of society than of a trust where all terms are strictly manifested in trust deed.
- Formation of ‘Society’ needs procedural formalities like:
- Memorandum of Association
- Rules and Regulations
Company is formed under Section 25 of Company’s Act and works as an association for purposes of:
- Promoting science, religion, commerce, art
- Promoting charity to any other useful object
INCOME TAX EXEMPTION FOR NGO
Under section 11(1)(a) to (c), income that is derived from property held under trust is exempt if following conditions are met:
a) Property is held under trust wholly for charitable/religious purposes
b) Income from such properties are applied to charitable/religious purposes
c) Income should be applied in India
d) At least 85% of income derived from properties held under trust is applied to charitable or religious causes in relevant previous year for claiming full tax exemption.
- Here, assessed needs to apply for registration in Form No. 10A in duplicate before expiry of 1 year from the date of creation of trust.
- Any voluntary contribution received by a trust or institution is exempt if (a) the trust is created wholly for charitable purposes and (b) contribution is not made with a specific direction that it shall form part of the corpus of the trust.
‘Societies’ are taxable in status of AOP where different tax rates are applicable to income of AOP in different circumstances:
Individual shares of members in AOP are not determinate –
i. Where total income of any member of AOP is taxable at rate higher than maximum marginal rate-Rate of tax is such higher rate
Individual shares of members in AOP are determinate –
i. If total income of any member is not higher than Rs 50000/- (excluding share from AOP)
ii. No member is taxable higher than 30%<
iii. Rate of tax on total income of AOP is rate applicable to individuals and if any member is taxed higher than 30%, then –
(a) Tax on portion of total income of AOP that is relatable to share of such member is levied at such rate higher than 30%
(b) tax on balance total income will be 30%.
TAX EXEMPTION FOR NOTIFIED CHARITABLE SOCIETIES U/s 10(23C) (iv) and (v)
The income generated by any institution established for charitable purposes is exempt from taxation. For getting exemption under defined clauses, following requirements need to be completed:
i. Making an application in Form No. 56
ii. Applying income/accumulating it for application, wholly & exclusively to its objects
iii. Notice of accumulation u/s 11(2) provided to assessing officer in Form No. 10