24th February 2017

Financial Compliance for NGOs – Webinar

➜ To introduce the various ways of setting up an NGO, explicate all the compliances andreporting requirements under various acts along with their timelines;

➜ To elucidate all the recent amendments in FCRA;

➜ Finance Bill 2017 and Lokpal and Lokayuktas Act and to establish an enhanced accountingand taxation outlook.

Objective

Agenda

Impact of Budget 2017 on the NGO Sector

Various pathways to create an NGO

FCRA – Amendments, Compliances, Caution

MPT Act – Compliances and Reporting Timeline

Lokpal and Lokayuktas Act – Introduction and Reporting Requirements

Income Tax Act – Compliances, Caution Areas and Reporting Timeline

Internal Matters

Question and Answer Session

Impact of Budget 2017 on the NGO Sector

Restriction on exemption in case of corpus donation by exempt entities to other exempt entities It is proposed to insert a new Explanation to section 11of the Act to provide that any amount credited or paid,out of income referred to in clause (a) or clause (b) ofsub-section (1) of section 11, being contributions withspecific direction that they shall form part of thecorpus of the trust or institution, shall not be treatedas application of income.

It is also proposed to insert a proviso in clause (23C) ofsection 10 so as to provide similar restriction as aboveon the entities exempt under sub-clauses (iv), (v), (vi)or (via) of said clause in respect of any amount creditedor paid out of their income. These amendments willtake effect from 1st April, 2018 and will, accordingly,apply in relation to the assessment year 2018- 19 andsubsequent years.

Clarity of procedure in respect of change or modifications of object in case of entities exempt

under sections 11 and 12 Where a trust or an institution has been grantedregistration under section 12AA or has obtainedregistration at any time under section 12A [as it stoodbefore its amendment by the Finance (No. 2) Act, 1996]and, subsequently, it has adopted or undertakenmodifications of the objects which do not conform tothe conditions of registration, it shall be required toobtain fresh registration by making an applicationwithin a period of thirty days from the date of suchadoption or modifications of the objects in theprescribed form and manner. These amendments willtake effect from 1st April, 2018 and will, accordingly,apply in relation to assessment year 2018-19 andsubsequent years

Filing of Return within time allowed u/s 139(1) in the case of entities registered under Section 12AA

It has been proposed to insert a clarificatoryamendment that entities registered under Section12AA of the Act are required to file their returnwithin the time allowed under Section 139 of the Actwhere the total income without giving effect to theprovisions of Sections 11 and 12 exceed the maximumamount which is not chargeable to Income Tax.

This amendment will apply from 1st April 2018 i.e. AY201-19 and onwards.

Restricting Cash Donations

1

• Under the existing provisions of section 80G, deduction is not allowedin respect of donation made of any sum exceeding Rs.10,000, if thesame is not paid by any mode other than cash.

2

• It is proposed to amend section 80G so as to provide that nodeduction shall be allowed under the section 80G in respect ofdonation of any sum exceeding two thousand rupees unless suchsum is paid by any mode other than cash..

3

• This amendment will take effect from 1st April, 2018 and will,accordingly, apply in relation to the assessment year 2018-19 andsubsequent years.

Overview

Various Pathw ays to Create an NGO

Various Ways to Establish an NGO

Society Sect ion 8 CompanyTrust

PARTICULARS TRUST SOCIETY SECTION 8

Governing Statute Relevant State Trust Act or Indian Trust Act, 1882

Societies Registration Act, 1860. Many states,

however, have variants on the Act.

Companies Act, 2013

Registration Document Trust deed. Memorandum of Association and/or Rules & regulations

Memorandum and Articles of Association

Control Low Low High

Foreign Investment Tough Easy Easy

Members Required At least two trustees are required to register a

public charitable trust.*

Minimum – Seven Minimum - Two

Cost factor Low Medium High

Comparative Analysis

PARTICULARS TRUST SOCIETY SECTION 8 PRIVATECOMPANY

Change in Board of Directors/ Trustees/

Members

Easy Easy Easy

Change of Registered office

Easy Easy Easy

Transparency in working

Low Low High - as everything is available online.

Registration with Income Tax u/s. 12A &

80G

Relatively Hard Relatively Hard Relatively Easier

Comparative Analysis

Hybrid Structure

•There is a growing popular belief that combining profit andmission is an effective way of producing social wealth.Despite these wide-ranging developments, hybridorganizations remain poorly understood. As a result, legalpolicy in this field has been haphazard and largelyineffective. First, there is some uncertainty about theextent to which business planners have the power to formbusinesses that combine profit and social missions.

•A lot of not for profit Organizations are opening a PrivateLimited Entity with a not for profit entity under the samename.

Hybrid Structure

Amendments, Compliances and

Caution

FC(R)A, 2010

W ays to Bring in Foreign Contribut ion

RegistrationA person should

•Be registered under the Societies Registration Act, 1860 orthe Indian Trusts Act, 1882 or Section 8 of the CompaniesAct, 2013 etc.;•Normally be in existence for at least three years; and•Should normally have spent at least Rs 10,00,000/- over thelast three years on its activities•Submit copy of a details of Activities carried on during thelast three years.

Caution Points

Should not transfer fund to other organisations who are notregistered under FCRA without permissionShould not intermingle domestic funds with foreign contribution

Prior Permission

• be registered under the SocietiesRegistration Act, 1860 or the Indian TrustsAct, 1882 or Section 8 of the CompaniesAct, 2013 etc;

Registered

• submit a specific commitment letter fromthe donor indicating the amount of foreigncontribution and the purpose for which it isproposed to be given; and

Commitment Letter

• submit copy of a reasonable project planfor the benefit of the public for which theforeign contribution is proposed to beutilised.

Project Plan

Renewal

• Registration Certifica te renew a ldue a fter every f ive years.

• Organizat ions w hich w ereregistered before 2012 shouldhave applied for Renew al bynow

Documents

• The regis tra tion certifica teunder the s ta tute ofincorpora tion.

• Cha rter Documents• Copy of FCRA Regis tra tion

Certifica te w hich is beingsought to be renew ed.

Renewal of Registration

Validity of FCRA Registration in respect of more than 11,000 associationshave been deemed to have ceased w.e.f 1st November 2016

A list of such associations have been put on www.fcraonline.nic.in sincethese associations were not received by 30th June 2016

These associations however can file renewal application till online till 28th

February 2017 providing sufficient reasons for not applying renewal intime.

An NGO can check the validity of its Registration Certificate Online

S No.

Old Provisions New Provisions

1 Applications of Registration (FC-3) andPrior Permission (FC-4) filled online withsubsequent hard copy submission.

Form FC-3 for Registration & Prior Permission– To be submitted online only.

2 Renewal of Registration Certificatethrough Offline Form FC-5

Renewal through Online Form FC-3.

3 Hard copy of the applications - signed andsubmitted with the Ministry.

Applications are now digitally signed -uploading image of sign & stamp.

4 Hard copies of the attachments filed withapplications - to be submitted within 30days of the online submission.

The self-certified copies of requiredattachments are now scanned and attachedonline.

Amendments in FCRA

S No. Old Provisions New Provisions

5 Fee paid through Demand Draft/Banker’s Cheque - filed and submittedwith attachments.

Fee is now paid through online paymentgateway.

6 Correspondence with the Ministry madethrough letters and personal visits.

Queries are now ordinarily handled throughemails and a monthly meeting with theDirector.

7 Offline Form FC-6, along with auditedstatements of accounts by 31st

December every year.

Online Form FC-4 along with auditedstatements of accounts by 31st December everyyear.

Amendments in FCRA

S No.

Old Provisions New Provisions

8 • If Registration or Prior Permission isgranted, and

• There is a receipt of ForeignContribution in a F.Y in excess of OneCrore rupees, or equivalent then

• Summary data on Receipts andUtilization of the foreign contributionto be displayed in the public domaininvolving the year of receipt as well asfor one year thereafter.

• If Registration or Prior Permission isgranted, then place the auditedstatement of accounts for F.Y on officialwebsite or on the website as specified bythe Central Government.

• A person receiving foreign contribution inany quarter of the financial year shallplace details of receipt within 15 daysfollowing the last day of the said quarterclearly indicating the details of donors,amount received and date of receipt on itsofficial website or on the website asspecified by the Central Government.

Amendments in FCRA

Name

Address

Na ture , Aims or Objects

Ba nk/Bra nch/Account

Key Members*

Cha nges to be reported

Cha nge needs to be reported w ithin 15 (fifteen) da ys through filing of Form FC- 6.

Compliances andReportingTimeline

Maharashtra Public Trusts Act

Filing of Budget

1•If annual income exceeds 5,000/- for public religious trust

and 10,000/- in other cases

2•Prepare a budget in the form of Schedule VII-A. File the

budget by 28th/29th February every year.

3

•Accounts need to be maintained through Schedule VIII (Balance Sheet) and Schedule IX (Income and Expenditure A/c)

Introduction and Reporting

Requirements

Lokpal and Lokayuktas Act

Important Points

1• It shall apply to public servants in and outside India.

2

• Includes any person who is or has been a director, manager,secretary or other officer of every other society or association ofpersons or trust (whether registered under any law for the time beingin force or not) *

3

• *if the organisation is in receipt of any donation from any ForeignSource under the Foreign Contribution (Regulation) Act, 2010 inexcess of Ten Lacs Rupees in a year or such higher amount as theCentral Government may, by notification, specify.

Disclosure Requirements

1• Have to disclose their personal assets and liabilities.

2

• In case spouse is also required to file a return, he/she shall file areturn separately and mention the same in the said return. In case,spouse has procured the assets out of his/her own income, it shallstill be mentioned in the said return.

3• Immovable property includes property which has been inherited by

him/her.

A recent Office Memorandum dated 1st December 2016 states that there is no requirement offiling the Declaration relating to Assets and Liabilities by the Public Servants as of now.

Previous memorandum dated 29th July, 2016 had postponed the last date for furnishing ofdeclaration/information/annual return relating to assets and liabilities to 31st December2016. However, a recent memorandum clarifies that the government is in the process offinalizing a fresh set of rules, and Public Servants shall have to file accordingly thereafter.

Compliance, Caution Areas and Reporting

Timeline

Income Tax Act

Corpus Fund

1

• Donations made with a written direction from the donor that thedonation made shall be treated as part of the corpus of the trust arenot included in the total income of a trust or institution.

2

3

• Interest earned on investment of Corpus Fund will be treated asincome of a trust or institution. Such income may be applied tocharitable purposes, thereby saving it from income tax.

1

2• It shall be shown separately in Schedule VC and Schedule J of ITR-7.

3

1

• Section 11 of the Act requires a trust to utilize at least 85% of itsincome for charitable or religious purposes, and the remainingbalance is permitted to be accumulated.

2

• If it is not possible to spend 85% of the income in the same year, thena trust or institution may make an application to the Assessing Officerin Form 10 for accumulating its income for future application tocharitable or religious purposes.

3

• Where income could not be spent on account of non receipt ofincome, a new Form 9A may be used for income of any previous yearrelevant to the assessment year beginning on or after the 1st day ofApril, 2016

Utilizat ion Of Funds

Commerical Receipts

1

• Sec 2(15) has significant implications and organizations falling underthe last category should be mindful of not having gross receipts fromtrade, commerce or business in excess of 20% of the total receipts.

2

• Separate books are required to be maintained in respect of businessactivities.

3

• Where the organization is engaged in various business activities thenseparate books for each of such activities are required to bemaintained.

Schedule VC

Investment of Surplus Income

The organization mustapply 85 %of the incomederived from propertyheld under trustincluding the amountreceived as voluntarycontributions in theprevious year.

Explanation 2to Section11(1),provides thatthe incomewill bedeemed tohave beenspent in thepreviousyear.

Alternatively,the assesseecan alsoaccumulatethe income for5 years byfiling therelevant Form.

INVESTMENT OFSURPLUS INCOME

Section 11(5)

Government Saving

Certificates

Deposit in PO, Saving Bank A/c’s

Investment in UTI

Investment in

Debentures

Investment in Bonds

Investment in

immovable property

Deposit with IDBI

Investment of Surplus Income

OverviewInternal Matters

W hy should an NGO opt for Internal Control

COMPLIANCECompliance with

applicable laws and regulations

FINANCIAL REPORTING Reasonable

assurance on reliability of

financial reporting

OPERATIONALEffective and

efficient use of resources

Framew ork

Receipt

Establishing agreements between donor(s) and the

NGO.

Expenditureprocuring, delivering, disbursing, accounting

and reporting of aid

delivery.

Reporting telling the

donors what and how much is needed, as

well as acknowledging receipt of aid

given.

Frequently Asked Questions

Whether advisors who are not on Board are not coveredby Lokpal Act.

•Includes any person who is or has been a director, manager,secretary or other officer of every other society or association ofpersons or trust (whether registered under any law for the time beingin force or not)

Whether intermingling of funds from Domestic and FCRABank accounts is possible?

•Strictly prohibited by the act.•Opening of Utilization Bank account advisable

Is Equalisation Tax applicable on payments made toFacebook/ Linked In etc

Normally, if the payment is in the nature of “Digital Ads”, the levy would be attracted. Also Equalization Levy would not be applicable in the following cases:•If the payment made during the year is less than Rs 1 lakh•If the organization making payment is registered in Jammu and Kashmir

Is Statutory Bonus applicable to NGOs?

Section 32 (v)(c) says the Payment of Bonus Act, 1965 shall not applyto the institutions (including hospitals, chambers of commerce andsocial welfare institutions) established not for purposes of profit.

Is 80 G permanent?80G Certificates issued after 1st October 2009 are permanent innature unless specifically withdrawn by the Department.

Is it necessary for a registered NGO which have not beenundertaking any activity to file any tax/financialcompliance?

Such NGOs are advised to file NIL ITR under Income Tax Act, 1961. There may be other compliances depending on the act under which the same is registered.

Question and Answer Session

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