Presentation on
Approach to Setting Up
an NPO
02-12-2008
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Agenda
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A.
B.
C.
D.
E.
F.
Features of NPO
Choice of Forms of NPO
Registration Procedure to form NPO.
Tax Exemption & Procedure of Registration
Other Benefits & Specific Approvals
NPO as a vehicle for CSR
Features of NPO
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Features of
NPO
NPOs in India
A. exist independently of the founding entity;
B. are self-governed by a board of trustees or managing
committee/ governing council, comprising individuals who
serve in a fiduciary capacity;
C. are for the “Charitable Purpose”, and
D. are ‘non-profit-making’, and are prohibited from distributing
profits (if any) to their own members.
[Section
2(15) of the Income Tax Act defines ‘charitable purpose’ to
include ‘relief of the poor, education, medical relief and the advancement
of any other object of general public utility’.]
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Forms of NPO
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Choice of
Forms of
NPO
Legal Structures for NPO in India
Trust
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Society
Section-25
Company
Choice of
Forms of
NPO - Trust
Legislation
a) Different states in India have different Trusts
Acts in force, for governing the Trusts.
b) General principles of the Indian Trusts Act
1882 are applied in their absence.
General Purpose Public charitable trusts can be established for
of
the following purposes:
Establishment
 relief of poverty
 education
 medical relief
 provision of facilities for recreation, and
 any other object of general public utility.
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Main
Instrument
Main Instrument is Trust Deed; where the
objects and mode of management are
enshrined.
Trustees
A trust needs a minimum of two trustees; there
is no upper limit.
Management
The management rests with the Board of
Trustees.
Registration of
Trust deed should be registered.
Choice of
Forms of
NPO Society
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Legislation
Societies are governed by Andhra Pradesh
Societies Registration Act , 2001.
General Purpose
of Establishment
Societies are membership organizations that may
be registered for the following purposes:




Charitable purpose,
Promotion of Science, Literature, Fine Arts,
Promotion of education and
Public Art Museums and Galleries.
Main Instrument
The main instrument of any society is the MOA
and Rules & Regulations.
Members
A Society needs a minimum of seven managing
committee members; there is no upper limit.
Management
Society is managed by a Governing Council or a
Managing Committee.
Registration
MOA and Rules & Regulations should be
registered with Registrar of Societies.
Choice of
Forms of
NPO - Sec
25 company
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Legislation
Sec 25 (not for profit) Company are governed by
Indian Companies Act, 1956.
General Purpose
of Establishment
A Section-25 company can be established for
promoting:





Commerce,
Art,
Science,
Religion,
Charity or any other useful object
Main Instrument
The main instrument of a Sec 25 Company is the
MOA and AOA.
Members
A Section-25 Company needs a minimum of three
members; there is no upper limit.
Management
Sec 25 companies are usually managed by Board
of Directors/ Managing Committee.
Registration
License to be obtained from the Regional Director
to register a Sec 25 company and MOA & AOA
should be registered with Registrar of Companies.
Forms of
NPO – A
Summary
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Particulars
Trust
Society
Sec-25 Company
Legislation
Indian Trusts
Act, 1882
AP Societies
Registration Act ,
2001 .
Companies Act,
1956
Main
Instrument
Trust Deed
MOA & Rules and MOA & AOA.
Regulations
To be
Registered
with
Inspector
general of
Stamps.
Registrar of
Societies.
Registrar of
Companies.
Min. No. of
Members
Two
Seven
Three
Management
Board of
Trustees
Governing
Council/ Mgt.
Committee
Board of
Directors/ Mgt.
Committee
Audit
Requirement
Audit is
compulsory
only under
the IT Act.
Audit is
compulsory
under Societies
Act and also the
IT Act.
Audit is
compulsory
under the
Companies Act
and also IT Act.
Alternatives
to set up an
NPO…1
Particulars
Trust
Registration
Process
Simple to It is simple, but Complex
register
not as simple as
trust
Management
Mgt.
by Mgt. may be Mgt.
may
be
Board
of distinct from its distinct from its
Trustees.
members.
members.
Borrowing
Only from Only from
the Author Members
Voting Rights
Not
Applicable
Capacity to Suits can be
sue/be sued
instigated
by
or
against the
trustees.
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Society
Sec 25 Company
its From
members
and also from
Banks
and
Institutions.
Equal
Voting Voting rights are
Rights
to
all proportionate to
members
the share capital
Suits by or against
a society should
be filed in the
name
of
the
president
Suits
by
and
against
the
company can be
instigated against
the company
Alternatives
to set up an
NPO…2
a) Trust is the simplest of the three forms, but is too rigid as a
legal structure for management as it places onerous
responsibility on the trustee(s) as to governance.
b) Society is more flexible than trust, but does not provide
much independence to its governing body in the context of
decision making.
c) A Sec 25 company offers more independence to its governing
body, has more credibility, but is complex.
The following alternatives are available to set up a NPO.
i. Set up a trust initially and convert it to sec 25 company
later.
ii. Incorporate Sec 25 company.
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Registration Procedure
 Sec 25 Company
 Charitable Trust
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Registration
of Sec 25
Company..1
a) An association of members can apply for grant of license
under Section-25 of the Indian Companies Act 1956.
b) A Sec 25 company can be incorporated as a Private or Public
Limited company.
c) It is exempted from having the suffix of “Limited” or “Private
Limited” in its name.
d) There is no requirement of minimum paid up capital.
e) Any person (including partnership firm in its own capacity)
can become a member of Sec 25 Company.
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Registration
of Sec 25
Company..2
f) An association desirous of getting the status of Sec 25
Company …
i. have to obtain license from the Regional Director
ii. after obtaining license, the proposed company has to be
incorporated with the ROC.
g) For the purpose of getting license, the association need to
make an application to the Regional Director (RD) of Ministry
of Corporate Affairs in e-form 24A.
h) Once license is granted, changes can be made to MoA & AoA,
only with the prior approval of the RD.
i) The license granted can be revoked by the RD at any time on
grounds of non compliance with objectives of company or
contravention of the act.
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Registration
of Sec 25
Company..3
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Generally, the following documents are annexed to the
application :

3 copies of Memorandum of Association

3 copies of Articles of Association

Declaration as per annexure V of the Companies
Regulation Act, 1956.

Declaration by prescribed person, that MOA and AOA
confirms to the provisions of the Companies Act.

3 copies of details of the promoters and proposed
directors of the company.

A list of names, addresses, descriptions and occupations
of its directors, managers or secretary.

Also a list of other associations or companies in which
they hold above positions.

Statements of grounds on which the application is made.
Registration
of
Charitable
Trust..1
a) The application for registration should be made to the official
having jurisdiction over the region in which the trust is
sought to be registered.
b) The applicant has to affix a court fee stamp to the form and
pay a very nominal registration fee which may range
depending on the value of the trust property.
c) Form should be signed by the applicant before the regional
officer or superintendent of the regional office of the charity
commissioner or a notary.
d) Form should be submitted, together with a copy of the trust
deed.
e) Affidavit and consent letter should also be submitted
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Tax Exemption & Tax
Registration Procedure
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Tax Impact
on
participants
of NPO
Tax Impact
NPO
Donations are classified into:
• General Donations
• Specific Donations
General Donations are in the nature of
income and are exempt subject to
conditions of Sec 11.
Donor
Donations are
eligible for
exemption
under 80G &
Sec 35(1)(ii)
Specific Donations are exempt.
Income of the NPO is exempt subject
to conditions U/s 11.
The legal structure of NPO is immaterial for availing the benefits
under Income Tax Act, 1961.
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Eligibility
for Tax
Exemption
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Conditions to claim exemption u/s 11:
Registration
The trust must be registered
Commissioner of Income-Tax.
with
the
Activities
The activities of the charitable trust should be
confined within India.
Application of
Income
Not less than 85% of such income shall be
applied for charitable purposes within the same
financial year. It can be accumulated for a
period of 5 years.
Audit
If the total income before claiming exemption
exceeds Rs.1,10,000, the accounts should be
audited.
Investments
Unapplied income should be invested in
specified deposits. Corpus donations are not
considered as income but as capital receipt.
Agricultural
Income
Will not form part of the Total Income for the
purpose of computing the application of 85% as
laid down u/s 11.
Registration
of NPO
Under IT
Act
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Conditions for registration of a Charitable Trust U/s 12 A:
Application
Application should be made in the prescribed
Form 10A.
Time Limit
Application to be submitted within one year
from the date of creation of trust.
Prerequisite
condition
Such trust must be registered with IT
commissioner as per the procedure U/s 12 AA.
Audit
If the total income before claiming exemption
exceeds Rs.1,10,000, Audit Report should be
filed in the prescribed Form 10B.
Effective date of
exemption
Income of the Trust shall be exempt from the
assessment year immediately following the
financial year in which such application is made.
Donor
Benefits
The following are the benefits available to Donor:
General deduction
The contribution made by the donors shall be
allowed as deduction under 80G while
computing income under IT Act.
Limit of deduction
Deduction available under 80G is to the extent of
100% / 50% of donation, subject to a maximum
of “10% of Adjusted Total Income” of the donor.
Contribution
to 100% of Donations made to any institute carrying
trust for R&D R&D activity shall be exempt U/s 35 (1)(ii).
activity
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Other Benefits & Specific
Approvals
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Other
Benefits
The following benefits are available to the NPO irrespective of its
legal structure:
a) Imports for relief work and in the distribution of relief supplies
to the needy are 100% exempt from customs duty.
b) Exemption from customs duty for scientific/technical
equipment and components intended for research institutes.
c) Recognition by apex
research.
bodies in education and scientific
d) Recognition by Income Tax Department for granting exemption
U/s 12A.
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Specific
Approvals.
In addition to registration, a non-profit organisation engaged in
certain activities might also require special license/permission.
Some of these include (but are not limited to):
Special License/Permission
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A place of work in a restricted
area
Ministry of Home Affairs or by the
relevant local authority
To open an office and employ
people
The Shop and Establishment Act
To employ foreign staff
FCRA registration and also obtain a
No objection Certificate. The
intended employee also needs a
work visa.
A foreign NPO to set up office
in India
The RBI
Foreign contributions to NPOs
are governed by FC(R)A regulations
and the Home Ministry.
NPO as a vehicle for CSR
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NPO as CSR
Tool
a) Corporate Social Responsibility (CSR) agenda of a corporation is
reflective of its social conscience and commitments to the
community and society at large within which it operates.
b) More and more Companies have increasingly realized that it is
an investment with multiple benefits for the corporate sector.
c) A NPO can be used as a tool to fulfill CSR of a corporate as the
objectives of NPO are similar to CSR.
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Examples
of CSR
Arms of
Corporate
Name of the
CSR arm
Dr. Reddy’s
Foundation
Founding
Corporate/(s)
Activity Focus
Dr.
Reddy’s • Upliftment of economically
Laboratories Ltd.
backward youth.
• School Community
Partnership for focusing on
quality education.
Satyam
Foundation
Satyam Computer • Health care
Services Ltd.
• Supporting education
through adopting schools.
• Environment protection
• Empowering Persons with
Disability
Infosys
Foundation
Infosys
Technologies Ltd.
• Health care
• Rural Upliftment & Social
Rehabilitation.
• Learning & education
• Upliftment of
underprivileged artists.
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Examples
of CSR
Arms of
Corporate
Name of the
CSR arm
Aditya Birla
Group
Founding
Corporate/(s)
Activity Focus
Aditya Birla Centre • Sustainable development
for Community
and
livelihood
and
Initiatives and
agriculture and watershed
Rural
development
Development
• Health and family welfare
• Infrastructure
development
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Biocon
Foundation
Biocon Ltd.
• Providing
Healthcare
education.
Bharti
Foundation
Bharti Airtel Ltd.
• Helping underprivileged
children
and
young
people of our country
realize their potential
GMR
Varalakshmi
Foundation
GMR Industries
Ltd
• Collaborates with the
Govt.
in
promoting
quality of pre-school and
school education.
Quality
and Health
Discussion Floor
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