Trust and Societies

DEFINITION OF NGOs

“NGO may be defined as association having a definite cultural, Educational, economical, religious or social a its main objective. They are not owned by any one and cannot distribute its profit/surplus as such. Whatever profit/surplus they may earn from economic activities are reinvested or spent on appropriate non-profit activities. The typical sources of revenue of non-government organisations are donations, grant, gift, membership fee and interest on investment”. Now a days, the word NGO denotes to registered Trust and Societies, cooperative societies, endowments, non-profit companies, etc. working for the welfare, development and progress of public at large and in a way supplement to the similar functions being carried out by the state and hence, called as Non-Government Organizations (NGOs).  

WHAT IS TRUST?

The public charitable trust is one of the possible forms of not-for-profit entities in India. Typically, public charitable trusts can be established for various purposes, including the relief of poverty, education, medical relief, provision of facilities for recreation, and any other object of general public utility. Public Trusts are generally irrevocable. Typically, a public charitable trust must register with the office of the Charity Commissioner having jurisdiction over the trust (generally the Charity Commissioner of the state in which the trustees register the trust) in order to be eligible to apply for tax-exemption.  In the metro city of India, Trust can be registered  in the office of  Sub-Registrar. 

WHAT IS SOCIETY?

Societies are membership organisations that may be registered for charitable purposes. Societies are similar in character to trusts, although there are a few essential differences. While only two individuals are required to form a trust, a minimum of seven individuals are required to form a society. The applicants must register the society with the state Registrar of Societies having jurisdiction in order to be eligible to apply for tax-exempt status. Societies are usually managed by a governing council or a managing committee. In general, Indian citizens serve as members of the managing committee or governing council of societies, although there is no prohibition in the Societies Registration Act against non-natural legal persons or foreigners serving in this capacity. Societies are governed by the Societies Registration Act 1860, which has been adapted by various states. Unlike trusts, societies may be dissolved.

Registration of Trust

A trust can be formed as per Section 4 of Indian Trust Act 1882 for a lawful purpose. A trust should have a document written and signed by trustees or a sole trustee. A trust can be formed through a will also. Therefore, there is no definite form to create a trust. Objectives of the trustee should be clear and unambiguous. A minimum of two persons are required to form a trust which can be set up by executing a trust deed on non-judicial stamp paper after paying necessary Stamp duty as applicable. Trust deed enumerates the aims and objects and mode of management of the trust. Minimum two trustees are required to register Trust Voluntary organisations (VOs) / Non-Governmental Organisations (NGOs) include organisations engaged in public service, based on ethical, cultural, social, economic, political, religious, spiritual, philanthropic or scientific & technological considerations. VOs include formal as well as informal groups, such as community-based organisations (CBOs); non-governmental development organisations (NGDOs); charitable organisations; support organisations; networks or federations of such organisations; as well as professional membership associations. VOs / NGOs should broadly have the following characteristics:

1. They are private, i.e., separate from Government
2. They do not return profits generated to their owners or directors .
3. They are self-governing, i.e., not controlled by Government
4. They are registered organisations or informal groups, with defined aims and objectives

It is also pertinent to note that Non-Governmental Organisation (NGO) or also known as Non-Profit Organisations can be set up in the form of “Public Charitable Trust” form as well. Forming NGO’s in such form will have the following benefits

1. Unlike Society or Section 8 Company formation of Trust is Easier, Quicker and less time consuming
2. Minimum two trustees are required to form a trust whereas in society minimum 7 members are required to form a Society.
3. There is no maximum limit to the number of trustees on the Board of a trust
4. Trust can get registered under Section 12A and Section 80G of the Income Tax Act 1961 provided its activities qualifies for such registrations
5. Registration of the Public Charitable Trust under Section 80G will enable the donor of the NGO/Trust to avail 50% deduction of such donations under this section, from his taxable income.
6. Registration of the Public Charitable Trust under Section 12A of the Income Tax Act 1961, will enable the Trust to claim income tax exemption under section 11 and 12 of the Act, subject to provision of the act.
7. The compliance burden is less compared to Society and Section 8 Company.
8. Compared to Society and Section 8 Company, Management and administration of the Trust are simple.

We Provide the following Services for a Trust

1. Drafting of Trust Deed and Application for registration
2. Formation and Registration of Trust with the Registrar .
3. Applying for PAN And TAN
4. Applying for 12A and 80G Registration for eligible trusts and renewal of the same.
5. Audit of Trust u/s 12A(1)(b) and filing of Audit Report under Form 10B with Income Tax Department

Registration of Society

A Society / Association is an organised group of people with the sole aim and objectives of non-profitable service. Societies are governed by the Societies Registration Act of 1860 or its versions in force in different states. Unlike trusts, a society has a more democratic process and procedures with membership and an elected body to manage the society. Registration of such a Society/Association will have legal recognition and thereby makes it possible to run society legally with discipline. Society can sue and be sued. A minimum of 7 persons who have attained the age of 18 years can form a society or an Association. It is also pertinent to note that Non-Governmental Organisation (NGO) or also known as Non-Profit Organisations can be set up in the form of “Society” form as well. Forming NGO’s in such form will have the following benefits

1. Unlike Section 8 Company, the formation of Society is Easier, Quicker and less time consuming
2. Minimum 7 members are required to form a Society and Registration is governed by Societies Registration Act of the respective state, where it is proposed to be registered.
3. There is no maximum limit on the number of members prescribed.
4. Society can get registered under Section 12A and Section 80G of the Income Tax Act 1961 provided its activities qualifies for such registrations
5. Registration of the society under Section 80G will enable the donor of the NGO/ Society to avail 50% deduction of such donations under this section, from his taxable income.
6. Registration of the society under Section 12A of the Income Tax Act 1961, will enable the society to claim income tax exemption under sections 11 and 12 of the Act, subject to provision of the act.
7. Compliance burden is less compared to Section 8 Company.
8. Compared to Section 8 Company, Management and administration of the society is simple.

We Provide the following Services with respect to Society

1. Drafting of Bye-Laws, MOA, Affidavit and Application for registration
2. Formation and Registration of Society with the Registrar
3. Applying for PAN And TAN
4. Applying for 12A and 80G Registration for eligible Society and renewal of the same.
5. Audit of Society
6. Filing of Income Tax Returns
7. Assistance in Accounting, Bookkeeping, Payroll Processing, Back Office Management and Other Statutory Compliances
8. Assistance in Amendment of Society and updating the same with the registrar

For brief understanding we have here below, enumerated few Frequently Asked Question with respect to “Karnataka Societies Registration Act, 1960”  

Trust and Societies & Section 8 Company Registration

Trust and Societies, Section 8 Companies are the structures suitable for Not for Profit organisation and NGOs. The registration process for trust includes drafting of the trustee deed with minimum two trustees and registration of trust deed at sub-registrar office for which trustees need to be personally present. Upon execution of the trust deed, trust can apply for PAN and once PAN is issued, Trust can open the bank account and carry on the operation. Trust is regulated by the provisions of the Indian Trust, 1882. The society Registration process involves, drafting of the Memorandum of Association and Bye-Laws, there should be a minimum of seven members who should subscribe to the Memorandum and bye-laws, and application for society registration is made to the registrar of societies under the respective states society registration Act. Section 8 company is a company registered under the Companies Act. The process of registration is similar to that of a Private Limited company. The company is registered as per the provisions of section 8 of Companies Act 2013. Such a company is allowed to operate without term Pvt Ltd mentioned as part of its names

Documents Required for Trust deed registration

• Trust deed on stamp paper
• Two passport size photograph
• Self attested copy of PAN and ID proof
• Signature of settler on all pages of trust deed
• Proof of registered office address (Electricity Bill/Water bill etc)
• NOC from land owner with his identity proof
• Proof of property registered in the trust name

Basis	Trust	Society	Section 8 Co.
1.Statute/ Legislation	Governed by provisions of Indian Trust Act, 1882	Governed by provisions of Societies Registration Act, 1860 OR respective state Society Registration Acts	Governed by provisions of Section 8 of the Companies Act, 2013.
2. Jurisdiction	Regulated by Deputy Registrar or Charity Commissioner of the relevant area	Regulated by Registrar of Society	Regulated by the Registrar of companies.
3.Constitution Documents	Trust Deed	Memorandum Of Association and Bye Laws	Memorandum of Association and Articles of Association
4.Minimum persons required	At Least two Trustees	Atleast Seven Members	At Least two Directors and Subscriber.
5.Management	Managed by Board of Trustees	Managed by Executive Committee or Management Committee	Managed by Board of Directors
6.Annual Filing	There is no annual filing required	Must file annual accounts and returns with Registrar of Societies	Must file Annual Accounts and Annual Returns with Registrar of Companies
7.Time Period for registration	1 week	2 week	2 week
8.Registration u/s 12A and 80G of Income tax Act	Granted	Granted	Granted
9. From the point view of Foreign Contribution Regulation Act (FCRA)	Moderate Preferred	Moderate Preferred	Moderate Preferred

Registration of Trust and Societies

Trust registration refers to a legalising procedure of the trust deed (a legal contract between the Trustee and the settlor) from the respective jurisdiction’s registrar. If you are planning to obtain a registration of trust, then we are here to help at Tej and Associates.  

i) Registration of Trust

Our experts will help you to facilitate the required assistance in Trust Registration and compliance. The process of trust registration includes error-prone legal and sensitive complexities. This is where our professionals can support you by ensuring you have better clarity on the governing provisions of India’s Trust. This will make sure that you can undertake Trust related actions hassle-free.

Here are some of the ways we can help in Trust Registration:

•         Clients need screening related to trust set-up in the country.
•         Selecting names for the Trust as per the prevailing bylaws.
•         Identifying the applicable provisions followed by legalities.
•         Inserting Relevant classes in the Trust Deed based on its nature.
•         Obtaining required authorization from the Sub-Registrar.

ii) Registration of Section 8 Company in India

We offer to help you with aspects related to company registration. Let our team of proficient members take care of the complicated procedure of the following:

•         Completing papers
•         Choosing and looking for the availability of a logo and name
•         Trademark designing
•         Trademark Registration, etc.

While you can choose to focus on business operation matters that need your attention, we will stand by your side in every aspect of its establishment. For further queries on related services, call us.

SEC 8 OF COMPANY UNDER COMPANIES ACT 2013 ERSTWHILE SECTION 25 COMPANY UNDER COMPANIES ACT, 1956

Any person or an association of persons intending to be registered as a limited company for charitable purposes can apply for registration of Section 8 Company to the Registrar of Companies of respective state where the promoters intend to have a registered office of the company.  At least three individuals are required to form this type of company. The founders or promoters must submit an application to the Regional Director of the Company Law Board. The application must include a copy of the Memorandum and Articles of Association of the proposed Company, a statement of assets, a brief description of the work proposed to be done upon registration and other documents as prescribed under the Law. A firm can be a member of a section 8 Company.  However, it shall have to prove to the satisfaction of the Registrar of Companies that:- (a) its objects includes promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; (b) the company on incorporation intends to apply its profits/surplus, if any, or other income in promoting such object; and (c) the company prohibits the payment of dividend to its members. The Registrar on being satisfied after having objection from public at large or any other authorities and regulatory bodies at its discretion, may grant the licence to the Company and such licence may contain conditions as may be deemed necessary by the Registrar. The Registrar may direct the company to insert in its memorandum, or in its articles, or partly in one and partly in the other, such conditions of the licence as may be specified by the Registrar on this behalf. The Section 8 Company shall enjoy all the privileges and be subject to all the obligations of limited companies under the Companies Act, 2013. To alter the provisions of its memorandum or articles of association, section 8 companies will have to obtain the previous approval from the Central Government. These companies must apply its surplus, if any, or any other receipts for the promotion of its objects, and may not pay a dividend to its members.   The internal governance of a section 25 or Section 8 company is similar to that of a society. It generally has members and is managed by directors or a managing committee or a governing council elected by its members. Like a society (but unlike a trust), a section 25 or section 8 company may be dissolved  after settlement of all debts and liabilities, The funds /property of the dissolved company will not be distributed among the members of the company. Rather, the remaining funds and property must be given or transferred to some other similar company of section 25 /8, preferably one having similar objects as the dissolved entity.

EXEMPTIONs/ TAX BENEFITS to NGOs UNDER INCOME TAX LAWS

Since the services of the NGOs are supplemental to the similar function of the state, These entities are eligible for certain tax benefits. Even the donors/sponsoring authorities have been encouraged by the Government by way of allowing tax benefit for contribution to these entities. The NGOs/donors can claim tax benefit under the following section of Income Tax Act, 1961.  

Tax Benefit under Section 12A – to NGO

Any voluntary contribution received by NGO or income out of property held under Trust is exempted from Income Tax provided such NGO is registered u/s 12A of Income Tax Act, 1961.  The NGO  getting itself registered u/s 12A of the Act  needs to apply  to the Director of Exemption, Income Tax in the prescribed form (10A) alongwith following documents:-

• Memorandum and Articles of Association of the Company /Trust and Societies Certificate of Registration.
• Rent Agreement/ NOC from the landlord   of the premises of the Registered Office. 
• PAN card of NGO;
• Evidence of welfare activities carried out & Progress Report since inception 
• Balance Sheet & ITR (if any), since inception or last 3 years;
• List of donors along with their address and PAN;
• List of Governing Body/  Board of Trustees /Board of Directors with their contact details & PAN;
• Original RC and MOA /Trust Deed for verification;

The Income Tax Department on being satisfied about the charitable character of the NGO will grant registration certificate u/s 12A of the Act. The Registrar may also verify the original documents as submitted. The registration so granted is valid .for an indefinite period until unless it is cancelled by the Issuing Authority.       

Tax Benefit under Section 80G– to Donor  and NGO

An NGO can avail income tax exemption by getting itself registered u/s 12A as stated above, but such registration does not provide any Tax benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the “donors” also. All NGOs should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections. If an NGO gets itself registered under section 80G then the person or the organisation making a donation to the NGO will get a deduction of 50% from his/its taxable income.The NGO can apply for necessary Registration u/s 80G of the Act in Form No. 10G simultaneously while filing the application in Form 10A for tax exemption u/s 12A of the Act.  An NGO is eligible for registration u/s 80G of the Act on fulfilment of following conditions:-

• The NGO should not spend any income or assets for any purpose other than a charitable purpose.
• The NGO should not be for the benefit of any particular religion, community, or caste.
• The NGO should maintain regular books of accounts and get them audited.

 

Tax Benefit under Section 35AC – NGO & Donor

Section 35AC grants tax benefits to both the donor and done.The  NGOs notified u/s 35AC of the Act are eligible for 100% tax exemption on its income u/s 10(21) of the Act and simultaneously the one also receives 100% rebate of Income Tax on the donated amount.   

REGISTRATION UNDER SECTION 35AC

The Central Government approves certain NGOs and notifies them as eligible for projects or schemes for the purposes of section 35AC. The Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC, Such a committee normally consists of eminent persons. All NGOs are entitled to apply to the National Committee to get its projects or schemes approved. The application for approval should be made to the Secretary, National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi – 110001 along with necessary enclosure as prescribed in the applicable Rules of the Act.  

THE FOLLOWING PROJECTS ARE ELIGIBLE FOR APPROVAL:-

• Construction and maintenance of drinking water projects in rural areas and in urban slums, including
• Installation of pump-sets, digging of wells, tube wells and laying of pipes for supply of drinking water.
• Construction of dwelling units for the economically weaker sections.
• Construction of school buildings primarily for children belonging to the economically weaker sections of the society.
• Establishment and running of non-conventional and renewable sources of energy systems.
• Construction and maintenance of bridges, public highways and other roads.
• Any other programme for uplift of the rural poor or the urban slum dwellers, as the National Committee may consider fit for support, like: Promotion of sports, Pollution control etc.
• Establishment and running of educational institutions in rural areas, exclusively for women and children up to 12 years of age;
• Establishment and running of hospitals and medical facilities in rural areas, exclusively for women and
• Children up to 12 years of age;
• Establishment and running of crèches and school for the children of workers employed in factories or at building sites;
• Encouraging the production of bacteria induced fertilisers;
• Any programme that promotes road safety, prevention of accidents and traffic awareness;
• Construction of hostel accommodation for women or handicapped individuals or individuals who are of the age of sixty-five years or more;
• Establishment and running of institutions for vocational education and training in rural areas or towns which consist of a population of less than 5 lakhs.
• Establishment and running of institutions imparting education in the field of engineering and medicine in rural areas or towns which consist of a population of less than 5 lakhs.
• Plantation of softwood on degraded non-forest land.
• Any programme of conservation of natural resources or of a forestation. 

 

CERTIFICATE TO BE ISSUED TO THE DONOR

  All approved NGOs are required to issue a certificate in Form 58A to the donor for all contributions & receipts under section 35AC. This certificate will enable the donor to claim exemption from its taxable income  

Tax Benefit Under Section 35 (1) (ii) & (iii)

  Any scientific research association / organisation which has its objects, carrying out the scientific research or social science research or social science research can be approved under section 35 (1) (ii) and 35(1) (iii) in accordance with the guidelines and other conditions as may be notified in the official gazette of the central government. On the one hand income of these institutions are exempt under section 10(21) of the act whereas on the other hand, donors will receive a weighted deduction up to 175% on the donated amount. The application for approval under section 35(1) (ii) / (iii) of IT Act 1961 may be submitted to the Director of Income Tax ( Exemption ) IT of the jurisdiction of the assessee association in the prescribed form along with various information such as :-.

• Details of past research projects undertaken by the applicant, such as research projects completed/
• Underway/ any publication of research projects,
• Past research activities such as whether any new product/process developed, approved, any product of import substitution,
• List of assets / facilities owned used for scientific research / Social science research by the applicant,
• Details of conferences/ seminars etc. held
• Proposed research project to be undertaken,
• List of the donors and amount received as donations,
• Amount utilised in such research activities.

Tax Benefits u/s 10(23) (A) of the Act. – NGOs 

Income  of all institutions  established in India having their objects for encouragement of profession of law/medicines/accountancy/engineering/architects or other professions is exempt  u/s 10(23)(a) if they are approved by the Central  Government as per the prescribed procedure.

 Tax Benefits u/s 10(23) (C) of the Act. – NGOs 

Income of Universities/Hospitals established in India for non-profit purpose can be claimed as exempt  u/s 10(23)(C) if  they are approved  by the Central  Government as per the prescribed procedure. Tej and Associates delivers a broad range of services beyond Trust and Societies, assisting Indian owners (OPC, Partnership, Proprietary concern, LLP, Pvt Ltd), foreign owners (Subsidiary Company, Branch/Liaison Office), and special entities (Section 8 Company, AOP) in ensuring compliance and efficiency.