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Functioning Of NGOs And Trusts
Any organization working for a social, cultural, economic, educational or religious cause is termed as an NGO. NGOs have made favourable indents to needy sections of Indian society at par with a constantly changing socio-economic climate. NGOs have reached out to all sections of society including women, children, pavement dwellers, unorganized workers, youth, slum-dwellers and landless labourers.
An NGO can be formed under various legal identities:
  1. (Society registered under Societies Registration Act, 1860.
  2. Trust (Formed under the Trust deed and registered with Income Tax Authority).
  3. Limited company incorporated under section 25 of the Companies Act, 1956.
A Society is formed when people come together to do something with some common purpose which is legal and useful for others. A society should generally not get into profit making activities.
What is a Charitable Trust?
A charitable trust is a legal entity which can be set up by anyone who has decided to commit themselves in principle to setting aside some of their assets or income for charitable causes. Trusts are completely independent of government or any external control. The main obligation is to work within the charitable purposes and the powers set out in the Trust Deed.
Features of a Trust
confidence placed in and accepted by the donee or trustee, for the benefit of another.
The person who intends to create the trust with regard to certain property for a specified beneficiary and who places his confidence in another for this arrangement is called the Author of the Trust; the person who accepts the confidence is called the Trustee; the person in whose benefit the confidence is accepted is called the Beneficiary; the subject matter of the trust is called Trust Property.
Charity is matter for State control, so different States of India have their own legislation in the form of Trusts or Endowment Acts to govern and regulate public charitable NGOs.
Trustees control the Trust
The Trustees control the trust’s assets and decide how the income (and capital) of the trust is to be distributed, and ensure that it is in line with the charitable purposes of the trust.
The author of the trust must indicate with reasonable certainty the following:
Intention to create trust.
Purpose of the trust.
Beneficiaries of the trust, and
The trust property.
A public trust is of permanent and indefinite character. A public trust benefits the public at large or at least a section of the community.
The property forming subject matter of the trust must be capable of being transferable to the beneficiary – thus property which is inalienable by virtue of public policy or statue does not form valid subject matter for a trust. In terms of section 8 of the Indian Trusts Act, there cannot be as a trust of a beneficial interest under a trust i.e. there cannot be a trust upon a trust.
Flexibility in naming your Trust
You can choose what to call your trust – your family name, or that of an honorable person. The organization can also be called a “foundation” or “charity” or any similar terms as these words are practically interchangeable in a legal sense.
Non-Profit Company
Non-Profit Company is identical to an ordinary company in all respects except that it is not established for profit and commercial gain. It is also called a Section 25 Company and is a voluntary association of people, registered under the Companies Act, 1956.
Objectives of a non-profit company can include promotion of commerce, art, science, religion, charity or any other useful object. Profits are applied for promoting only the objects of the company and no dividend is paid to its members [Section 25(1)(a) and (b) of the Companies Act, 1956]. A non-profit company may be public or private. If the non-profit company is a private company a minimum of only two members are required to form it. However, if the non-profit company is for a public purpose, then a minimum of seven are needed. A ‘section 25 company’ is eligible for certain exemption from provisions of law and concessional rate of fees etc.
Foreign Contribution
Prior Permission always
The Foreign Contribution (Regulation) Act, 1976 (FCRA) requires all Indian NGOs that receive foreign contributions to receive clearance from the Ministry of Home Affairs, in the for of either permanent FCRA registration or prior permission on a case-to-case basis.
The procedure for obtaining prior permission from the FCRA is as follows:
  1. Apply in Form FC-1A.
Application(s) to file Form FC-1A along with required documents.
  1. FCRA permission
Within 90 days thereafter, you will receive a registered letter from the Department either granting the permission or stating rejection of your request.
  1. Appeal against rejection.
You can re-apply after ascertaining and rectifying objections on your file. You can also file an appeal in the High Court within 60 days of the date of letter.
  1. Applying again.
One party can apply for prior permission more than once if needed – considering that projects are varied and/or are under different agencies.
When FCRA permission is not needed:
Prior permission from the FCRA is not required for receiving amounts in the following forms:-
  1. Salary, wages or other remuneration either to individual or payment for business purposes.
  2. Payment for international trade or for business transacted by him outside India.
  3. By way of a gift or presentation received as member of any Indian delegation.
  4. Gift not exceeding Rs.8,000/- per annum. Profit-oriented organization are not covered by FCRA.
Bank Account for foreign funds.
An NGO is required for open and use bank account exclusively for foreign funds under FCRA.
Income Tax Benefits on foreign funds.
  1. Benefits for the NGO
    Incomes received by any religious or charitable trust or institution registered with the income-tax authorities, is not taxable as long as this income is applied for the objects of the organization.
  2. Benefits to Donors
    The donors are also entitled to get an exemption on their donation where exemption can be 50% or 100% depending on the category of organizations.
Illustrative example of NGOs handling foreign money/ materials.
Sponsorships by foreign parties.
An occasion can arise where a moneyed foreign person agrees to kindly sponsor an NGOs annual charity festival and the foreign funds are forwarded directly to the printers for printing of catalogues for this festival by them, the NGO accepting the catalogues has accepted foreign contribution and is under an obligation to intimate the Central Government. If the NGO does not have requisite FCRA registration or prior permission it cannot accept the sponsorship in the first place.
Form FC-3 is to be filed at the end of each financial year (by 31st July). Filing required to be done annually till such time the FCRA funds are exhausted.
Documents to attach with From FC-8 – Attach one copy of each of the following documents:
  1. Certificate from the concerned District Collector/ Department of State Government/ Ministry or Department of Central Government;
  2. Audited Statements of Account for past three years;
  3. Activity report for past three years;
  4. List of States or districts of focus of work;
  5. Note on socio-economic background of the beneficiaries and of the region to be covered;
  6. Where NGO is a society, then also attach certified copy of Registration Certificate issued by the Registrar of Societies;
  7. Certified copy of registered Trust Deed (if NGO is a Trust);
  8. Certified copies of (a) Memorandum and Articles of Association, (b) registration certificate issued by the Registrar of Companies, (c) Section 25 license issued by the Regional Director, Department of Company Affairs (if NGO is a non-profit company);
  9. FCRA does not allow mixing up of Indian funds and FCRA funds. This means both funds are to be maintained separately.
Scholarships from foreign sources.
Indians receiving a foreign scholarship or stipend from foreign source have to intimate the Central Government of the amount, propose, source and intervals of such payment.
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