NGO Laws In India And Its Legal Compliance

By Athulya -
August 16, 2018Last Updated at: Nov 23, 2020

On 9th September,2020,  the Ministry of water resources applauded the efforts of the NGO named “Paani Foundation”, an NGO
by Aamir Khan and Kiran Rao . On its Twitter page, the Ministry said that the NGO, through its commendable efforts, has been
transforming regions of Maharashtra from drought to prosperity. It has been making untiring efforts over the years to make
Maharashtra a drought free state.

 
The word NGO (Non-Government Organization) in India refers to a body that remains detached from
the Government and profit framework of usual businesses. These bodies work towards the broad
advancement of the society bylaws and operate as small units which fill the gaps at places where the
government cannot reach efficiently and business cannot be done with eloquent returns governed by
certain NGO laws.
The term NGO is used as an umbrella to cover all legal entities that seek philanthropic and charitable
funds and utilize them towards the advancement of the society without the motive to originate profit
from it or use the profit from the business of the NGO and utilise the same in the implementation of
its objects. An NGO can either be a Trust, a Society or a Section 25 Company.
NGO can register itself as a legal entity in three ways in India-
1)   Trust
2)   Society
3)   Section 8 Company ( this is same as the section 25 company under the 1956 Indian Companies
Act)
Trust Registration-
Trusts are formed when the settler of the property transfers any property and offers its benefits for the
well-being of recipients or for the practice of public purposes. The main aim of the person who
registers a trust in India is to make use of the assets of the trust to attain welfare of the public at large
and promote a charitable cause called a Public Charitable trust. Such trust does not possess a fixed
beneficiary, but the public in huge, generally established with the common trait. A trust is irrevocable
without the intervention of the court. 
KNOW HOW TO REGISTER YOUR NGO
Society Registration-
Society possesses the Memorandum of Association and Rules and Regulation or bylaws. The Society
registration fees and processes need to be registered with the Registrar of Society or Commissioner of
Trusts appointed by the State Government. A Society has a chance to alter its MOA and increase or
decrease its objectives and working from time to time. A society must inform the Registrar annually
about the changes in the quorum of the society. A society can be terminated as per the termination
clause in the Bylaws and after termination, the Society will be merged with a Society of a similar
object.
Section 8 Company –
MOA and AOA form the legal document of a Section 8 Company. Section 8 company registration
needs to be filed under the Central Government through the Registrar of Companies with required
approvals. The process is similar to the formation of a Public Limited Co. or Private Limited Co. A
Section 8 company is required to do the annual compliances similar to other companies.
NGO COMPLIANCES-
Many NGOs feel immune to all forms of taxation because they exist as a non-profit entity, but this
is just a myth. The following section talks about important compliances that an NGO is required to do
to prove its genuine in accordance to the NGO Laws:
PAN
After registration of NGO with respective Authority, the first thing is to apply for PAN of the NGO. It
is mandatory to apply for the PAN after registration of an NGO.
Registration under section 12A of the Income Tax Act
The registration of NGO under Section 12A is necessary for getting some benefits of taxation.
However, section 12A certificate is not a mandatory registration. The main reason for getting this
registration under section 12A is to get the benefit of exemption from the Income Tax on the income
of the NGO if all the rules and regulations laid down in this section are fulfilled.
The amendments made in the Finance Act 2020- 21, has made some changes for the already
registered NGOs. The organizations registered under Sec. 12AA have to reapply for the validity under
the Income Tax Act to continue to enjoy the tax exemptions.
Also, validity has to be renewed every five years. Previously the validity was permanent. 
Registration under section 80G of the Income Tax Act
Even the registration under this section is not mandatory. However, to give the benefit of 50% or
100% exemption on the donations to the donors, NGO should get the registration under section 80G
of the Income Tax Act. It is indirectly an advantage to NGOs to raise funds.
As per the new amendment, the tax exemptions available to the NGOs are now revocable. The
movable and immovable assets of the organization shall be valued at market price and taxed
accordingly. This rule intends to have a check if there is a misuse of the tax exemption of charity.
Also, the persons who are donating to the NGOs will come under scrutiny, there is an assumption that
in future no exemptions may be granted for charity.
FCRA Registration
The NGOs get many opportunities to receive Foreign Funds for the NGO missions once completing
the NGO registration process. Post which the registration with the FCRA department, Ministry of
Home Affairs is essential. Without FCRA registration, NGO cannot receive any kind of foreign
donation or funds.
TAN
During the functioning of NGOs at any point of time, if NGOs become liable to remove the tax from a
source, it has to first apply for TAN.
GST Registration
If the NGO is providing services like research activity or consultancy work etc. and if the gross
revenue from such work crosses the basic exemption limit of GST, then NGO has to first apply for the
GST.
Professional Tax
Professional Tax is the liability of an NGO to deduct from the pay of an employee and deposit to the
Government. It is a state government thing and thus different states of India having different rules and
regulations for Professional Tax.
Retirement Benefit
Retirement benefits like Provident Fund, Gratuity, ESIC etc. are applicable to the NGO when it
develops and the size of employees is more than the prescribed limit in these acts.
Shops and Establishment License
According to the Indian NGO laws, if an NGO employs any individuals in their office to carry out any
work pertaining to the NGO, then the said NGO shall obtain a license under the Shops and
Establishments Act.
Specific Questions Regarding Local NGO Laws
Below are the topics on the local NGO laws that people usually question:
1. Inurement
Public charity trusts trustees can not commit self-dealing.
The Societies Registration Act does not preclude any private owner or entity from inuring any society
earnings. Such a corporation may not deserve tax exemption though.
Article 8 of the Indian Companies Act (2013) requires that a private, non-profit corporation (“Section
8 business”) shall channel all earnings towards the accomplishment of the company’s goals and
forbids the paying of any dividends to its shareholders.
In all instances, the Income Tax Act explicitly allows for a non-profit corporation to forfeit its tax-
exempt status if they gained any financial gain from the creator, promoter, or any trustee or their
spouse. 
2. Proprietary Interest
The trustees keep trust assets on behalf of the public charity fund. Thus, although trustees have legal
title to the trust ‘s assets, they hold those assets for the trust’s beneficiaries. But they have no
ownership interest in the assets. Representatives of the board of trustees or board of directors of a
society or Section 8 business still possess the securities of their organization. But they may not have
any financial interest in the assets whatsoever.
3. Dissolution
Indian charitable public trusts are usually irrevocable. If a trust becomes inactive due to its trustees’
negligence, the Charity Commissioner may take measures to rekindle the trust. When its too difficult
to fulfil the goals, the official may apply the doctrine of cy pres to change them. The doctrine of cy
pres means “as near as possible”.
Except for trusts, the societies and Section 8 firms can be dissolved.
The cy-près doctrine is a legal doctrine which allows a court to amend a legal document to enforce
it "as near as possible" to the original intent of the instrument, in situations where it becomes
impossible, impracticable, or illegal to enforce it under its original terms.