In India the NGO’s (Non Government Organizations) are registered as societies, trusts, and private limited non profit companies or Section 25 companies. The NGO’s operate independently from government control and are normally governed by a board of trustees, governing council or managing committee that is made up of people who operate in fiducial roles. Such NGO’s does not distribute its surplus funds to owners or shareholders, but uses them to help pursue its goals.
Whether its a trust, a society or a section-25 company, the Income Tax Act treat all of them equal in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made.
Formation and Registration of a Non-Profit organisations in India:
- Trust
A public charitable trust can be started in India when there is involvement of a certain type of property such as a building or land. A Trust Deed is the charter document governing the activities of a trust. These organizations can normally be opened as per the specific Trust Act applicable in the state where the trust will be based and is exempt from Income Tax only in the state registered and 80G is applicable. - Society
The Section 20 of Societies Registration Act 1860 states that the following societies can only be registered as per the Act:- Charitable Societies
- Libraries or reading rooms that can be used by the general public
- Military orphan funds or societies which have been set up at various presidencies in India
- Public museums and galleries of paintings and other works of art, collection of natural history, inventions, designs, and instruments
- Societies established for the promotion of science, fine arts, and literature
The Charter Document of the Societies are the Memorandums of Association and the Rules and Regulations that enlist the aims of the society and the way it is going to be managed. There should be at least 7 members in the managing Committee of a society. A society cannot have branches outside the state in which it is registered, although members could be from anywhere in India.
- Section-25 Company
The Indian Companies Act 2013 state that a Section 25 company can be set up for the promotion of critical domains such as commerce, religion, art, charity, and science. The company thus formed will also be required to use its income and profits for the promotion and the members will not be paid any dividend. The Charter Document in this case is a Memorandum and the Articles of Association.