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NGO Registration Simplified: Legal Steps to Gain Tax Exemptions and Funding
Non-Governmental Organisations (NGOs) play a vital role in the development and upliftment of society. Whether they focus on education, healthcare, environmental protection, or social justice, NGOs provide essential services to communities across India. To formalise their operations, NGOs need to undergo a process known as NGO registration, which allows them to gain legal recognition and access various benefits, such as tax exemptions, funding, and credibility.
In India, NGOs can be registered under different frameworks, including as Trusts, Societies, or Section 8 Companies. While the term “NGO registration” is often used interchangeably with the term Section 8 Companies, especially in discussions related to legal structure and tax benefits, they represent slightly different types of organisations under Indian law. This article provides a detailed overview of NGO registration in India, focusing on the key steps, benefits, and the differences between various types of NGOs, with special attention to Section 8 Companies.
Contents
1. What is an NGO?
2. Types of NGOs in India
3. Section 8 Companies: A Popular Form of NGO Registration
4. Key Features of Section 8 Companies
5. Why is NGO Registration Important?
6. How to Register an NGO in India
6.1. 1. Trust Registration
6.2. 2. Society Registration
6.3. 3. Section 8 Company Registration
7. Step-by-Step Guide to Registering a Section 8 Company
8. Documents Required for NGO Registration
9. Compliance for NGOs
10. Benefits of NGO Registration in India
10.1. 1. Tax Exemptions
10.2. 2. Legal Protection
10.3. 3. Access to Funding
10.4. 4. Increased Credibility
10.5. 5. Continuity and Succession
11. Conclusion
What is an NGO?An NGO is a non-governmental organisation that operates independently of government control and typically engages in activities aimed at promoting social, cultural, environmental, or humanitarian goals. NGOs are crucial for addressing societal issues, advocating for change, and providing services to underserved communities. In India, NGOs can be registered under three primary legal frameworks: Trusts, Societies, and Section 8 Companies.
Types of NGOs in India
Before diving into the registration process, it’s essential to understand the three types of NGOs that exist in India:
Trusts: Governed by the Indian Trusts Act, 1882, a trust is created for charitable or religious purposes. Trusts are often used for philanthropic activities such as running educational institutions, hospitals, or orphanages.
Societies: Registered under the Societies Registration Act, 1860, societies are formed by a group of individuals who come together to promote a common goal, such as scientific research, education, or social welfare.
Section 8 Companies: Registered under Section 8 of the Companies Act, 2013, these organisations exist to promote charitable objectives such as education, arts, science, or sports. They are legally recognised as non-profit entities and enjoy several benefits, including tax exemptions and a simplified compliance process.
Section 8 Companies: A Popular Form of NGO Registration
When we talk about NGO registration in India, Section 8 Companies often come to mind because they provide a structured legal framework for non-profit organisations. A Section 8 Company, formerly known as a Section 25 Company under the Companies Act of 1956, is a specific category of non-profit organisation that is formed for the purpose of promoting fields such as commerce, education, charity, or any other social welfare objective. These companies operate without the intention of generating profit, and any income they generate must be reinvested in furthering the organisation’s objectives rather than distributed as dividends to members.
Key Features of Section 8 Companies
Charitable Purpose: Section 8 Companies are established solely for promoting social welfare, education, art, culture, science, research, religion, or charity. They are legally bound to use their earnings for these purposes and are prohibited from distributing dividends.
Legal Status: Section 8 Companies enjoy a distinct legal identity, much like other companies. They have the power to own property, enter into contracts, and file lawsuits in their own name.
Tax Benefits: One of the most significant advantages of registering as a Section 8 Company is the eligibility for various tax exemptions under Section 12A and 80G of the Income Tax Act.
No Minimum Capital Requirement: Unlike other forms of companies, Section 8 Companies do not require a minimum capital for registration, giving them flexibility in managing their financial resources.
Governance: Section 8 Companies are governed by the Board of Directors, and the regulations for governance are outlined in the Memorandum of Association (MoA) and Articles of Association (AoA).
Why is NGO Registration Important?
Registering an NGO, whether as a Trust, Society, or Section 8 Company, confers several advantages that enhance the organisation’s credibility, operational efficiency, and ability to secure funding. Here’s why NGO registration is crucial:
Legal Recognition: Registered NGOs are recognised as legal entities, which allows them to enter into contracts, own assets, and receive donations in the organisation’s name.
Tax Benefits: Registered NGOs, particularly Section 8 Companies, can avail tax exemptions under Section 12A and 80G of the Income Tax Act, 1961, which can significantly reduce their tax liabilities and improve financial management.
Increased Credibility: NGOs that undergo the registration process are more credible in the eyes of donors, government agencies, and corporate sponsors. This increased trust can lead to more donations and funding opportunities.
Ability to Open Bank Accounts: A registered NGO can open a bank account in its own name, which is essential for financial transactions and maintaining transparency in the organisation’s finances.
Access to Government Grants and Foreign Funds: Registered NGOs are eligible for government grants and, upon obtaining an FCRA (Foreign Contribution Regulation Act) license, can receive foreign donations.
Perpetual Succession: Registered NGOs, particularly Section 8 Companies, have perpetual succession, meaning the organisation will continue to exist even if the founding members or directors leave or pass away.
How to Register an NGO in India
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The process of NGO registration in India varies depending on whether the organisation is being registered as a Trust, Society, or Section 8 Company. Below, we’ll walk through the steps for each type, with a focus on Section 8 Companies, which are the most commonly registered form of NGOs.
1. Trust Registration
Trusts are registered under the Indian Trusts Act, 1882, and the process is relatively simple. Here’s a step-by-step guide:
Step 1: Draft a Trust Deed: The Trust Deed is the primary legal document that outlines the objectives, rules, and regulations of the trust. It must include details about the trustees, beneficiaries, and the trust’s property.
Step 2: Register the Trust Deed: The trust deed must be signed by the settlor (the person creating the trust) and the trustees, and it must be registered with the local Registrar of Trusts.
Step 3: Obtain PAN and Bank Account: After registration, the trust must obtain a Permanent Account Number (PAN) and open a bank account in the name of the trust.
2. Society Registration
Societies are registered under the Societies Registration Act, 1860, and are typically formed by a group of individuals with a common goal. The registration process includes:
Step 1: Prepare the Memorandum of Association (MoA): The MoA outlines the name, objectives, and rules of the society. It must be signed by at least seven members of the society.
Step 2: Draft By-laws: The society’s by-laws govern the internal functioning of the organisation, including membership rules, meetings, and financial management.
Step 3: Submit Documents to the Registrar: The MoA, by-laws, and other required documents must be submitted to the Registrar of Societies in the relevant state.
Step 4: Obtain Certificate of Registration: Once the documents are verified, the society will receive a Certificate of Registration, giving it legal recognition.
3. Section 8 Company Registration
Section 8 Companies are governed by the Companies Act, 2013 and must be registered with the Registrar of Companies (RoC). The registration process is more formal than that of trusts and societies but provides several advantages, including greater legal protection and tax benefits.
Step-by-Step Guide to Registering a Section 8 Company
Step 1: Obtain Digital Signature Certificate (DSC): Since the registration process is online, all proposed directors of the company must obtain a Digital Signature Certificate (DSC), which is used to sign electronic documents.
Step 2: Apply for Director Identification Number (DIN): The proposed directors must also apply for a Director Identification Number (DIN), which is a unique identification number assigned by the Ministry of Corporate Affairs (MCA).
Step 3: Choose a Unique Name for the Company: The name of the Section 8 Company must be unique and must not resemble the name of any existing company. The name can be reserved through the RUN (Reserve Unique Name) service on the MCA portal.
Step 4: Draft Memorandum and Articles of Association (MoA and AoA): These documents outline the objectives of the company, the rules for governance, and the responsibilities of the directors.
Step 5: File INC-12 and Other Forms: The application for incorporation is filed using Form INC-12, along with the MoA, AoA, and other required documents. The application is reviewed by the Registrar of Companies.
Step 6: Obtain the Certificate of Incorporation: Once the application is approved, the MCA will issue a Certificate of Incorporation, and the company will be officially registered.
Step 7: Apply for Section 12A and 80G Exemptions: After incorporation, the company can apply for tax exemptions under Section 12A and 80G of the Income Tax Act, which will allow donors to claim deductions on their contributions.
Documents Required for NGO Registration
The documents required for NGO registration vary based on the type of organisation. However, the following are generally needed for all forms of NGO registration:
Identity Proof: PAN, Aadhar card, or passport of the trustees, directors, or members.
Address Proof: Proof of registered office address (utility bills, rent agreements, etc.).
Memorandum of Association (MoA): For societies and Section 8 Companies.
Articles of Association (AoA): Required for Section 8 Companies.
Trust Deed: Required for trust registration.
Digital Signature Certificate (DSC): Required for Section 8 Companies.
Compliance for NGOs
After registering an NGO, it’s essential to comply with the regulations and file the necessary reports with the government. Compliance requirements for NGOs include:
Annual Financial Statements: All NGOs must maintain proper books of accounts and file their financial statements annually.
Income Tax Filing: NGOs must file an income tax return even if they are exempt from paying taxes under Section 12A or 80G.
Audit Requirements: NGOs with a turnover of more than Rs. 40 lakhs or a capital contribution of over Rs. 25 lakhs are required to have their accounts audited by a certified accountant.
FCRA Compliance: NGOs that receive foreign funding must comply with the regulations under the Foreign Contribution Regulation Act (FCRA) and file annual returns.
Benefits of NGO Registration in India
1. Tax Exemptions
Registered NGOs, especially Section 8 Companies, can avail tax exemptions under Section 12A and 80G of the Income Tax Act. This provides a significant financial advantage, as it reduces the organisation’s tax liabilities, allowing more funds to be directed toward charitable activities.
2. Legal Protection
NGOs that are registered as Section 8 Companies enjoy legal protection as a corporate entity. This means they can enter into contracts, own property, and take legal action in their name, offering greater credibility and operational freedom.
3. Access to Funding
Registered NGOs are more likely to receive donations and grants from government bodies, private donors, and international organisations. They are also eligible to apply for foreign funding after obtaining an FCRA license.
4. Increased Credibility
NGO registration increases the credibility of the organisation in the eyes of the public, government, and corporate sponsors. This credibility helps in attracting volunteers, securing funding, and establishing partnerships with other organisations.
5. Continuity and Succession
Registered NGOs, especially Section 8 Companies, have perpetual succession, meaning the organisation can continue to operate even if its founders or directors leave or pass away. This ensures the long-term sustainability of the organisation.
NGO Registration Simplified: Legal Steps to Gain Tax Exemptions and Funding
Conclusion
NGO registration in India is a crucial step for any group or individual looking to formalise their efforts in the non-profit sector. Whether registered as a Trust, Society, or Section 8 Company, an NGO gains legal recognition, tax benefits, and credibility, all of which are essential for its growth and success. Among these, Section 8 Companies are particularly popular due to the flexibility they offer and the range of tax exemptions available to them.
By understanding the registration process, compliance requirements, and the benefits that come with formalising an NGO, individuals and organisations can better position themselves to make a meaningful impact on society. Whether you’re looking to start a charitable trust, a community-focused society, or a socially responsible Section 8 Company, registering your NGO is the first step toward achieving your mission.
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