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NGO Compliance
Non-Governmental Organizations (NGOs) play a crucial role in promoting social, environmental, and economic well-being. However, to operate legally and effectively in India, NGOs must comply with a series of statutory regulations and fulfill their obligations under various laws. Compliance helps maintain transparency, accountability, and trust with stakeholders, including donors, beneficiaries, and government authorities. Non-compliance can lead to penalties, loss of registration, or even criminal charges. Below is an overview of key compliances that NGOs in India need to follow.
1. Legal Structure and Registration Compliance
NGOs in India can be registered under different acts, depending on their type and objectives. The primary forms include:
Trust: Registered under the Indian Trusts Act, 1882, primarily for social or charitable purposes.
Society: Registered under the Societies Registration Act, 1860, for promoting literary, scientific, or charitable objectives.
Section 8 Company: Registered under the Companies Act, 2013, for charitable, social, or educational purposes.
Each form requires different initial documentation and annual compliance to retain registration status. The chosen structure determines the governing regulations and compliance requirements
2. Income Tax Compliance
To benefit from tax exemptions, NGOs need to be registered under specific provisions of the Income Tax Act, 1961, including:
Section 12A Registration: Grants exemption from income tax on surplus revenue if used for charitable purposes. Once registered, the NGO is eligible for income tax benefits.
Section 80G Certification: Allows donors to claim deductions on donations made to the NGO, making it more attractive for donors to contribute.
NGOs must file annual income tax returns in Form ITR-7 and submit audited financial statements. Non-compliance with tax filings can lead to loss of tax-exempt status and additional penalties.
FCRA Compliance (Foreign Contribution Regulation Act)
If an NGO receives foreign funding, it must register under the Foreign Contribution (Regulation) Act (FCRA), which regulates the receipt and usage of foreign contributions. Key compliance requirements under FCRA include:
FCRA Registration
Mandatory for NGOs intending to receive foreign contributions. It must be renewed every five years.
Annual Filing (Form FC-4)
NGOs registered under FCRA must file annual returns by December 31st each year, providing details of foreign contributions received and their utilization.
Bank Account Requirements
NGOs must use a designated FCRA bank account in the State Bank of India, New Delhi, to receive all foreign funds.
Goods and Services Tax (GST) Compliance
NGOs that provide services, even on a charitable basis, may need to comply with the Goods and Services Tax (GST) laws. If the organization’s annual turnover exceeds ₹20 lakh (or ₹10 lakh in certain states), it may need to register for GST and file GST returns. Exemptions apply to certain charitable activities, but GST compliance should be reviewed regularly, especially for NGOs involved in providing services, consulting, or organizing events.
Professional Tax and Provident Fund Compliance
NGOs that employ staff must comply with labor laws, which may include:
Professional Tax: Deducted from employees' salaries in states where it is applicable.
Provident Fund (PF) and Employee State Insurance (ESI): Applicable if the NGO has 20 or more employees (for PF) and 10 or more employees (for ESI). NGOs must contribute to PF and ESI and file monthly returns under each act.
Complying with labor laws ensures that employees' rights are protected and prevents legal issues related to employee benefits.
Annual Financial Audit
NGOs must conduct an annual audit of their financial records by a Chartered Accountant (CA). This audit provides assurance to stakeholders that funds are used appropriately and transparently. The audited financial statements must be submitted along with the income tax return. Proper maintenance of accounts and timely audits helps in gaining credibility with donors and government agencies.
Board Meeting and Reporting Compliance
Regular board meetings are essential for good governance. Societies and Section 8 Companies, in particular, must hold annual general meetings (AGMs) and file minutes of board meetings. Compliance with board meeting requirements ensures proper oversight and decision-making.
Importance of NGO Compliance
Compliance is essential for NGOs as it enhances their reputation, allows access to funding, and builds trust among donors, beneficiaries, and regulatory authorities. Adhering to statutory requirements demonstrates commitment to transparency and accountability, which can attract more donors and enable sustainable operations.