This article describes the various laws related to non profit organisations in India. A non profit organisation can be registered in India as a Society, under the Registrar of Societies or as a Trust, by making a Trust deed, or as a Section 8 Company, under the Companies Act, 2013.[1]
Whether a trust, society or Section 8 company, the Income Tax Act, 1961 gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made.[2] Foreign contributions to non-profits are governed byFC(R)A regulations and the Home Ministry.
For an organisation to be termed as charity it requires Income tax clearances under 12A Section of Income Tax Act. Section 2(15) of the Income Tax Act defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. A purpose that relates exclusively to religious teaching or worship is not considered as charitable.
A Non-Profit can be organized in India in the following ways:
A public charitable trust is usually floated when there is a property involved, especially in terms of land and building.
Different states in India have different Trusts Acts in force, which govern the trusts in the state. In the absence of a Trusts Act in any particular state or territory, the general principles of the Indian Trusts Act, 1882 are applied.
The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the trust) should be enshrined. In every trust deed, the minimum and maximum number of trustees has to be specified. The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settlor/s and trustee/s in the presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.
According to section 20 of the Societies Registration Act, 1860, the following societies can be registered under the Act: ‘charitable societies, military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collection of natural history, mechanical and philosophical inventions, instruments or designs.’
Societies are registered under the Societies Registration Act, 1860, which is a federal act. However, every state has its own legislation of Societies Act, which lays down the procedures for registration, management and dissolution of the Society.
The main instrument of a society is the memorandum of association and article of association. Memorandum of association is the charter of a society. It is a document describing the objects of its existence and its operations. The article of association includes the rules and regulations of the society. It describes the mode of management of the society.
A Society needs a minimum of five managing committee members; there is no upper limit to the number of managing committee members. The Board of Management is in the form of a governing body or council or a managing or executive committee
Registration can be done either at the state level (at the office of the Registrar of Societies) or at the district level (at the office of the District Magistrate or the local office of the Registrar of Societies).
According to section 8(1)(a), (b) and (c) of the Indian Companies Act, 2013, a section-8 company can be established ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objectives of the company and no dividend is paid to its members.
Section 7 of the Companies Act, 2013
For a section-8 company, the main instrument is a Memorandum and articles of association (no stamp paper required)
A section-8 Company needs a minimum of two members; there is no upper limit to the number of members. The Board of Management is in the form of a Board of directors or managing committee and should preferably be Indian nationals.
1. An application has to be made for availability of name to the registrar of companies, which must be made in the prescribed form no. INC-1, together with a fee of Rs.1000/-. It is advisable to suggest a choice of five other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.
2. Once the availability of name is confirmed, an application should be made in writing to the regional director of the company law board. The application should be accompanied by the following documents:
3. The applicants should also, within a week from the date of making the application to the registrar of the companies, publish a notice in the prescribed manner at least once in a newspaper in a principal language of the district in which the registered office India of the proposed company is to be situated or is situated and circulating in that district, and at least once in an English newspaper circulating in that district.
4. The registrar of companies may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the license should or should not be granted.
5. The registrar of companies may also direct the company to insert in its memorandum, or in its articles, or in both, such conditions of the license as may be specified by him in this behalf.
Non-governmental organisations in India