Understanding NGO Formation in India – Non-Governmental Organizations

Introduction

Non-Governmental Organizations (NGOs) play a crucial role in addressing various socio-economic issues. They operate on various levels and can be registered in India as trusts, societies, or Section 8 companies. Each of these has its own set of advantages and disadvantages, and the choice depends on the specific needs and resources of the NGO.

Forming an NGO in India

Forming an NGO in India involves several steps:

1. Determine your NGO’s mission and cause.
2. Form the Board of Directors/Members.
3. Choose a name for your NGO.
4. Prepare and complete the required Articles of Incorporation or Memorandum.
5. Register your NGO.
6. Collect Funds.
7. Establish a wide network.

Types of NGO in India

Charitable Trust

A Charitable Trust is a form of organization which is formed by obligation annexed to the ownership of the property, and arising out of confidence reposed by the owner. It can be formed by various means and is subject to various Acts or legislation. A charitable trust can be formed by registering as a trust by executing a trust deed or as a society under the Registrar of Societies.

Cooperative Society

A Cooperative Society is a voluntary association of people, whose motive is the welfare of the members. It needs to be registered under the Cooperative Societies Act, 1912 in order to function as a legal entity. The membership of a cooperative society is open to all, irrespective of their caste, creed, and religion.

Section 8 Company

A Section 8 Company is established under the provisions of the Companies Act, 2013 which has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objects.

Tax Benefits for Non-Governmental Organizations (NGO).

NGOs in India can avail various tax benefits. As per Section 80G of the Indian Income Tax Act, donations to Central and State Relief Funds, NGOs and other charitable institutions can be deducted from your total income to arrive at your taxable income. NGOs that are 12A-registered can apply for a tax exemption from the IRS.

Foreign Contributions and FCRA

NGOs can raise foreign contributions in India through FCRA registration. It’s mandatory for all associations, groups and NGOs that intend to receive foreign donations to register under FCRA.

The Foreign Contribution Regulation Act (FCRA) regulates the acceptance and utilization of foreign contributions in India. The act aims to ensure that such contributions do not threaten national interests and are used for the welfare of society.

Comparative Analysis of Trust, Society, and Section 8 Company

Particulars	Trust	Society	Section 8 Company
Meaning	A trust is an arrangement between parties whereby one party holds ownership over property on behalf of another1.	A society is formed when a collection of people come together for a common charitable purpose2.	A Section 8 Company is a company established with the purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object2.
Governing Legislation	Trusts are governed by the Indian Trust Act, 1882 for private trusts. General law is applied for public trusts except in a few states such as Gujarat and Maharashtra, which have their own state laws1.	Societies are governed by the Societies Registration Act,18602.	Section 8 Companies are governed by the Indian Companies Act, 20131.
Number of Members Required	A trust must have at least two trustees3.	A society requires seven members (in the case of a state-level society) and eight members (in the case of a national-level society)3.	A Section 8 Company requires two members for a private limited company and seven members to register it as a public limited company3.
Compliance Authority and Burden	Trusts have no statutory requirement for annual return/documents filing1. However, it’s difficult to wind up the trust as they are generally irrevocable.1.	Governance and public filing vary from each state for societies1. They are easier to wind up than trusts and Section 8 companies2.	Forming a Section 8 company is more complicated than a trust or a society. It costs more and takes more time. There are a number of complex formalities in running the company4.
Area of Operations	Trusts can operate on both small and large scales depending on their objectives and resources.	Societies can operate at both state and national levels depending on their registration.	Section 8 Companies can operate on a larger scale and are often considered more credible due to their stringent compliance requirements5.

Analysis

• Trusts: Trusts are the oldest form of not-for-profit organization in India. They are easy to form and operate due to minimal regulatory oversight. However, they are generally irrevocable and difficult to wind up¹.
• Societies: Societies provide a more democratic setup with an elected body to manage them. They allow for an easy exit of its members. However, their governance and public filing requirements vary from state to state¹.
• Section 8 Companies: These entities are more robust, transparent, and accountable than trusts or societies. They offer greater credibility but come with higher costs and more complex formalities⁴.

Each type of NGO formation has its own advantages and disadvantages. The choice depends on various factors such as the nature of work, scale of operations, funding requirements etc.

Conclusion

Forming an NGO (Non-Governmental Organizations) in India involves careful consideration of various factors including the type of registration (trust, society or Section 8 company), understanding tax benefits and regulations around foreign contributions. It’s important for NGOs to understand these aspects to effectively carry out their mission and cause.

Learn more:

• 1. taxguru.in
• 2. cleartax.in
• 3. vakilsearch.com
• 4. lifeeducare.com
• 5. corpbiz.io