WORKSHOP WORKSHOP CONDUCTED By: SURESH KEJRIWAL 11 th JUNE, 2010 Go

OBJECTIVES OF THE SESSION A) BROAD OBJECTIVE To have a better understanding of legal framework. To have a better understanding of legal framework. B)SPECIFIC OBJECTIVES a) Law Applicable for incorporation a) Law Applicable for incorporation b) FCRA b) FCRA b) INCOME TAX b) INCOME TAX Next Previous

METHODOLOGIES TO BE ADOPTED a) Sharing the basic concepts. a) Sharing the basic concepts. b) Followed by interaction. b) Followed by interaction. Next Previous

OUTCOME This process will facilitate : a) To clarify the practical issues which need clarification; need clarification; b) To enhance the technical competence as regards LEGAL FRAMEWORK as regards LEGAL FRAMEWORK Next Previous

LAW IN RELATION TO INCORPORATION Next Previous

APPLICABLE LAWS TO NGO NGO Step 1 FORMATION Societies Public Trust U/s. 25 of Companies Act Step 2 ENABLINGIncome Tax Act REGISTRATION Bombay Public Trust Act Step 3 OPERATIONALFCR ACT REGISTRATION Other Applicable Registration NextPrevious

FOREIGN CONTRIBUTION (REGULATION) ACT, 1976 Go Previous

Means the donation, delivery or transfer, made by any foreign source of :- a) currency, whether Indian or foreign b) article value of Rs.1000/- or more Means the donation, delivery or transfer, made by any foreign source of :- a) currency, whether Indian or foreign b) article value of Rs.1000/- or more Next Previous “FOREIGN CONTRIBUTION”

“FOREIGN SOURCE” includes : a) government of any foreign country or territory b) international agency c) foreign company d) citizen of a foreign country e) some of the sources appear to be foreign but are exempted from the definition of foreign source, e.g. Agencies of the from the definition of foreign source, e.g. Agencies of the United Nations, World Bank and some other International United Nations, World Bank and some other International agencies/multilateral organisations agencies/multilateral organisations [for the exempted agencies/ organisations list please refer [for the exempted agencies/ organisations list please refer website website Next Previous

IMPORTANT INDICATORS a) Source is important and not the currency. b) Contribution from NRI through normal banking channels are not foreign contribution. However it is advisable to obtain the foreign contribution. However it is advisable to obtain the passport details to establish that the person sending the passport details to establish that the person sending the remittance is an Indian citizen. remittance is an Indian citizen. c) Foreign citizen making donation in Indian currency is covered under foreign sources. under foreign sources. Next Previous

WHO CAN RECEIVE FOREIGN CONTRIBUTION? An association having a definite cultural, economic, educational, religious or social programme can receive foreign contribution after it a) obtains the prior permission of the Central Government or, or, b) gets itself registered with the Central Government. Next Previous

OPERATIONAL ISSUES B) BOOKS OF ACCOUNTS : a) As per Rule 8 a separate set of books of account and a) As per Rule 8 a separate set of books of account and records should be maintained exclusively for foreign records should be maintained exclusively for foreign contribution received and utilized. contribution received and utilized. b) The books of account should include Cash Book, b) The books of account should include Cash Book, Ledger on cash system. Ledger on cash system. c) If foreign contribution relates to any article it should c) If foreign contribution relates to any article it should be recorded in Form FC-6. be recorded in Form FC-6. d) Accounts should be maintained on yearly basis d) Accounts should be maintained on yearly basis commencing on the 1st day of April. commencing on the 1st day of April. Next Previous

OPERATIONAL ISSUES A) BANK ACCOUNT : a) All foreign contribution should be received through designated bank account. a) All foreign contribution should be received through designated bank account. b) Use of multiple bank accounts is legally prohibited so b) Use of multiple bank accounts is legally prohibited so far as receive of foreign contribution is concern. far as receive of foreign contribution is concern. c) Use of multiple bank accounts for the purpose of c) Use of multiple bank accounts for the purpose of utilization though is also prohibited but practically utilization though is also prohibited but practically these are being maintained. these are being maintained. d) However in such cases the operational bank account d) However in such cases the operational bank account maintained should be used only for foreign maintained should be used only for foreign contribution and no local fund should be mixed. contribution and no local fund should be mixed. Next Previous

SUBMISSION OF ANNUAL RETURN 1. As per Rule 4 yearly return in Form FC-3 has to be submitted by every organisation registered under FCRA submitted by every organisation registered under FCRA either permanent or under prior permission. either permanent or under prior permission. 2. FC-3 should be accompanied by Balance Sheet and Statement of Receipt & Payment A/c in relation to Statement of Receipt & Payment A/c in relation to foreign fund and the certificate in a specified format foreign fund and the certificate in a specified format duly certified by a Chartered Accountant. duly certified by a Chartered Accountant. 3. The return should be furnished in a duplicate to the Secretary, Government of India, Ministry of Home Secretary, Government of India, Ministry of Home Affairs, New Delhi. Affairs, New Delhi. Next Previous

SUBMISSION OF ANNUAL RETURN 4. The e-filing of FC-3 is optional but it is recommended to e-file the returns wherever possible. e-file the returns wherever possible. 5. Whenever e-filing is made the physical form should also be filed. be filed. 6. In case no contribution is received, a Nil return has to be submitted. be submitted. 7. The return needs to be filed within 9 months from the end of the financial year (as per the amended provision in of the financial year (as per the amended provision in Rule 4) ? Rule 8 Rule 4) ? Rule 8 Next Previous

OTHER OPERATIONAL ISSUES a) Transfer of FC Grant to other organizations. a) Transfer of FC Grant to other organizations. b) Meaning of First Recipient and subsequent recipient. b) Meaning of First Recipient and subsequent recipient. c) Internal billing to FC project doesn’t change the c) Internal billing to FC project doesn’t change the character of the fund. character of the fund. Next Previous

CHANGE & MODIFICATION TO BE REPORTED TO FOREIGN CONTRIBUTION AUTHORITIES A) AS REGARDS BANK ACCOUNT : a) Change in Account No.; b) Change of Bank; c) Change in the Bank Signatory. B) Change in name and address of the organization. C) Change in the composition of Governing Body. Next Previous

CHANGE & MODIFICATION TO BE REPORTED TO FOREIGN CONTRIBUTION AUTHORITIES A) AS REGARDS BANK ACCOUNT a) Change of Account No. a) Change of Account No. 1. Normally bank account numbers are changed 1. Normally bank account numbers are changed because of computerization. because of computerization. 2. In such cases it is advisable to inform FC 2. In such cases it is advisable to inform FC authorities about such change and the new authorities about such change and the new number may use for future reporting. number may use for future reporting. Next Previous

CHANGE & MODIFICATION TO BE REPORTED TO FOREIGN CONTRIBUTION AUTHORITIES A) AS REGARDS BANK ACCOUNT b) Change of Bank : b) Change of Bank : 1. Bank account only changed with prior permission of the 1. Bank account only changed with prior permission of the Home Ministry. Home Ministry. 2. After receiving the permission the entire balance from the 2. After receiving the permission the entire balance from the whole registered bank account should be transferred to the whole registered bank account should be transferred to the new account. new account. 3. Though it is not compulsory to close the old bank account 3. Though it is not compulsory to close the old bank account but it is advisable to close the old account in order to but it is advisable to close the old account in order to safeguard from any mistake being committed. safeguard from any mistake being committed. c) Change In The Bank Signatory : Change in the bank signatory is a routine procedure of the Change in the bank signatory is a routine procedure of the organisation and therefore it is need not require to inform to the organisation and therefore it is need not require to inform to the FC authority. FC authority. Next Previous

CHANGE & MODIFICATION TO BE REPORTED TO FOREIGN CONTRIBUTION AUTHORITIES B) POSSIBLE CHANGE IN THE NAME & ADDRESS OF THE INSTITUTION : INSTITUTION : The necessary information should be given to ministry for The necessary information should be given to ministry for change in name, address, etc. change in name, address, etc. C) FOR CHANGE IN THE COMPOSITION OF GOVERNING BODY : I) If the organization is registered after 17/12/1996 : I) If the organization is registered after 17/12/1996 : prior permission needs to be taken for bringing any change prior permission needs to be taken for bringing any change for more than 50% of the officer bearer. for more than 50% of the officer bearer. II) In any other cases no need to take prior permission. II) In any other cases no need to take prior permission. Information may be given. Information may be given. Next Previous

INCOME TAX ACT, 1961 Go

Taxation of Charitable Organizations Taxation of Charitable Organizations 1. Taxation in relation to charitable trust can be considered from two angles. two angles. 2. The first angle is the taxability of the institution which under- takes the charitable activities. takes the charitable activities. 3. The second angle is the available deductions to the person who is contributing finance to the institution as a donation. is contributing finance to the institution as a donation. 4. To more specific - Income Tax NGO Donor NGO Donor Section 10(23C) Section 80G Section 10(23C) Section 80G Section 11 Section 35AC Section 11 Section 35AC Section 80GGA Section 80GGA Previous Next

For Claiming Exemption u/s.11 Registration under Section 12A Registration under Section 12A Shall be eligible for registration only for the Financial Year in which the application is made. Constitution The constitutions should be in consistence with the regulatory provisions under the Income tax Act, Next Previous

Utilization 1. Has to apply 85% of the total income and only 15% of the income can be accumulated. 2. If the amount of utilization is less than 85%, the two options are available : a) Option 1 – Allows spending the deficit amount in subsequent year. a) Option 1 – Allows spending the deficit amount in subsequent year. b) Option 2 – Allows accumulating deficit amount upto the period of five years for a specific purpose. b) Option 2 – Allows accumulating deficit amount upto the period of five years for a specific purpose. Next Previous

Utilization To exercise these options, the organization needs to inform to the assessing officer before the expiry of time allotted for filing of the income tax return. To exercise these options, the organization needs to inform to the assessing officer before the expiry of time allotted for filing of the income tax return. Though the information for applying option No. 1can be given by way of a simple letter but the information for availing option No. 2 has to be exercised by way of Form No.10. Though the information for applying option No. 1can be given by way of a simple letter but the information for availing option No. 2 has to be exercised by way of Form No The grant of other organisations will be considered application only if the other organizations are registered as charitable organisation. Next Previous

Audit If the income (before exemption u/s. 11 & 12) exceeds the maximum amount not chargeable to tax, the account needs to be audited If the income (before exemption u/s. 11 & 12) exceeds the maximum amount not chargeable to tax, the account needs to be audited and the audit report in specified format needs to be obtained. Investment of Surplus Fund Surplus fund cannot be invested in any mode which are not specified u/s. 11(5) of the Income Tax Act, Filing of Income Tax Returns Income tax returns on year-to-year basis needs to be filed within The due dates. Next Previous

ANONYMOUS DONATION If an organisation doesn’t maintain the record of : a)the identify indicating the name and address of person making such contribution and b)such other records as may be prescribed then the amount received shall be defined as anonymous then the amount received shall be defined as anonymous donation and would taxable from the Assessment Year donation and would taxable from the Assessment Year 30% (+ surcharge + education cess) [u/s. 30% (+ surcharge + education cess) [u/s. 115BBC(3)]. However the above provision shall not apply to i) institution created or established wholly for religious purpose; ii) Upto 5% of the total income or Rs.1 lac whichever is more (with effect from ) (with effect from ) Next Previous

BUSINESS LIKE ACTIVITY Charitable purpose includes : a) Relief to the Poors a) Relief to the Poors b) Education b) Education c) Medical Relief c) Medical Relief d) Advancement of any other object of general public utility d) Advancement of any other object of general public utility e) Relief of the poor; e) Relief of the poor; f) Education; f) Education; g) Medical Relief; g) Medical Relief; h) Preservation of environment (including watersheds, forests and wild life); h) Preservation of environment (including watersheds, forests and wild life); i) Preservation of monuments or places or objects of artistic interest; i) Preservation of monuments or places or objects of artistic interest; j) Preservation of monuments or places or objects of historic interest ; and j) Preservation of monuments or places or objects of historic interest ; and k) The advancement of any other object of general public utility k) The advancement of any other object of general public utility The amendment provides that if the activity falls under limb K and a) It involves carrying on of any activity in the nature of trade, commerce or business or commerce or business or b) Any activity of rendering any service in relation to trade, commerce or business commerce or business Next Previous

BUSINESS LIKE ACTIVITY For a cess or fee or any other consideration, irrespective of the nature of use or application or retention, of the income from the said activity. The same will not be regarded as advancement of any object of general public utility. NO APPLICABILTY IF THE TOTAL RECEIPT IN A FINANCIAL YEAR DOES NOT EXCEED RS. 10 LACS. Next Previous

OTHERS OTHERS Approval u/s. 80G shall remain in force in perpetuity effective from and no need for renewal. SEPARATE BOOKS OF ACCOUNTS TDS PROVISIONS TO BE COMPLIED WITH Next Previous

WITHDRAWAL OF EXEMPTION Exemption granted vide Section 11 & 12 shall be withdrawn if :- a) the income is applied for the benefit of any particular religious community other than SC/STT/Backward Classes; other than SC/STT/Backward Classes; b) the income of the organization is applied for the benefit of certain specified interested person. specified interested person. c) the funds are invested other than the mode as specified under section 11(5) of the Act. 11(5) of the Act. Next Previous

The End Previous TIME FOR DISCUSSION

Next Previous THANK YOU